When you are set with the task of selling a product or a solution it’s vital that you understand the thought process your customer goes through when you reach the pricing stage of negotiations. We’ll cover two fascinating insights as to why people think the way they do and how you can set yourself up for continued selling success
What does Mahatma Gandhi have to do with sales?
A social experiment conducted by Strack and Mussweiler asked two groups of people a question:
At what age did Mahatma Ghandi die?
Group 1 was asked whether it was before or after the age of nine.
They estimated he died at age 50.
Group 2 was asked whether he died before or after the age of 140
They estimated he died at age 67.
This is experiment consistently produces the same results. The group that start with the lower number always guess less than the group that was presented with a higher number. This is because of a concept called anchoring.
Anchoring is a common human tendency meaning people concentrate too much on the first piece of information (the anchor) rather than the decision they make. When people make decisions they rely on the initial piece of information to make subsequent judgements.
How Can I use Anchoring When Selling?
When you are engaging with a customer try and get your own anchor in as soon as possible and take every opportunity to keep anchoring back to this number.
Example: Selling a license for a piece of software
Customer:How much does a license cost?
Sales person 1:a single license costs $1,950
Customer:How much for 50 users?
Sales person 1:$95,000
This is a standard way to introduce your price, the customer really wants 50 users, you started with an anchor of what an individual license costs.
Sales Person 2 understands how anchoring can affect a person’s decision-making
Sales Person 2: You can add up to 100 users for $179,000
Customer: How much for 50 users?
Sales person 2: $95,000
From these two examples, we can see how the same price can have a different value when it is framed by either a lower or a higher number.
The Power of 9
An MIT study run by Anderson & Simester explored the theory that a price ending with the number nine appeals more to customers than any other number.
Researchers published three versions of a women’s clothing catalogue. In each catalogue, the same red dress was priced with three different costs. The catalogues were sent out to and they set about measuring the volume of sales for the three different price categories:
Our instinct would have us believe that the dresses sold at the cheapest price had the higher volume of sales. But our instincts are wrong! The dress that was priced at $39 sold 40% more stock than the other two dresses.
More tests have proven that the power of 9 is a concept that rings true again and again and this has driven companies to round their pricing down to a figure ending in 9 eg. $19.99. This is proven to sell more than products ending with a 0 or any other nor
Now It’s Your Turn!
Now that you have a better understanding of the cognitive behaviour of your customer you can start to tailor the way you present your pricing. Try applying anchoring and the power of 9 to your price pitch.
To find out more about the psychology of pricing and other sales insights Contact our team and ask about our Social Selling online learning platform!