The proper amalgamation of the right pricing strategy and a product-market fit sets the strong foundation to add value to the market and drive conversions and revenue from it. Even though you’ve decided on your pricing model, there’s always room for improvement. That’s where psychological pricing hacks will come into play, tweaking and optimizing your pricing models.
Psychological pricing, a strategy initially used by retailers to drive sales, has now found its way into the SaaS market as it taps on our ability to perceive quality, cost, and value. SaaS companies should especially take a keen interest in the psychology of pricing and understand how they should make effective pricing plans.
In fact, many SaaS companies have started implementing these hacks to appear more appealing to consumers, thus leaving a positive impact on their buying intent. Here’s a list of 5 psychological pricing hacks that can help SaaS companies boost conversions:
If used strategically, these hacks are bound to boost conversion rates and increase your overall revenue. Let’s get into it!
Price is something that is always assessed with reference to some standard, for SaaS companies this standard can be the pricing of your competitors. So how does the concept of price anchoring work? When you buy a new watch, for instance, you compare the price with other watches available in the market and then compare similar pieces in the shop next door as well. Price Anchoring increases a customer’s willingness to spend out of his pocket by leveraging the above-discussed concept.
To help you understand the concept of price anchoring better, let me paint a little picture for you. You walk into a watch store with a budget of $100 but soon you find yourself in the luxury watches section steered by the enthusiastic salesman looking at a Tag Heuer Monza worth $1,900. Although you know you won’t buy it so a few minutes later you find yourself with a $400 Tissot watch in hand. With the $1,900 price tag in your mind, paying $400 for a watch appears reasonable and minutes later you find yourself at the checkout counter paying a bill of $400.
So what just happened?
When you entered the store, you had fixed a price of $100 in your mind and obviously spending $400 would be a huge increase. But after the salesman’s maneuvering, your primary price reference became $1,900 compared to which $400 is just a meager amount.
How can you leverage this technique for your SaaS business?
Here’s an example of how Convert has implemented the Price Anchoring technique by placing its most expensive Pro Package on the left of the page, so the potential customers come across the expensive one first, and then the $599 package seems reasonable.
As is evident by its name, this is a tactic of offering your SaaS product for a specific price for a limited period of time, more like an introductory offer. It appears to be more tempting to the customers as they get an opportunity to use the product for a relatively lower price. Once users become accustomed to the greatness of your product they’ll promptly pay the full price when the trial period ends.
The best form is the $7 trial of Ahrefs, remember that this trial needs your customers to submit their credit card details. This might act as a barrier to sign-ups as customers might hesitate to share these details.
How can you leverage this tactic?
If you’re planning to keep a trial period, try to make it free as pricing during the trial period carries risks such as high-low pricing and discounting leading to lesser signups and lower conversion rates.
Product bundle pricing is when you offer several products under a single price tag. If you’ve several products that work independently yet their functions complement each other, then this pricing tactic is for you.
The bundle pricing offers each product at a price lesser than its individual price and is perceived to be a great way for simplifying the otherwise complex sales processes, especially when it comes to several apps under the same company banner with add-ons. The main disadvantage this tactic has is that customers might not feel it necessary to buy all the products in the bundle and at times will feel forced to do so.
Hubspot has mastered this pricing tactic as they allow their customers to steer their own ship by giving them the opportunity to customize their own bundle, apart from their own bundle versions.
How can you use this tactic for your product?
Instead of offering a range of inter-related products independently, consider offering them as a bundle as this will encourage the sale and simultaneously the use of more niche products, by selling them with popular products.
This pricing tactic is actually influenced by the unintentional psychological preference people have for items that are placed in the middle, subconsciously believing that the middle one is the most popular one with an average price, owing to the fact that it’s sandwiched between the 2 extremes.
It’s one of the most common tactics for SaaS and most pricing pages leverage this, just like Evernote. Their “Premium” plan is labeled as the most popular one and is also slightly offset from the others to further highlight it.
How can you use this pricing tactic?
Using visual callouts to drive focus to highlight the packages you want to be the popular ones, can work wonders.
This refers to the end of the product prices with the number 9. This psychological pricing hack is believed to work wonders because of the “Left Digit Effect” – according to which numbers are processed extremely quickly by our brain resulting in snap judgments about their values.
To elaborate, when we see a $300 product, the left digit – number 3 is latched to our brain creating a subconscious reference point of $300. But when we see a $299 product, because of this same effect our brain creates an (inaccurate) reference point of $200 consciously knowing all along that we aren’t buying a $200 product. It’s intriguing to know that the real-life results of this effect, according to the MIT’s study, a standard clothing item was tested at the prices of $34, $39, and $44 only to find that the $39 outsold identical items that were priced at $44 and $34 as well. Can you believe that?
IFTTT Platform has smartly incorporated this tactic:
The best way to incorporate any new tactic is to run an A/B test in order to monitor conversion rates for a monthly subscription (say $50), and a price ending in nine (say $49).
The aforementioned hacks are effective only in case you’re using a “price point that converts”. So, no matter how many hacks you implement on your website or landing pages to improve conversion rates, you need to ensure that your pricing is reasonable and that you’re using a well-researched pricing strategy, effective for your target audience, otherwise all your efforts will be in vain.
Rahul Chakraborty
