Use ‘Pick-your-price’ to boost sales
Give people the freedom to choose how much to pay from a limited set of options. Cookie sales at a bakery were 21.6% higher for the same average price.
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The researchers of today’s study wanted to find out why ‘Pay-what-you-want’ (choose your own price, including $0) seemed to reduce conversions for many companies rather than increase them.
In the process, they discovered a highly effective new method: ‘Pick-your-price’.
Let customers choose their price from a small set of options to increase sales
Impacted metrics: Customer acquisition | Customer spending
Channels: Pricing | Promotions
For: B2C. Can be tested for B2B
Tip type: New research (January 2021)
Previous tip: Frame your product as an experience to boost reviews (All tips here)
To increase sales let customers select the price they’ll pay for your product from a set of 3 to 4 fixed options.
Don’t use this:
As an open question (“choose any price”).
When people are buying many products at once (e.g. groceries, fast fashion retail).
‘Pick-your-price’ lets customers choose how much they’ll pay from a small set of options.
Compared to a single fixed price, it makes people more likely to buy, although on average they will choose the lower priced options. For example:
A bakery sold 52% more cookies when it used Pick-your-price ($0.45, $0.55, $0.65, or $0.75). rather than a fixed price per cookie ($0.60). People chose to pay $0.50 on average. As a comparison, a fixed price promotion at $0.50 per cookie only increased sales by 25%.
People said they were 18.7% more likely to buy a genetic testing service when given 3 prices to choose from (e.g. $39, $49, and $59) compared to a fixed price that was the average of the 3 options (e.g. $49).
Pick-your-price works particularly well for shoppers that are motivated to save money. For those in a hurry, it loses its advantage (same amount of sales as a fixed price).
If choosing a price is too much of an effort, people are less likely to buy. This happens when:
Buyers are free to choose any amount (i.e. ‘Pay-what-you-want’)
There are too many price options to choose from
Customers are buying many Pick-your-price products at once
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Why it works
Pick-your-price with a limited set of options gives us a sense of control. We like that freedom to choose our price and that makes it more likely we’ll buy.
Choose-your-price as an open question (aka Pay-what-you-want) requires a lot of mental effort, which makes us less likely to buy (“I can’t be bothered to think how much I should pay for it, I just won’t buy it”).
The effect was tested both in the field (with real sales) and in experiments across different product categories (cookies, insurance, genetic testing, movie tickets, electric toothbrush), so it seems widely generalizable.
Pick-your-price is rarely seen, it could be that the novelty of it is what attracted sales. Once it’s commonly used the effect could wear off.
Companies using this
Companies that tried a Pay-what-you-want (hoose any amount, including $0) pricing model like Priceline.com, Panera Bread, and the Met in New York soon reverted to fixed prices. However, NGOs such as the Red Cross still use it effectively for donations.
Pick-your-price as described in the research appears to be extremely rare or non-existent.
Steps to implement
To easily test this, set your current fixed price as the lowest priced option and offer 2 or 3 higher price options. If that doesn’t hurt sales, you can move on to offering lower prices options to see how the increased volume affects your profitability.
The price people will choose to pay could change depending on the motivation people have of buying from you. Are you an eCommerce retailer where people look for the lowest price possible or are you a local specialty business people like to support?
In some situations, you could try testing this in a B2B environment. Would clients be more willing to buy if you let them choose how much they pay for a promotional video based on the final quality?
To nudge the average chosen price higher, test adding “Most people pay this amount” next to a higher-than-average price.
Field and online experiments. United States
Wang, C. X., Beck, J. T., & Yuan, H. (January 2021). The Control–Effort Trade-Off in Participative Pricing: How Easing Pricing Decisions Maximizes Pricing Performance. Journal of Marketing.
Orfalea College of Business, Cal Poly and Lundquist College of Business, University of Oregon. United States
Remember: Because of the groundbreaking nature of this paper, it could be disproven in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.
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