Determining the right price for your products can be confusing and if done incorrectly can lead to low sales. There are plenty of pricing strategies floating around. Today, I’m going to walk you through comparison pricing and how this strategy can guide your pricing.
Comparison pricing is used by contrasting the price of one product or service with another. The products or services are usually similar, and the higher-priced item is likely only marginally better than the lower priced item.
Comparison pricing in action
A study published in the Wall Street Journal reviewed how this strategy worked for Williams-Sonoma. Williams-Sonoma had a $275 bread maker for sale, but it wasn’t flying off the shelves.
Then, they introduced a similar bread maker for $429, which only had a slight improvement over the lower-priced bread maker. They placed the two bread makers next to each other in a print ad and the sales for the $275 bread maker almost doubled. Consumers felt like they were getting a deal because they were getting a similar product but keeping $154 in their pocket.
Comparison pricing can also help drive sales of higher priced items.
You’ve likely seen this in action the last time you ordered wine at a nice restaurant and wondered who is spending $250 for a bottle of wine, and the answer is likely not a lot of people. But that big price tag does a few things to your subconscious faster than you realize, it sets the tone that you are in a place that serves quality wine. It tells you that the people who run the place probably know their wine if they are confident enough to stock such a pricey bottle. And it tells you that the other wines on the list are a great deal in comparison. So instead of taking the default house wine, you are far more likely to purchase a mid-range wine, ie. the ones the restaurant is actually hoping you will buy.
Why does it work
Comparison pricing is the result of a cognitive bias called anchoring. This bias impacts the customer because they rely heavily on an initial piece of information offered (the anchor) when making decisions.
The idea is that customers perceive pricing relatively. A product is perceived as cheap or expensive in contrast to a price point of another item whose price they knew about first.
Where to start
If you plan on using comparison pricing in your shop, start small and test a couple of products to see how well they sell.
If you have a product that’s not selling as well as anticipated, place it next to a similar item that is much more expensive. This strategy can be applied in your physical store, in your online store, or in advertising.
For example, if you have a phone for sale at $1000, place it next to a similar phone that’s only slightly better and price it at $2500. Your customers will think they’re getting a deal with a $1000 phone.
After a couple of weeks, check-in and compare your sales. Have they improved? Stayed the same? Or have they declined? If needed, tweak your price comparisons until you find what works for you. You’ll become a pro in no time.
As a result of the cognitive bias anchoring, comparison pricing can be a powerful tool. In order to implement comparison pricing correctly, you need to think strategically about what price you want your anchor to be. That number will guide the customers shopping. Start small, track your sales, tweak as necessary, and your products will be flying off the shelves.