6 Ways Wholesalers Can Sell More With Psychological Pricing
Humans are strange creatures. We generally behave in a rational manner in our day-to-day lives. But when confronted with a choice, we can be gently manipulated by psychological pricing to make irrational decisions and spend more! Here, we’ll explore 5 ways in which wholesalers can harness human psychology to influence customers in their buying decisions.
The two takeaways from all this are, firstly, these psychological pricing hacks can equally be applied to retail prices as well. It’s safe to say that wholesale and retail buyers think alike with regard to prices. Margins drive their purchasing decisions. Everyone wants to get the best price or value in their purchases.
Secondly, by using these psychological tools, you’re really trying to understand how your customers think. Then pre-empt their buying decisions with subtle nudges and hints that they’re unaware of. If the results are far too minute to be noticed, do A/B testing to compare the before and after sales results.
And Now For A Completely Fictitious Example
As usual, we’ll start with a totally fictitious example. Let’s say that you’re a wholesaler of handmade soaps in Portland, Oregon. In addition to making your small-batch soaps, you also deal in artisanal soaps produced by other creative entrepreneurs in the state. You aim to be the name for handmade soaps in the northwest.
1. Emphasize Value, Not Price
As any astute businessperson will tell you, it’s best to compete on intangible things like value and service. Where possible, you should not engage in a price war as it will generally result in an unfavorable outcome and hit your bottom line hard.
Likewise, a wholesaler running on razor-thin margins will emphasize their product’s value or differentiation from the competition. Competing on price alone will only encourage your buyers to shop around and compare. So it’s best to highlight your product’s features that set it above the competition. And, thus, increase its perceived value in the eyes of your customers.
Marketing Soaps with Value
Back in your warehouse shed, you take stock of the bars of handmade soap that you have in front of you. Most customers are becoming aware of the harmful chemicals and residues that end up in commercial soap. You’re selling a lifestyle of using biodegradable, vegan soap that doesn’t harm animals in production and the environment.
And you’re convinced that educated customers will pay 5 to 10 times more for a soap where they can read the ingredients list in plain English. Also, when customers are aware of what goes into each soap bar, they will appreciate the organic minerals, substances, and effort that go into each one. Your best selling exfoliating bar, for example, contains finely crushed oyster shells.
2. Time is Indeed Money
You know well the oft-quoted phrase, “time is money”. This couldn’t be further from the truth in the fast-moving wholesaling business. Your retail customers will gladly shop elsewhere if they face a re-stocking time of 1 to 3 weeks for your most popular products. So, just like emphasizing value over prices, here you’re selling convenience and immediate stocks for delivery for the prices that you are commanding.
Think about this for a second. If you’re a retail buyer doing comparison shopping among a group of wholesalers, which one are you going to put your orders with? You won’t necessarily pick the cheapest one if they can’t fulfill your order until weeks later. You’ll go for the wholesaler with the next best prices who have goods in stock. And this wholesaler is likely to be you.
Use Inventory Forecasting
Sales forecasting, and thus production and purchasing planning, can be a bit of an odd science. Restocking your best selling product lines at specific re-order points requires the use of inventory management software. You certainly can’t do this with paper records or spreadsheet! Use technology to make sure that you have the right products in the right place at the right time.
Inventory forecasting need not be rocket science. In fact, we have another blog post on how to forecast your inventory levels. Firstly, check how fast you sell your stock with the inventory turnover ratio. This is sales divided by your inventory. Next, find your reorder points by adding lead time demand to safety stock. Lead time demand is the time taken to order or produce new stock multiplied by your average daily sales.
At your Portland soap warehouse, you take pride that you have immediate stocks of soap to ship anytime, anywhere in the States. You understand that your retail customers buy in bulk to restock their shelves now. They don’t mind paying your prices for immediate shipping. In fact, price doesn’t become an issue if you can meet their shipping deadlines.
3. Play With Numbers
Here’s another strange psychological trick that can be used to great effect with published prices. Humans dealing with our modern alphabet have a habit of reading from left to right. This is how we read text and numbers in order to digest and understand the information before us. So we use this ingrained human habit to play subtle tricks with prices.
Don’t Price Things With A Zero
The number one rule is to never have a price ending in a nice double zero, i.e. 00. This might look neat in your price list and spreadsheets. But it’s another story for your potential buyers. Say that your goods sell for $100. This number looks awfully big next to price tags with $99.98 or $99.99 even though the difference is only 1 or 2 cents worth.
So our brain looks at the $99.98 or $99.99 prices and thinks they’re in the $90 range and not the upper $100 range. Humans are natural bargain hunters and we perceive the prices to be a bargain even though it’s just a 1 or 2 cent difference. Hence, prices that end in a 9 are thought to be associated with discounts and good deals.
One day you decide to redo your wholesale price list from scratch. Individual bars of soap are now priced at $2.99 for economy organic ingredients. Premium ones are $4.99 each as they typically contain harvested ingredients such as seaweed and oyster shells. You also decide to keep your prices constant for each range as you can easily adjust the size of the soap from 5 oz to 8 oz to adjust for the ingredients within.
Other Pricing Tricks
It gets better. Luxury goods typically leave the prices whole at $2,500.00 or $490.00 for example. They don’t need to discount prices or use the number 9 to attract customers as they already have a faithful customer base. Conversely, using random numbers in prices, such as $5.72 or $47.34 suggests that a discount has been applied already and thus the price is a bargain.
4. The More Prices The Merrier
And the psychological games continue. This time we play tricks with the human mind by offering a smorgasbord of prices for similar products. Buyers are unlikely to spend the time to research into the features of each similar product. They will simply look at the prices for products that are similar and regard the higher priced one to be of better quality.
On the other hand, the opposite may very well be true. Customers may look at a range of prices for a similar product and think that the lowest-priced one is a bargain. Why? Because they see the lower priced product as offering similar features and benefits as the premium one. Why spend more than you have to enjoy almost premium goods?
This psychological tactic is called “anchoring”. Give your customers something to digest first. Then they will rely on this initial information to base their future purchasing decision. As you can see, it can work both ways to regard a product as a premium category or a bargain basement price. This is relative value at work.
Price Anchoring at Work
Back to your new price list for soaps. You decide to add another product category between the economy and premium soaps. The sandwiched category is to be called “economy plus” as you think that calling it “premium minus” might put off some. The economy plus range feature slightly larger bar sizes for more washes, and the addition of whatever seasonal ingredients you have on hand.
And using the psychological trick of introducing middle tier prices, you decide to price them at $3.99 each, right between the price of $2.99 for economy soaps and $4.99 for premium soaps. You hope that buyers will gravitate to the premium soaps as only $1 separates the classes of soap from each other.
On the other hand, your customers may very well see the $2.99 soaps as a bargain and pile into them. In your tiered price list they might see the economy soaps as having “almost premium” features for a whole $2.00 less! In this case, the customer found the premium price to be an anchor and then based their buying decision on the economy soaps. The premium prices were too rich for them given the similarities between the soaps.
5. Make Little Adjustments Along The Way
In the study of psychology, there’s a term called just-noticeable difference or JND. This is the amount something must change in order for a difference to be noticeable. And this should be detectable at least half the time by your customers. So in marketing speak, JND is important for two reasons.
Firstly, negative changes such as reducing the product size or increasing prices should not be noticeable to your customers. In other words, they should remain below JND for customers to accept these changes and move on. In the real world such changes are not popular with customers and adjustments should be done in small increments over time.
Secondly, positive improvements such as improved packaging, larger size or lower prices should be made apparent to customers without being wasteful or excessive. That is, at or just above the JND. So you should improve your product just up to the point where they’re noticeable by customers, thus saving you product development and marketing expenses.
But We’re Concerned with Negative Things
Practically, most wholesalers are likely to engage in negative stuff like reducing the product size or increasing prices. Why? Because they need to maintain margins in the face of rising costs and inflation. Thus the key point is to do such things gradually without customers noticing or complaining. Don’t raise the price in 10% increments. Just 5% will do at a time.
So, remember how you can adjust the size of your soaps by cutting them between 5 oz and 8 oz weights? This is JND at work. You can adjust the size of your soaps in 1 oz increments up or down depending on the cost of production and seasonality. Lately, you’ve been reducing the soap of your coffee scrub soaps because the hipster coffee cafes in the Portland area were demanding higher prices to take organic coffee grounds off them!
6. Bundle Things Together
It’s common to offer products in a bundle together with a slight discount. It suggests a time-limited or seasonal special that won’t run for much longer. And it’s similar to offering a discount for bulk purchases. It might be as simple as “buy four and get one free”, an effective 20% discount for purchasing five items. Or perhaps “buy two of the same products together with one other product” for a small discount.
At your Portland soap operations, you decide to move things along for the summer season. After all, people still need to wash once or twice a day with the searing hot weather. So you dangle a small discount to your retail buyers to encourage bulk buys. “Buy 100 soap bars and get 10 free”, an effective 9% discount. Best of all, they enjoy the same discount when they buy multiples of 100 bars.
The best part of about understanding human psychology and applying them to your price lists is that they cost absolutely nothing to use. However, they still require care in planning and execution. Implement these psychological principles poorly and you might suffer lost sales or customers. Thus, it’s best to make adjustments carefully and do A/B testing.