This week I have an essential question for you.
Is $4000 a more attractive price than $3999?
Which do you think converts to the most value 99, 97 or .95?
I get this question all the time, and the solution is based on what's known as "charm pricing" or the "left digit principle."
Charm pricing and the left digit principle are two essential tools you can add to your pricing strategy.
Charm pricing involves pricing that ends with .95, .97, or .99, and is often what you see at discount stores like Walmart, Target, or your local fast-food restaurant.
Think about it, when was the last time you saw the list or base price of a product at a high-end retail establishment that ended in .95, .97, or .99?
Not very often, and if you look at high-end products like Apple, Louis Vuitton, and Ruth Chris, you will see most of their prices end in zeros..........at least most of the time.
Whether these retailers are on the high end of the pricing spectrum or the discount end of the pricing spectrum, they all rely upon a simple principle called the "left digit principle" and you can too in your consulting freelance business.
The left digit principle is best explained by looking at a study done in 2005 by Manoj Thomas and Vicki Morwitz in which they came to the following conclusion:
"Nine-ending prices will be perceived to be smaller than a price one cent or one dollar higher if the left-most digit changes to a lower level but not if the left-most digit remains unchanged."
In other words, we prefer to use the left digit only when there are different options, and the prices are different.
Here's one way I would work the left digit principle into your pricing:
Let's say you have an online course for $399 and want to "entice" sales by offering it on sale for $299.
In this case, it's actually better to offer the course for $400 and then have it on sale for $299.
This is because the difference between the "2" and the "4" in a quick calculation seems or is perceived as much better value (i.e., $200) than the difference between the "2" and the "3" in $399 to $299 (i.e., $100).
This is why it's not only essential to understand charm pricing and the left digit principle, but how to use it in your pricing effectively.
In this case, it's more effective for you to use it with your sale price and not your full-priced services because it allows you to convey the difference between the original and sale price in a way that emphasized more value.
Learning theses principle's is just one step of the equation that can help produce an increase in profit and value for you.
I also suggest that simple is always better that the complex. let's say you have a high ticket offer for $9000.
Whether it's on an email, a proposal sheet, or your web page, you should keep things simple.
For example, here are the different ways that you could potently list this price:
You see this all the time in the higher end or more elegant restaurants. Check it out next time you are out at a nice restaurant.
You will likely see no decimals or commas in their pricing. Try this out on your next high ticket consulting engagements, so you don't overwhelm your clients with the complex.
So how about it? Are you going to experiment with a price endings for your next product or proposal?
I challenge you to incorporate charm pricing and the left digit principle into your next product offering or proposal.
In this episode, I talk to you about:
Manoj, T. and Morwitz, V. (2005). Penny Wise and Pound Foolish: The Left Digit Effect in Price Cognition. Journal of Consumer Research, 32. 54-64.