I came to know about this story when I read Robert Cialdini’s book, Influence. If you don’t read it, you should give up everything and get the book. This is a great marketing resource.
Anyway, the book begins with a case study of a Native American jewelry store in Arizona. The store owner was frustrated with her slow-moving turquoise jewelry. He had tried everything to sell them, including taking them to more prominent locations in his store, but nothing was working.
Eventually he decided to sell them at a huge discount.
She was going on a business trip, so she left a handwritten note to sell to her employee at ½ price.
However, the employee misjudged the number, and doubled the prices instead of stopping them. By the time the owner returned from his business trip, all the jewelry had been sold!
What just happened? Why did the product sell after rising prices? Does the discount usually not go on sale? Why are there so many questions in this article?
let’s find out!
Price = quality
We are terrible at valuing things. When we shop, we usually measure the value of a product by its price and the price of similar items.
In general, we associate price with quality. The higher the price of a product, the better the quality should be.
Think about your own daily expenditure. Is a $ 5 latte at Starbucks really 5 times better than a $ 1 coffee on 7/11? Probably not, yet we see more people walking around with the Starbucks Cup.
Another example of doubling the price to increase conversions is this time from the online world. An anonymous developer created a productivity app and sold it on his site for $ 9.99. He did a lot of outreach and received over 50,000 hits daily but the conversion rate was poor.
Eventually they decided to double the price. He felt that if he still sells the same number, he will earn at least twice as much.
Surprisingly, conversions increased tenfold! The product was similar, there was no additional press or marketing traffic, and yet more people were buying.
Because the market is rife with cheap, buggy people simply did not consider the $ 9.99 product as distinct. When they raised the price to $ 19.99, it suddenly became a premium app of high quality.
Now you may be wondering if this applies to your business. Maybe you sell to a price-sensitive market. In that case, doubling prices would reduce sales, wouldn’t it?
Well, let’s go to a case study that took place in 1978. There was a young couple, Mel and Patricia Ziegler, who wanted to make some quick money to complete their journey. He bought some old clothes from a thrift shop for $ 1.75 each, patched them up, and sold them to the flea market for 6.75.
A healthy profit of $ 5 per piece for so little work, but they only sold four. It is but natural to think that poor sales can be caused by price-sensitive audiences in a flea market. Also, this happened about 40 years ago and a small sum of $ 6.75 was not refunded.
However, instead of reducing the prices, Zieglers decided to double it to $ 13.50. And, guess what, they sold out! In fact, he made enough to open his own small clothing store.
Today that shop is known as Banana Republic.
So, should you suddenly double your prices? It is worth a test! If you are a freelancer or you sell services, double your rates. If you have a SaaS business, double the monthly fee and see what happens.
End with 9
When you see the prices ending with 9, you feel that there is no way that still works. Sure, $ 9.99 looks a lot cheaper than $ 10, but it’s only one percent.
It turns out that prices ending with 9 convert better than any other price, including, you guessed it, a lower price!
They found that the $ 39 item converted the best, and 30% more than the cheaper $ 34 item.
This is known as the ‘left digit effect’. Basically, because we read the number from the left, we ignore that last few digits. So both $ 34 and $ 39 are essentially $ 30 for us.
You can extend it even further and go all the way to $ 39.99. It’s $ 40 for all purposes, but we still don’t see it that way.