How to determine product pricing? Just price it higher

Why pricing your product lower makes no sense and what options do you have with the pricing policy.

Pricing can be tricky. Especially when you just enter the market. It seems that if you make your offer more competitive the customer will be inclined to choose it over other available options. Offering life-time deals or annual subscription for $50 “just for the launch week” — seems plausible, right? Everyone does it, meaning it works. But let me tell you something unexpected — lower price is actually a straight path to a shitty customer experience. While a higher price can actually improve customer’s experience and perception of the product. And there’s scientific proof behind this statement.

High price improves product perception

In 2008 Dan Ariely, Professor of Psychology and behavioural economics at Duke University recruited 82 participants who agreed to receive small electric shocks before taking a painkiller and right after that. The participants were told that they were about to test the efficiency of the painkiller. One group was told that the pill went 10 cents a dose, another group was informed that the shelf price for 1 pill went as high as $2.5.

In fact all the participants were served with placebo. But in a group that believed they had a 10-cent pill only 50% reported a pain relieving effect, while in the second group 85% actually insisted on feeling electro shock less after the placebo. The reported high price of the pill led to an assumption of its higher efficiency. And the assumption shaped actual perception.

Several years later Rebecca Strong set an experiment with perfumes. She put several bottles, each labelled with its price, and asked the University staff to rate their likelihood to purchase. Halfway through the test, she switched the labels on the test perfumes and doubled its price from 40 pounds to 80 pounds. This small change had a big effect, staff were more than twice as likely to rate the perfume highly at the higher price. At the lower price only 33% rated the perfume seven or higher on a scale of 10. In contrast, this figure rose to 78% at the higher price. The price signalled quality, though the product remained…