Neuroscience and Marketing
Did you know that seeing a price tag evokes a feeling of pain or discomfort in humans? Most people don't love the feeling they get after they share their resources with someone else - This isn't because they're jerks, but because this negative feeling has allowed people to survive for thousands of years. 60,000 years ago, if a caveman shared his food with another caveman this could result in him dying a week or two later because he didn't have enough food to last him through a brutal winter.
I recently listened to a great interview with neuroscientist and marketer, Kenda Macdonald on the Social Media Marketing podcast (episode 580). She discusses how the human brain is wired to look for value when making purchasing decisions, which is why our brains process prices differently than other types of information. So in regards to pricing strategy, businesses should keep in mind that the brain is constantly scanning for cues that indicate value, such as discounts and free gifts. Macdonald goes on to explain that the brain responds to the experience of paying for a product or service, not just the price itself. This means that businesses should consider how they can create a positive experience around the act of paying, like offering flexible payment options or emphasizing the benefits of the product or service they're offering.
Businesses shouldn't focus on the price itself, but on context, comparison and the overall experience of paying in order to create pricing strategies that resonate with customers and drive conversions. The context in which prices are presented can have a significant impact on how they are perceived. For example, a product that is presented alongside a more expensive product may seem like a better value in comparison. Even the way prices are formatted and presented ($9.99 vs. $10) can also influence how they are perceived.
Often times, businesses drop their prices to sell more, but Macdonald points out that this strategy doesn't alleviate the pain felt from spending money, which is why it's more important to focus and market the benefits and bonuses of the product or service. For example, when Nescafe first came out they didn't try to compete with store bought coffee that was much cheaper than their coffee pods. They instead focused on how much cheaper their coffee pods are compared to the price of a cup of gourmet coffee brewed by a professional barista ($0.15 vs. $3.00). Nescafe positioned their coffee pods as a gourmet or premium cup of coffee that is on the same level of quality as a fresh cup of coffee from Starbucks. If they had tried to compete with the store bought coffee brands on price, they definitely wouldn't be nearly as successful as they are today.