Product Pricing: Do It Right! | Chris Malta's EBiz Insider Podcast

Chris Malta's EBiz Insider Podcast

Ever wonder why so much product pricing ends in 95 or 99 cents? Those are known as “charm prices”. They use what we call the “Left Digit Effect” to apply retail psychology to product pricing.

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EPISODE TRANSCRIPT

Product Pricing: Do It Right

When I teach ECommerce, product pricing is always required learning. People have such horribly skewed notions about product pricing that it's always an eye-opener for them.

Before we get into it, it's very important to understand that if we’re going to talk about product pricing, we need to talk about WHERE you sell online.

The worst thing you can possibly do to ANY small retail business is to put it squarely in the path of a crazed, charging herd of the most bargain-hunting consumers on the planet.

A small home-based EBiz simply can’t compete in a serious bargain-hunting situation. It doesn’t yet have the buying power that the much bigger companies do. That means that the home-based EBiz pays a higher wholesale price per product and can’t make any profit when competing on price in front of consumers who are specifically bargain-hunting.

This is why it’s so difficult for a small EBiz to succeed on eBay and Amazon. Over the past several years, these huge bargain-shopping venues have become favorite hangouts for large wholesale and manufacturing companies who sell directly on eBay and Amazon, often under anonymous seller names.

They can undercut any small business on price. They thrive in price-driven destination sites like eBay and Amazon, and that leaves you out in the cold. If you’re not making at least a 20% to 45% profit on your sales, you’re not going to make a living at it.

So where should you be selling?

The best place for a home-based EBiz is, always has been and always will be on it’s own web site.

Why? Because your best customers are those who are searching for what they REALLY WANT, not for the lowest possible product pricing. When consumers are bargain hunting, they tend to go DIRECTLY to eBay, Amazon, Walmart.com, etc. However, when they search for what they REALLY WANT, they go to Google.

Far, far more consumers search for products on Google than on eBay, Amazon and Walmart.com COMBINED.

Consumers who search on exactly what they really want are doing what’s called “Discretionary Purchasing”. When people are buying on a Discretionary basis, they aren’t nearly as concerned about product pricing as they are about quality and getting exactly what they want.

THAT is the sweet spot for retail businesses either online or offline. Discretionary consumers far outnumber bargain-hunting consumers, and they will pay a reasonable retail price to get what they want. For a small business, that translates directly to reasonable profits.

I know, I know; you might be selling on eBay or Amazon. However, all that had to be said in order to talk about product pricing. The rest of this discussion pertains to ANY place that you’re going to set a retail price.

1. THE PSYCHOLOGY OF PRICING

Ever wonder why so much product pricing ends in 95 or 99 cents? Those are known as “charm prices”. They use what we call the “Left Digit Effect” to apply retail psychology to product pricing.

That effect is the fact that a nickel, or even a single penny will have an effect on a retail buyer that is HUGELY disproportionate to the actual money value in the price.

Most people who sell online tend to use the Left Digit Effect without really understanding why, because we’re all exposed to it on a daily basis in our own lives. However, many also ‘mix and match’ product pricing, and doing that throws off the consumer.

Consistency is the most important thing when it comes to the Left Digit Effect. Either always use it, or never use it. Either always use 95 or always use 99. I’ve consulted for an amazing number of EBiz sites that use 95, 99, 00, 50, 67, 97 and so on as Left Digits in their product pricing ALL on the same site!

Psychology is an amazingly important aspect of retail sales. When consumers see a mix of Left Digit pricing, it throws them off. They feel like something isn’t right, but they don’t know what it is.

Any time a consumer feels like something isn’t right on your retail EBiz pages, your chances of making a sale drop tremendously. 99 and 95 are the most commonly used Left Digit Effect numbers, and you should stick to them but never mix and match; either always 99 or always 95.

2. SALE PRICES – THE EXCEPTION

Running a sale? Use 00 for your Left Digit Effect. Psychologically, the 00 doesn’t work well for normal everyday product pricing. It tends to make the prices look high to us.

However, when it’s used sparingly in an occasional Sale Price, it looks low.

That only works, though, when you use the Sale technique SPARINGLY. Many of the sites I’ve consulted for use the old, hackneyed technique of making everything on their pages a Sale price. You’ve seen that, right?

EBiz pages that list the ‘Regular’ price, cross it out and list the ‘Sale’ price below it, then list the ‘You Save’ amount below that. On ALL their product pricing.

Hey, maybe you’ve done that or even do it now; it’s very commonly used by those who simply have not been told any different. It’s no crime not to be aware of something. The crime is being aware of something that hurts your business and not fixing it!

The technique of making everything look like a Sale price no longer works. Online consumers are much sharper than they used to be, and view that technique as something designed to fool them. When people hit your product pages and think you’re trying to fool them, you’d have better success trying to sell baby shoes to a rock.

So use 00 as a Left Digit Effect for actual Sale prices, but run actual Sales sparingly and only on a few items at a time. You’ll have much better success with it.

3. HOW TO SET PRICES

Setting prices is all about research. I know; painful, right?

Hey, you know the old saying…no pain, no gain. That’s especially true for business owners.

Researching product pricing means that you need to find the exact same product being sold by 6 of your most annoying competitors. Why are they annoying? Well, because they’re competing with you! How annoying is that!

In reality, competition is a GOOD thing. It raises consumer awareness that a product exists, and brings more people into the marketplace to buy it. However, it does mean that you have to compete for those customers.

The biggest mistake that EBiz owners make here is in trying to UNDERCUT their competitors' product pricing. You don’t need to do that when you sell to Discretionary buyers. Selling is about providing your customer with what they need and want through proper presentation. If you can do that, price becomes secondary, especially to the Discretionary buyer.

Another point that’s important to make is that if you get into a price war with competing EBiz owners, that war only ends badly for both of you because it ends when there is no profit margin left in the product. Game over.

So, find 6 other web sites that sell the same EXACT product, add up their prices, and divide by 6. That gives you the average price of your competition, and that’s where you should be. Psychologically, a product that has a price that ‘blends in’ well with other prices in the product’s market shifts the consumers’ attention away from the price and toward the value and benefit statements you make in your on-page marketing.

If you have a web site, DO NOT use eBay, Amazon or Walmart.com to research competitive price points even if they do show up high in the search engines when you do your research. A well-marketed niche web site can beat eBay, Amazon and those big bargain stores in the search engines all day long if they know what they’re doing, and learning how to do that should be your goal as an EBiz owner.

Consumers who shop on a Discretionary basis mostly shop sites other than the bargain hunting destinations, and that’s where you should focus your product pricing research.

If you do all your research on eBay, Amazon, etc., the price competition results are only going to show you how little (if any) profit there is available there, and that’ll just give you a headache.

Genuinely sorry to say that if you’re an eBay or Amazon seller, because if you are you MUST do your research on eBay or Amazon. I hate to say it, but it’s the truth.

4. ZEROING IN ON EXACT PRICE

When it comes to actually setting the exact price for a product after you’ve done your research, it might be helpful to make a note of this site: PricePoints.com. That site lists commonly used retail price points from 0.00 all the way up to 10,000.

Use it as a guideline, though, not as hard-and-fast rules.

PricePoints.com is a good place to get ideas for your RIGHT DIGIT price numbers; the actual dollars in your price to the right of the decimal point. Look at the average product pricing you got from your research, then find the closest dollar value in PricePoints. That's likely going to be an effective dollar value for you.

However, if it’s too far off the average that you researched, disregard it and use your average.

Then, apply either 95 or 99 to ALL your price points for the Left Digit Effect, and you’re good to go. Remember to keep your product pricing consistent!

Note: some internet marketers make a big deal of the number 97 as a Left Digit Effect. That works much better for information sales than it does for physical product sales, so don’t get sucked into that idea when you sell physical products!

Learn more thoroughly amazing and incredibly important stuff. Check out my FREE EBiz Insider Video Series at ChrisMalta.com!