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 e commerce, product pricing is always required learning. People have such horribly skewed notions about product pricing that it's always an eye opener for them when 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 possible thing you can 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 reasonable profit when competing on price in front of consumers who are specifically bargain hunting.

This is why it's impossible 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 20 to 35% profit on your sales, you're not going to make a full time living at it. So where should you be selling?

The best place for a home based business is always, has been and always will be on its own website.

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 and 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 combined. Consumers who search for things they want rather than need are doing what's called discretionary purchasing. When people are buying on a discretionary basis, they're not as concerned about product pricing as they are about quality and getting exactly what they want.

So that's the sweet spot for retail businesses, either online or offline.

Again, discretionary consumers far outnumber bargain hunting consumers, and they'll buy faster and pay more to get what they want. For a small business that translates directly to great profits.

I know. You might already 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. So let's start with 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 "left digit effect" to apply retail psychology to product pricing.

That effect, is the effect that a nickel or even a single penny will create a change in retail buyer "perception" 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 their product pricing, and 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 cents. I've worked with an amazing number of eBiz site owners that were "mixing" those left digits in their pricing.

Psychology is incredibly important in 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 quite know what it is. Anytime a consumer feels like something isn't right on your retail eBiz pages, your chances of making a sale drop tremendously.

As I said, 99 and 95 are the most commonly used left digit effect numbers, and you should stick to them, but never mix and match. Always use 99 or always use 95 consistently.

Sale prices are the exception here. If you're running a sale, use zero zero for your left digit effect. Psychologically, the zero zero doesn't work well for normal, everyday product pricing. It tends to make the prices look too high to us.

However, when it's used sparingly in an occasional sale price, it looks low. That only works though, when you're using the sales technique sparingly. Many of the sites I've seen use the old Hackney technique of making everything on their pages a sale price.

I'm sure you've seen that. EBiz pages that list the regular price, cross it out and list the sale price below it, and then show you the savings below that.

Maybe you've done that yourself, or even do it now. It's a very commonly used technique by those who simply have not been told any different. It's no crime not to be aware of something. The crime is to be aware of it and not "fix" it.

The technique of making everything look like a sale price simply no longer works. Online consumers are paying much more attention than they used to, 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 zero zero 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.

Let's talk about how to set prices. Setting prices is all about research. That sounds painful, right? Well, 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 five or six of your most annoying competitors. Why are they annoying? Well, because they're competing with you. That's annoying, right?

In reality, though, 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 here is if you get into a price war with competing eBiz owners (which only happens on eBay and Amazon), that war only ends badly for both of you, because it ends when there's no profit margin left in the product. Game over.

So find six other websites that sell the exact same product, add up their prices and divide by six .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 your product's market shifts the consumer's attention away from the price and toward the value and benefit statements you make in your on-page marketing.

If you sell on your own website (which you really should), don't use eBay, Amazon or Walmart to research competitive price points, even if they do show up high in the search engines.

When you do your research and learn this business properly, a well marketed niche website can beat Amazon, eBay and those big bargain stores in the search engines all day long. Learning how to do that should be your goal as an eBiz owner.

So 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.

If you are already an Amazon or eBay seller, you "must" do your research on eBay or Amazon. Hate to say it, but that's the truth until you get away from those no-profit markets and sell on your own website.

Now we need to talk about zeroing in on exact price. When it comes to actually setting the exact price for a product after you've done your research. Might be helpful to make a note of this site. Pricepoints.com.

That site lists commonly used retail price points from zero dollars all the way up to ten thousand dollars. Use that as a guideline, though not as a hard and fast rule. Pricepoints.com is a good place to get ideas for your right digit price numbers; the actual dollar values in your prices 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.com. That's likely going to be an effective dollar value for you. However, if it's too far off the average that you research, just disregard it and use your own average. Then apply either 95 or 99 cents to all your price points for the left digit effect, and you're good to go. Remember to keep your product pricing consistent.

Okay, now let's just note that 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. It's an info sales thing, so don't get sucked into that idea when you sell physical products.

To learn MUCH more about selling online, check out my free EBiz Insider Video Series at ChrisMalta.com.