Everyone wants to make more money. That’s the reason why people are in business. Whether you’re selling a product or a service—you’ll have to put a price on what you’re selling at some point. It isn’t easy to price something. It’s where a lot of business owners get stuck and just add an arbitrary number on their product that just barely manage to make any profit. But did you know you can build a pricing strategy for your business that not only increases profits and also helps you sell more?
What Is Psychological Pricing Strategy?
Simply put it this way, it’s a strategic way to price your products or services to influence people when making a buying decision. It’s not clear as in how exactly psychological pricing came into use, but we do know that the practice came into use during the late 19th century with newspaper pricing competition. Companies big and small sometimes have teams dedicated to pricing products—and in some cases, a psychological pricing strategy is built in from the ground floor as part of their brand marketing. We have many examples as in where Psychological pricing when used gave massive success.
For this instance, we’ll take a look at how Apple has used pricing as a part of their overall marketing and product strategy to land them in the high-end hardware market. Most of you reading my blog, must be having atleast one Apple product once in your lifetime.
Pricing— the Apple Way
Apple has maintained a price point that stick around $1000 for practically their entire product line. And, even with that in mind, buyers will flock to every product release, making them perhaps the first company ever to be worth $1 trillion.
So what makes them so successful? How do they get away with it?
The only reason why they’re able to do it is that Apple always placed their pricing aggressively. It rewinds to the psychological phenomenon that if something is expensive, it must be good—we’ll get into that later.
This echoes the perceptions of Steve Jobs, whose strategy for Apple has four pillars:
1) Keeping less products on offering.
2) Focusing high end products only for consumers buying them.
3) Preferring profits over market share.
4) Creating an Aura making people crave for Apple products.
In this particular case (depending on who you talk to) that proves to be true—Apple products are pretty great. But the fact is that they’re merely selling laptops, phones, mp3 players and now watches. By the way, I absolutely admire Apple products, so I’m not trying to challenge their quality in any way.
Tim Cook (CEO) once said speaking with media, in regards to iPhone “We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience.”
And, with that in mind—it has paid off for them, extremely.
Apple rarely offers discounts on their products. The most you’ll see is generally a student discount, and even still, it’s usually only $100 or so off a $1000+ product.
That pricing strategy is applied across all retail locations, and even resellers. You just won’t find a brand new, unopened Apple product (besides on ecommerce websites like eBay, Amazon, Flipkart, Aliexpress or Snapdeal) for anything less than what they sell it for at their stores.Let’s take a closer look at some examples of Apple’s pricing strategy.
The Left Digit Effect
There’s a reason why businesses like Apple will price a laptop at $1299 or $1599 and not a flat $1300 or $1600. That $1 actually makes a surprising difference in the amount of sales that can be made.
Instead of charging $1300, charging $1299 for the product makes the price appear to be in the “$1200” range rather than the “$1300” range.
Thus, as a consumer—we perceive the price to be lower than it actually is. We think of it as a bargain at that price. Many studies have shown that generally, consumers prefer to pay less for products and often associate prices ending in a nine with discounts and bargains.
This works because of something called the left-digit-effect. The majority of people read left to right. Apple incorporates this into the entirety of their product line.
You won’t find an Apple product selling for a round number—they’ll always be priced with the “teen ranges” or “$999” model in mind. Smart, strategic—and definitely on purpose.
Comparison Pricing—a Clever Pricing Tactic
Comparison pricing isn’t just another word for marking items down to compare one price to another, no—it’s a marketing technique in which the price of one offer is directly contrasted with the price of another offer.
Here’s an example of what that might look like from Apple’s position:
Apple is selling two MacBook Pros. One is $1099 for a 13” MacBook Pro, and the other is $1299 for a 13” with Retina Display. Therefore, the 13” with Retina Display option is $100 more, which means we presume it to be better quality. And, in most cases it usually is.
If It’s Expensive, It Must Be Good!
If that doesn’t sum up the Apple pricing strategy, I don’t know what does.
Think back a few years ago when you saw friends and family using Apple products. Chances are you thought they were crazy for spending so much money on something like a laptop or desktop computer—but now it seems like everyone is using a Macbook. There’s a reason behind that too—and it isn’t just Apple’s marketing strategies.
When you are paying more for something, you appreciate it more. Now—when you compare a $17,000 Apple Watch to another smartwatch product like the $99 Pebble Smartwatch (I realize these products are vastly different in terms of design, but they serve the same purpose), the Apple Watch must be brilliant. Right?
After all, if it were not extraordinarily better they wouldn’t charge so much for it, would they? Consumers usually equate price with quality.
It would be amazing if you share your thoughts on Psychological Pricing in comments section. Your suggestions and comments on the blog are most welcome. Thanks for Reading.
Published by: Dr.Mihir Brahme (215044335)
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‘Digging Into Apple’s Pricing Strategy [Case Study] – Psychological Pricing’ 2013, accessed May 2, 2016, from <http://www.psychologicalpricing.net/digging-apples-pricing-strategy-case-study/>.
Ray, RH 1951, ‘Competition in the Newspaper Industry’, Journal of Marketing, vol. 15, no. 4, pp. 444-56.
‘The Psychology of Pricing: A Gigantic List of Strategies’ 2015, accessed May 2, 2016, from <http://www.nickkolenda.com/psychological-pricing-strategies/>.
‘What Is Psychological Pricing?’ 2016, accessed May 2, 2016, from <http://smallbusiness.chron.com/psychological-pricing-11862.html>.