George, Do You Know What Are Mental Price Barriers?

Hi George,

Daniel Scocco here, and this is the Daily Blog Tips newsletter.

Human beings tend to have very clear patterns when analyzing things
(not necessarily rational patterns), and the price of products and
services is no exception.

The first pattern is that we tend to group prices according to the
number of digits left of the dot. For instance, both $6.50 and
$8.50 have 1 digit left of the dot, while $25.70 has two. As a
result the first two prices would be considered similar and put in
the same mental group, while the third would fall on a separate
group.

This means that a potential customer would have a similar reaction
whether your product costs $6.90 or $9.90. In other words, he would
be equally willing to make the purchase in either case, which means
that you should price your product at $9.90 if you want to maximize
your profits over the long term.

Obviously you need to take this rule with a grain of salt. $19.50
and $90.50 have the same number of digits left of the dot, but
consumers wouldn't put those price tags in the same mental group.
The problem here is that we have crossed different mental price
barriers.

As far as Internet marketing is considered, the most common mental
price barriers are:

-$10
-$20
-$50
-$100

If two price tags are below a certain barrier the consumer will
probably have a similar reaction to both. For instance, $14.50 and
$19.70 are both below the $20 barrier, so the prices would trigger
a very similar on the mind of consumers. Same is true for $28.90
and $39.90, or for $79.90 and $97.70.

Let's use some numbers to illustrate the points.

Suppose that you sell an ebook for $16.90, and your current
conversion rate is 1.2% (that is, out of 100 visitors coming to
your landing page, 1.2 will make a purchase). Now suppose that you
have 10,000 monthly visitors coming to the page where you sell the
ebook, so that translates into 120 purchases per month
(10000*0.012) and $2028 in monthly profits.

As I mentioned before most people put $16.90 and $19.90 on the same
mental group, so if we increased the price to $19.90 the conversion
rate shouldn't fall that much. Let's assume it would fall to 1.1%.

Now every month we would have 110 purchases, as compared to 120
with the old price tag. However the price is higher, and so are the
profits: 110*19.9 = $2189. As you can see by getting closer to the
mental barrier we managed to maximize the profits, despite selling
slightly fewer units.

The rule of thumb: price your products just below one of the common
mental price barriers.

Talk to you next week,
Daniel Scocco
http://www.dailyblogtips.com

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2972 Columbia St. Suite # 8161 - Torrance, CA 90503 - US

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