THE PSYCHOLOGY OF PRICING FOR MAKERS AND ARTISANS
3 Powerful Strategies You Can Use Immediately
It seems obvious that price is the amount of money people spend to buy something. Establishing the prices for your work has an immediate impact on the sustainability of your maker business.
For artisans, it is extremely important to get your pricing right. If prices are too low, you don’t make enough money. If they are too high, people won’t buy. Either way, your business loses.
What is often forgotten, however, is the psychology of pricing. Certain pricing strategies can affect how often a product sells, and for what price. This is backed by extensive and high quality consumer research.
STRATEGY 1: Price Anchoring
According to Priceintelligently.com, this approach refers to:
“The practice of establishing a price point which customers can refer to when making decisions. Every time you see a discount with ‘$100 $75’, the $100 is the price anchor for the $75 sales price.”
Another example that has been used for many years in marketing courses is about selling an expensive watch:
Question: “How to sell a $2,000 watch.”
Answer: “You place it beside a $10,000 watch.”
As a maker, you probably don’t sell $2000 watches. However, you can display some of your showpieces prominently and with a higher price (which would be justified because they are special). This makes your other products appear more affordable in the eyes of the shopper.
STRATEGY 2: CHARM PRICING
In charm pricing, also called “price-ending strategy”, the round number on the very left is reduced to an “odd” price, for example from $100 to $99.00.
Consumers tend to round to the next lowest monetary unit. Prices such as $99.00 are seen as spending $90 instead of $100. The shopper’s mind will default to seeing this as a significant saving, even though the actual difference is only $1.
This strategy is common in many areas of retail but is used less frequently in the handmade industry. Makers who don’t use the strategy place themselves at a disadvantage. It might seem trivial to go through the effort of adjusting your price tags. However, extensive research has shown that charm pricing works. Why leave money on the table?
STRATEGY 3: SCARCITY PRICING
This concept is another psychological pricing strategy used frequently in traditional retail. Like charm pricing, it is also very effective for increasing sales in the handmade industry. Scarcity pricing increases the perceived value and desirability of a product.
A well-known example is the Hermès Birkin Bag. Hermès makes the bag available at unpredictable time-periods and then offers only very limited quantities. This creates artificial scarcity and exclusivity, which in turn results in high demand whenever the bags become available. Other examples are “By Invitation Only” events or the limited access to airline VIP lounges.
Having or buying scarce items makes shoppers feel good about themselves. They have access to or ownership of something that other people might want but can’t have.
When you position some of your products as “scarce”, shoppers feel they may be missing out on something rare or special if they don’t make the purchase now.
Buying a rare item appeals to some of our most fundamental emotions. It confers respect, prestige and a sense of accomplishment to shoppers. They may very well be willing to pay extra for an item that appeals to these needs or buy an item that they otherwise would not have considered.
You can create a little benign fear of missing out with phrases such as:
· “Available only at this show.”
· “Only 3 left.”
· “Limited edition/production run. Only 20 will be sold.”
· “Free-shipping, this week only.”
· “Exclusive collaboration with XYZ artisan.”
Scarcity pricing must be honest. When you present a product under the scarcity principle as a limited edition or for a restricted period you can’t reverse course. Offering your limited edition in large quantities further down the road will leave buyers feeling cheated. The same applies to extending the “limited period of time” product into an “always available” product. Shoppers WILL notice, and they will share their disappointment with other potential buyers. Your business will lose its hard- earned consumer trust.