You’ve often heard that pricing is an art and a science. Truthfully, it’s mostly a science — neuroscience to be exact: how our old, reptilian brain processes our decision-making. Neuroscientists say that 95% of buying decisions are made subconsciously. Shouldn’t you know a little about how your buyer perceives your prices in the part of their brain that’s making the buying decision?

Today, I’m sharing some consolidated pricing advice based on the neuropsychology of prices.

Use this knowledge when pricing any of your services — from one-on-one consulting/coaching to mastermind groups, live workshops, and online courses.

Neuroscience of marketing and pricing

• Deep in our brains, we are hard-wired to conserve resources and to expend resources only when absolutely necessary. Because we don’t like to give up resources, there is a certain amount of “pain” when it comes to paying for anything. Accepting credit cards, installment plans, etc. helps to offset the pain of parting with ready cash.
• When reading your sales page or brochure, their brain can light up like a Christmas tree if they perceive that your offer is exactly what they want. A well-crafted marketing message brings a lot of stimulation to the pleasure center of the brain. But the minute they see the price, pleasure is replaced by pain, deep in the brain. So, tell them your offer, then your pricing, and then immediately tell them again why this offer is so wonderful.
• Every buying decision involves emotions. While our rational brain looks at the pros and cons of making a buying decision, it’s only making 5% of the decision. The emotional brain asks, “Will this make me feel better or take away some of the pain and discomfort I’m feeling?”
• What we’ve paid in the past influences what we expect to pay in the future. But when my grandmother remembers buying bread for 5 cents a loaf back in the 1930s, today’s bread that costs $5 seems incredibly expensive to her. My neighbor’s daughter, who just got her first apartment, has always purchased bread for $5. What have your buyers paid in the past for similar services, and how does it compare to your prices today? (Hint: If you don’t know what your competitors are charging for similar offers, now is the time to do a little sleuthing!)

Psychology of anchor prices

• The first price our buyer sees or hears — called the anchor price — is used as the baseline for all other thoughts about the price of your offer. They perceive a “$500 workshop offered today for $399” more positively than the exact same offer worded differently: a “$399 workshop that is normally $500.” In the first example, the anchor price of $500 is the comparison point they’ll use, and they perceive they’re getting a $101 discount. That helps their brain feel better about the purchase because they are giving fewer resources to attain the same thing.
• If you have an offer with three tiers of pricing, put the most expensive tier first, then the middle tier, then the low-cost tier. However, we are psychologically wired to see the middle price point as the best compromise, so use this knowledge to determine why your high-price tier is of extraordinary value compared to your mid-price tier. Studies show that when buyers are given a three-tier pricing model, those who are shown the highest price first are willing to pay more, and those shown the lower price first are willing to pay less.
• Be aware that some buyers are strongly influenced to purchase the higher priced offers because they perceive it must be of higher value, even if it is not actually of higher quality. They won’t ever buy the “cheapest” offer, even if it’s in their best interest to do so. They only want the “best” offer, even if they don’t need that level. (Boy oh boy, you can see the 95% reptilian brain at work in this one!)
• Retailers try to trick us by constantly putting the same items on “sale.” But if you know that the sale price is going to come around every four weeks, that becomes your anchor price, and you simply wait for the sale price to come around again — there’s no compulsion to purchase immediately. Use discounts sparingly: don’t start every marketing launch with an early bird discount, your buyers will get used to it.

Psychology of breakpoints and price resistance

• Price breakpoints are money thresholds that buyers think are the top amount they’re initially willing to pay for any item, before they begin the purchasing process. I say initially because buyers will change their price point for two reasons: they see that it’s unreasonable and not in alignment with what the service is typically priced at today, or they become emotionally attached to the brand or the expert and want to work with that specific person or business.
• For instance, buyers say initially that they only want to pay $500 for a workshop. But when the expert they love offers a workshop for five times that, they choose to purchase at the higher price. The breakpoints are in context to what they’re purchasing and who they’re purchasing from, and buyers think of them as “pricing thresholds.”
• We all have pricing breakpoints: amounts we think we “should” pay for a service or what we’ve paid for similar services in the past. For instance, if I told you I was offering a 3-day workshop in a desirable location you’ve always wanted to visit, you already have an idea in your mind the top price you would pay for such a workshop.
• Let’s say that your mastermind group is $5,000 and that’s also your buyer’s psychological price breakpoint. Pricing just under that, say $4995, relieves the psychological pressure and sales resistance.
• Plus, the first digit they see, 4 versus 5, has a psychological impact on the way they perceive the price. It’s also how we’ve been trained as consumers when we go into retail stores, so our brains are used to it.
• You will see a 10% – 15% increase in sales if you come in under their psychological breakpoint.
• If you try to go over your buyer’s breakpoint, then price resistance sets in. It’s your job to show them why the value of your offer is worth the price you’re charging.

Psychology of price reductions and increases

• As I discussed earlier, the buyer’s mind doesn’t want to give up money (resources). But when they are offered a way to get the service for less money, they’re compelled to buy now for fear of missing out on the opportunity.
• We’re wired to make impulsive decisions and are impacted by deadlines. If you make an offer that includes a time-limited discount with a deadline, your buyer’s mind is hard-wired to think two things: First, that they must give up less resources (always good!), and second, that they must decide now to get this valuable reward. This is where the 95% reptilian brain kicks in – it says, “Let’s do it!”
• Buyers are naturally resistant to price increases (aren’t we all?). But as a business owner, you can’t keep charging the same price for your services that you were charging 10 years ago. Inform your clients that you will be increasing the price as of a certain date, at least 4-6 weeks in advance. If you feel inclined, you could grandfather in the lower price if they purchase before the new price deadline.
• There’s a strange paradox when it comes to reducing prices versus increasing them. Buyers respond better to small price increases over time compared to one large increase. On the other hand, they respond better to one large decrease in price rather than a series of small price decreases.

Psychology of value versus price

• All these concepts together denote “value” to your buyer. All the puffery around modern marketing strategy comes down to this fact that’s been true since the beginning of time: you have something they want and they’re willing to exchange their resources to get it.
• Go back to the reason why your buyer wants your service. They have a goal they are trying to reach and need help in getting there. Remember our brain does not want us to give up resources (money, time, energy), yet we buy things all the time — because the value of attaining that thing is more than the money it takes to get it.
• That value can be tangible, like “walk away with a marketing plan” or it can be emotional “create recurring, sustainable revenue streams so you can sleep better at night and stop worrying about your business.”
• If you have written your marketing material properly, you have outlined the value of your offer that strongly mirrors what’s going on inside your buyer’s mind. It confirms that the value they’ll receive is worth the money — and the time, energy, and commitment they’ll also give to use your services. (Hint: Buying decisions aren’t always about the money.)
• The rarer a service is, the more likely we perceive it as valuable. If you limit your offer to a certain number of buyers — for instance, a mastermind group that’s limited to 8 members — the more valuable it seems. Or if you tell them you’re only going to offer your workshop one time this year, that creates scarcity and value, too.
• Your buyer will often associate higher prices with higher quality (whether the quality truly is higher or not). Is a watch selling for $10,000 any better at keeping time than one that sells for $50? Be careful of underpricing your services, as it can affect the perception of your business and your brand. Are you the Rolex of your industry or the Timex?
• People don’t value offers that are free as much as they value items they’ve paid for. That’s why a free webinar will only get 25% attendance rate but a paid one will get 85% attendance.
• Yet, when an ice cream store offers free ice cream, people line up around the block to get it. Why? Because the effort it takes to consume ice cream is so much less than it is to consume educational content for an hour or two, and the immediate reward of ice cream outweighs the buyer’s resistance to standing in line. But your free resources take more energy for them to consume, so the value must be strong for it to be alluring to them. That’s why a 200-word blog post is not as valuable as a 1,700-word blog post. 🙂

And finally, your own personal psychology plays a role in your pricing. Your own thoughts about money will color your pricing choices. But that’s another blog post topic!

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