The Strange Psychology of Pricing - It's All SAVVY

The Strange Psychology of Pricing

Getting someone to book your service isn’t just about the value of what you have to offer. The price of the thing also plays an important role in determining whether we decide to part with our money . So why do people tend to be uncomfortable when they feel they’re getting something at too good of a deal? Well, the strange psychology of pricing: how companies can affect our buying and booking behaviour, looks into how businesses can do just that. Let’s take a look!

Understanding what influences us when we buy
Customers don’t always make decisions based on logic, but instead may be swayed by emotions. For example, how much are you willing to pay for something can depend on how it’s presented. In a famous experiment in 1968, two researchers walked around a New York City neighbourhood with two types of bottled water: one was regular tap water (priced at 10 cents), while another was identical except that it had been labelled LA FONTAINE (priced at 50 cents). The result? More than twice as many people were willing to buy the more expensive water! This is known as the branding effect – when consumers tend to associate higher pricing with higher quality.

Undervaluing our time
We tend to undervalue our time. If a friend asks you for help with something, are you more likely to offer your services if they tell you that it’s really important, or if they say it will only take five minutes? Most people are more inclined to help when time is precious. Even though time is always precious, whether we have hours or seconds left in our lives. Would you ask your hairdresser / lawyer / accountant or even your own employees to work for little or nothing, so why are people running service businesses often not counting their own time when setting their pricing?

Psychologically committed
According to science, we are generally poor judges of how much something is worth to us. That’s why we often get surprised by pricing changes. The good news is that you can use our own irrationality to your advantage. If a customer has been using your service for a while or has invested time in building up their relationship with you, they will be psychologically committed to coming back to you over and again (this is called pre-commitment bias).

This means they will be less likely to leave when prices increase or when a new salon or studio opens down the road. So if you want loyal customers who stick around through thick and thin, it might make sense to raise prices gradually over time so people don’t notice as much. Managing expectations that its normal for you to do this once a year at a specific time also limits that degree of surprise and shock!

Exclusivity increases perceived value
It sounds a little counterintuitive to say that having lots of choices can make us feel less satisfied. But it’s true. Deciding where to go for dinner can seem a lot easier if you know only one place is available. Sure, you have more options. But after all, your choice will be clearer in your mind, which means you’ll enjoy it more. This logic applies whether you’re choosing a restaurant or booking an appointment with your hair stylist or dog groomer. If there are no other appointments available when you call, you might find yourself saying yes faster than usual.

Fear of missing out (FOMO)
FOMO is a powerful marketing tactic that service industry companies are especially equipped to take advantage of. When a company has limited time slots or availability, we’re more likely to book right away. Meaning no chance to shop around for a better deal. Pre Christmas send to all’s from Savvy saying how you are booking into 2023 and spaces are limited are a great way of filling your diary!

Desire for value plays a role
We’re naturally uncomfortable with spending money, and we’re extra uneasy when it comes to parting with our hard-earned cash for a service industry company. That’s why restaurants, hotels, or other businesses that charge an arm and a leg are seen as greedy. Often that perception makes us even more uncomfortable about handing over our credit card information.

So what does it take to make us book? Studies show that pricing structures can be used to help consumers feel like they’re getting a good deal. For example, if you have two similar options at different prices (one £50/night and one £100/night). You might not think either is a great value. Something similar at £80 a night. You might think you are getting a great deal (compared to the £100 a night) when you thought £50 was a bit pricey 5 mins ago! This also feeds into the psychology of why people always go for a middle package. Given 3 options people naturally thing the middle option is the best value.

So the moral is always give your clients at least 3 choices and make sure the middle priced option is the one you actually plan to sell. A photographer that has 3 wedding packages Gold, Silver and Bronze will almost certainly sell more Silver packages. But this can work in all service industries, a groomer that has a basic no frills groom at £30, a full groom with perfume and nails at £50 or a Super Dooper with sparkles spa groom, with extra massages and facials at £70 will probably sell more £50 grooms (with the odd £70 thrown in for good measure). So use that psycology to your advantage!

Use a Savvy Website to set out your packages. Then try out our online booking or check in forms as perfect ways of easily upselling and generating more revenue. For more info on how to use these features, check out our webinars and how to videos in our support hub.