THE PSYCHOLOGY BEHIND PRICING
Have you offered your customers discounts, freebies, sales, and seen a positive or non positive response and wondered why? In this series of blog posts we’ll be looking at the psychology behind consumers behaviour. This week we’re looking at the psychology behind the power and value of offering FREE Products and or Service.
The Value of Free
It is often believed that the value of something free is lesser quality or is not as good as something with a price. Dan Ariely, author of Irrationally Yours, found that it’s the exact opposite.
His team found that people place more value on freebies and gain a more positive feeling about it, compared to purchasing a heavily discounted product. How does this work you ask?
The zero-price effect was discovered by Ariely and his team by offering both a free chocolate or a very cheaply priced chocolate to various control groups. The majority responded a lot more positively to the free chocolate and in return placed more value upon the chocolate because they had received it for free.
Ariely and his team also measured how it might apply to other price amounts or discounts as well. Their results found that there wasn’t nearly as much of a positive reception by consumers that made use of discounts, compared to receiving something for free.
Now that we know the power of free, how can we use it?
One of the biggest reasons for shoppers not completing the checkout process is the added costs, like shipping. How often have you gone to purchase something online and then found it’ll cost $10 to ship a $10 item? Too often! Anna Kagler from RJ Metrics calls these ‘unexpected hidden costs’. She suggests making these costs like shipping as obvious as possible before the shopper reaches the checkout.
You can advertise your shipping costs in a few different ways so that they aren’t a shock when the customer reaches the checkout. One method is to have an obvious flat rate, another being free shipping advertised throughout the site when purchasing over a set amount. You’ll want to have your shipping costs in an obvious place such as a banner that features at the top or bottom of your store. You could also have it as a popup, feature it in a slideshow, as well as mentioning it in your product listings.
Lisa Suttora from Amazon & Ecommerce Marketing talks about how consumers know that nothing is ever truly ‘free’, but shoppers like to feel like they’ve gotten something for nothing. Lisa also mentions that with larger companies selling online and offering deals like free shipping, consumers are expecting the same type of savings from smaller online companies. This can be tough for small companies to compete with the much larger competition, however there are ways to offer ‘free’ without going bust.
How to Use Free in Your Shopify Store
I’ve had success with offering free products to customers who are a part of my store’s club, as well as using the the BOGOF formula.
This classic incentive that has been used by millions of retailers around the world is the “Buy One Get One Free”. Why does this formula work? In reality you are offering a product at 50% discounted, and it comes down to human nature, which is greed. We want as much as we can for next to nothing, as explained by PsychologicalPricing.net. Another reason why Buy 1 get 1 Free works is people do not want to calculate discount prices and the word FREE assists with having to do absolutely no maths.
Be warned that the incentive of BUY 1 GET 1 FREE is being used heavily by so many retailers that consumers are starting to think this is the norm and look elsewhere for other deals. Think outside the box, use different formulas with the same value like Buy 2 Get 2 Free or increase the number to disrupt what consumers are use to seeing on promotion example; Buy 3 Get 2 Free.
It also goes without saying that using the BOGOF formula can lower your brand perception in consumers mind when offering to give too much away for FREE. So have a good think where does your brand sit in the market before you start a BOGOF sale.
Another formula used to provide FREE services or products on your store is by having “Image Pricing”. This is raising the retail price of selected products to help with the loss of the Free giveaway. Example: T-shirt retailing at $45.00 and Buy 1 Get 1 FREE. If this promotion was not happening, the t-shirt would actually retail for $35.00.
App for Your Store
You can easily set up BOGOF type deals for your customers with Buy X Get One by Supple. This app assists store owners to create new deals and what products are given away with a discount or free. It costs $16.99USD a month to run, and it also comes with a 7 day free trial. It has a five star rating from 89 reviews.
Examples of what the App can do:
- Buy one, get one at 50% (BOGO)
- Buy two, get one free
- Buy a pair of shoes, get 30% Off from any bag!
- Buy a womens top, and get one for him too, at 20% Off
- Half-priced beanies for every Tank or Tee etc.
- Cross-sell products - "Add a shoes leather cleaning kit at 20% off".
- Free gift with orders - you can set the amount required e.g. orders over $50
- Bundle related products (e.g. Camera with memory card, Leather jacket with special cleaning kit)
- Offer discounts for larger quantities in the form of "For every two widgets, get a free one"
Making it Work
Dan Ariely has shown us of the positive value that is placed on free items by shoppers.
There are lots of different ways to implement ‘free’ in your store. As great as it is to be able to offer free shipping or products, you need to make sure you can afford to. For me, I’ve worked the cost of shipping into each product listed in my store, an example of “Image Pricing”. That way I don’t have a large expense for shipping as it’s still being covered with every purchase.
Crunch your numbers, think outside the box and keep trying new free tactics. Make sure you have the right tracking tools in place to understand if your promotions are working.
If you would like to learn more about Shopify join our Shopify Worldwide Facebook Group.
If you would like some help getting set up or want to know more about tracking goals on an e-commerce site feel free to contact the team at Zyber.