How to Compete on Price: A New Twist on the Psychology of Pricing

fan of 100 U.S. dollar banknotes - compete on price

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Are you trying to compete on price? Forget about it, there’s a better way.

I just read this piece in the Harvard Business Review saying businesses should focus more on the mind games of pricing. But honestly, I think they’re missing a big piece of the puzzle. They’re assuming you’ve already got an awesome product or service, and all you need is a slick pricing strategy to make it sell.

Here’s my take: it’s time to step back and really look at what we’re selling. Are we delivering top-notch quality, reliability, and real value? That’s where our focus should be.

We need to make sure our prices don’t just lure customers in, but actually back up a product they’ll love. It’s not just about making it easy for folks to buy; it’s about making them glad they did. Let’s talk about flipping the script and putting real value front and center.

Breaking the Price Barrier: Why Every Dollar Counts

green plant in clear glass vase - compete on price — Photo by micheile henderson on Unsplash

I always say that if people are complaining about your price, they don’t know why they should choose you.

Let’s face facts, price is a critical factor, especially when your customers are balancing their checkbooks against their desires. We’re talking about a world where people weigh the value of every purchase against essential life needs. This isn’t just about affordability; it’s about making hard choices.

So, if you’re trying to compete on price, the solution isn’t in playing fancy games with pricing strategy, it’s something much more fundamental.

Trust or Bust: The New Currency in Town

Sure, having enough cash to make a purchase is one thing, but there’s a bigger player in this game: trust. It’s about the confidence that your hard-earned money will bring the results you’re looking for.

In a world where you’re bombarded with choices, trying to compete on price often becomes a secondary concern. Let’s face it, out of the myriad options available, less than 1% truly live up to their hype.

So, the real deal-breaker isn’t just about price tags; it’s whether your product or service can fulfill its promises. With a backdrop of broken promises and unmet expectations, each buying decision for consumers feels like rolling the dice. Are they willing to wager their money on uncertainty? More often than not, they’re not ready to take that risk.

Pricing Strategies: Ditch the Psychology

Let’s dive into that Harvard Business Review article. This article is outlining 6 popular pricing strategies. And these are all valid. What I think they fail to acknowledge is that psychological tricks aren’t going to guarantee conversions.

Let me say this another way – I don’t think psychological pricing tricks can overcome product or service quality and customer experience.

You buyers are cautious – heck they are PISSED! Think the constant shrinkflation, think about prices constantly going up without commensurate increases in value.

For some reasons everyone things they can just charge more for nothing. This isn’t going to work anymore.

Having said that, let’s take a look at these pricing strategies from a practical point of view.

When and How to Use These Pricing Strategies to Compete on Price

Silver Iphone 6 on White Printer Paper - competing on price — Photo by Leeloo The First on Pexels

Here are the 6 pricing strategies outline in the Harvard article. Again, before you just choose one of these, think about your buyer and what they want from your product or service.

Don’t overstate your features or benefits. Aim to underpromise and overdeliver. Instead of just throwing features out there because they sound good, actually dig deep and look at ways that you can give your customers guaranteed results, faster results, less effort on their part.

Tiered Pricing: The Buffet of Choices

When to Use: Ideal for services with varying levels of features or products with different quality tiers. Think streaming services or software packages.

When Not To: Avoid if it complicates the customer’s decision-making process or if your product doesn’t naturally lend itself to tiering.

Tiered pricing is like a buffet – offering something for everyone. It’s a strategy that shines in situations where customization and choice are key. Netflix does this brilliantly, with options ranging from basic to premium, catering to different appetites and wallets.

Don’t get me started on streaming services. Netflix has created these tiers and given their customers the option of paying “less” (what they were paying a few years ago) only with commercials.

People are PISSED.

@poojsvarietyhr Netflix ads tier is not great #youngroyalsnetflix #netflix #netflixmovies #netflixshows #wednesdaynetflix #sandmannetflix #GenshinImpact32 ♬ Psycho Killer – Talking Heads

The NFL is guilty of this as well. They’ve had games on Amazon Prime and literally gated content so that even local teams can’t see their team play during the regular season unless they are Amazon Prime customers.

Not Good.

The idea behind tiered pricing is to bring customers who couldn’t afford your product or service into the fold. You can offer less, but don’t cannibalize your core offer and what your brand is known for.

Netflix has broken two important elements of their brand promise – account sharing (which was their core competitive advantage) and they’ve added a lower cost option that includes commercials.

They are trying to get new users, but they are also degrading the experience for their loyal customers.

BOGO: The Oldie but Goodie

When to Use: Great for inventory clearance, seasonal promotions, or attracting deal hunters.

When Not To: Steer clear if it devalues your primary product or if the deal seems too good to be true, which can raise suspicion.

Buy One, Get One Free – this classic strategy has made a comeback, and why not? It’s perfect for inventory clearance and catching the eye of the bargain hunter. But remember, the value of the primary product is crucial. Don’t let the deal overshadow the quality.

Discounts and Anchors: Use with Caution

When to Use: Effective during limited-time sales events or when introducing new customers to your brand.

When Not To: Risky if used too frequently, as it can set unrealistic pricing expectations and diminish perceived value.

Here’s a tricky one. Setting a higher base price and then slashing it can reel in customers, but it’s a double-edged sword. Use it wisely, ideally in scenarios like seasonal sales, where the discount feels like a special event, not a daily deception.

The 2023 Black Friday season is a terrific example of this strategy FAIL.

TikTok had a series of videos of consumers going to Target and sharing that the Black Friday price was no different (and sometimes higher) than they were previously.

@red_pump17 Retailers and their fake Black Friday deals…. Continue the boycott.##fypシ゚viral##❤️🖤🤍💚##fyp ♬ original sound – 10 Toes Down Wit Palestine🇵🇸

Charm Pricing: Subtle Yet Effective But Only Sometimes

When to Use: Apply for small-scale retail items or price-sensitive products where a slight difference can influence decision-making.

When Not To: Avoid if your brand positions itself as high-end or if rounding up would simplify pricing without impacting perception.

That 99-cent trick? It’s everywhere, and for a good reason. It nudges the customer’s decision-making subtly. It’s not about deceiving; it’s about making the price more palatable, more… charming.

The latest research, however, is saying that this isn’t a silver bullet. So while this is certainly a pricing strategy, it isn’t all it’s cracked up to be.

Subscriptions: The Gentle Long-Term Embrace

When to Use: Best for services requiring regular use or long-term engagement, like software or fitness memberships.

When Not To: Not ideal for one-time use products or if it locks customers into long-term commitments without sufficient value.

Subscriptions are the modern-day layaway plan. They make large payments feel like a gentle hug rather than a bear squeeze. Ideal for services where you want to hold onto your customers for the long haul.

But here’s the deal. There are so many people running a subscription model, that you’d better make sure that your offer is subscription worthy. Otherwise, you’re going to find yourself with a lot of turnover.

Bundling: Creating Irresistible Packages

When to Use: Effective when you have complementary products or services that together enhance overall value.

When Not To: Not advisable if the bundled items don’t logically fit together or if one item significantly outshines the others, making the bundle seem unbalanced.

Bundling is like the combo meal of the business world – offering a complete package that’s hard to resist. It’s about wrapping up related products or services with a neat bow and a single price tag. This approach not only boosts perceived value but also serves up a taste of your diverse offerings. Perfect for when you want to give customers a fuller experience, introducing them to products they might not have explored on their own. Ideal for businesses looking to provide a comprehensive solution while enhancing the overall customer journey.

Underpromising and Overdelivering: The New Sexy in Business

Honest Value Over Market Gimmicks

This is where we get real. It’s time to strip away the fancy packaging and focus on delivering something that genuinely wows your customers. It’s about being the tortoise in a race filled with hares – slow, steady, and reliable wins the race.

Building a Fortress of Trust

Transparency is your new best friend. Be open about your costs, your process, and why your product is priced the way it is. Build trust brick by brick – it’s the foundation of long-term customer relationships.

Success Reimagined: Satisfaction Over Sales

Here’s a radical thought: let’s measure success by customer satisfaction, not just sales figures. It’s about creating a tribe of loyal followers who don’t just buy your product but believe in it.

Practical Tips for Navigating the New Landscape

In a market where trying to compete on price can often feel like a race to the bottom, it’s crucial to shift gears and focus on what truly sets you apart. Let’s dive into some practical tips that will not only help you stand out but also ensure you’re delivering real value to your customers.

Listening to the Voice of the Customer

Involve your customers in your product development. Their feedback is the compass that guides your journey towards a product that not only meets but exceeds expectations.

Marketing with a Heart

Develop marketing strategies that reflect the real benefits of your product. No fluff, no puff – just pure, unadulterated value.

Customer Service: The Unsung Hero

Never underestimate the power of stellar customer service. It’s the safety net that catches and addresses any customer concerns, reinforcing your brand’s value promise.