How to Generate More Profits by Focusing on Your Pricing Strategy

You can tell a lot about a business by how it sets its prices.

Psychologically, consumers are programmed to behave a certain way when they see the price of a product or service. Your pricing strategy can control the entire perception of your brand.

It’s similar to the way different color schemes can impact sales on your website.

Whether you realize it or not, I’m sure you think the same way when you’re shopping.

If you see the same item listed for $5 at one store and $50 at another, which option would you say has higher quality? The more expensive one.

However, even though one store is selling products at a higher price point, it doesn’t mean their quality is superior to that of the products from the store with bargain prices.

It’s all about perception.

Don’t blindly price your items. You need to have a reason and a strategy behind your pricing decisions.

Just look at how popular car brands are perceived by consumers based on their prices:


Ironically, the majority of your business efforts will cost you money. But your prices will ultimately be the determining factor in whether or not you’ll make a sale.

I see this problem all the time in my consulting work.

Many business owners don’t have any rhyme or reason behind their pricing strategies. As a result, their sales numbers aren’t where they should be.

I’ll explain how you can generate higher profits by putting more focus on your pricing strategy.

Depending on your brand, some of these strategies will work for you better than others. Review this guide, and decide which ones you want to use in your business.

Avoid similar prices

When brands set their prices, they might be tempted to price certain items the same.

On the surface, this makes sense. If you’re selling the same shirt with different patterns, they should have the same price, right?

Believe it or not, research suggests that similarly priced items hurt conversions.

In an experiment, researchers studied behavior when customers were presented with two different packs of gum, both priced at $0.63.

In this case, 46% of people bought a pack of gum. That’s not a terrible conversion rate, but it could be better.

When the prices were changed, with one pack of gum priced at $0.62 and the other at $0.64, the conversions increased.

As a result, 77% of consumers purchased a pack of gum.

Setting different prices increases the chances of your customers making a purchase.

percent completing purchase

As you can see from the experiment, the differences in the prices don’t need to be drastic.

Even a slight adjustment can boost your conversions.

Take a look at the prices in your stores and on your website. If you notice that the majority of similar items have the same prices, make an adjustment and see if that helps you drive more sales.

Understand the psychology of anchoring

Some of you may have heard of anchoring, but you may not be sure how to use it.

Before you can implement an anchor pricing strategy, you need to understand how the mind works.

Focalism is a psychological term, more commonly referred to as anchoring or anchor pricing in the marketing world.

Anchoring impacts the way humans make decisions. We depend heavily on one piece of information, which is the metaphorical anchor. Once the anchor is set, our minds are trained to use that information when making a decision. That information biases our decision-making.

For example, think about what goes through your mind when you’re buying a car.

If it’s a used car, the first questions you might ask are:

How many miles does it have?


What year is it?

That’s the bias you use to determine the value even though it would be more reasonable to ask whether the engine and transmission have been properly maintained.

Now let’s get back to your pricing strategy.

How do you sell a watch for $1,500? Put it next to a watch that costs $8,000.

The consumer’s mind will use the more expensive watch to create an anchor bias, which makes the $1,500 watch seem like a great deal.

Take a look at this example from Best Buy:

best buy

These three TVs are very similar. Just look at the common features they have:

  • LED
  • 4K
  • 2160p
  • HDR
  • Smart TV

The only major difference is the size and brand. Plus, the sizes aren’t even that drastically different.

Seeing a $1,400 TV next to similar TVs for $700 and $380, the consumer will use the higher-priced product as an anchor.

For half the price, they can get a TV that’s just five inches smaller. This is still a great deal.

Budget-conscious consumers can buy the $380 model without thinking twice about it. They are getting a great value for the price.

We’ll discuss value and segmenting prices for different types of customers in greater detail shortly.

Offer incentives to spend more

Your prices can determine how much each customer spends per transaction. Obviously, you want to set these prices so that your customers spend as much money as possible.

You need to give the consumer a reason to spend more money. How can you accomplish this?

Let’s look at a great example from SAXX:

saxx 1

This page has four different products for sale. As you can see, it also uses the anchor pricing strategy.

Customers aren’t really getting a better deal per piece if they buy a 3-pack for $86 or a 2-pack for $57. It’s still about $28 per pair of underwear.

But if they buy the 2-pack that’s on sale, they’ll get each pair for $23. This is a better deal.

However, they’ll have to pay for shipping if they buy the sale package because it doesn’t meet the $50 threshold. So what does the customer do?

They consider buying two of the sale items.

This gives them a better value per piece, and they’ll meet the free shipping requirement.

Mack Weldon uses a similar strategy on its ecommerce site:

mack weldon

Orders over $50 will be shipped free, but the site offers more: 10% off orders over $100 and 20% off orders over $200.

This strategy gives the company’s customers a reason to keep adding more items to their shopping carts.

Research your competitors

Who are your biggest competitors? How do their prices compare to yours?

If you don’t know the answer to this question, it’s a big problem. You can increase profits by analyzing your competition.

You have to decide how you want to position your prices compared to theirs.

Maybe you want to undercut their prices in an attempt to steal their customers. But as I discussed earlier, if your prices are lower, the value of your brand could be perceived differently.

On the flip side, if you set your prices too high, you could lose customers to your competitors.

This is always a tricky situation. There are lots of different factors at play when it comes to your pricing strategy in relation to your competitors.

I can’t tell you definitely what the right or wrong approach is. You may have to experiment with this one.

But at the very least, you need to be aware of your competitors and their prices.

Segment your prices

As I briefly discussed earlier, you should segment your prices so that they appeal to a wide range of customers.

This is slightly different from the previous tactic of altering your prices by just a few dollars or so.

With price segmentation, each pricing point is aimed at targeting a specific type of customer. Take a look at the Macro Plate pricing plans:

macro plate

As a meal delivery service, the company needs to have something for everyone. That’s because not every customer will have the same diet.

It appeals to customers who want meals delivered five days a week as well as seven days a week.

How many meals do its customers get each day?

It depends on the plan they select. This ranges from two to five meals per day.

Furthermore, the site has meal plans designed for different diets:

  • traditional
  • high protein
  • paleo

The meals target customers based on what type of food they need and what they can afford.

There is a big difference between a customer on a traditional diet who wants two meals a day five days a week and a customer on a high protein diet who wants four meals a day seven days a week.

Trunk Club uses a similar strategy on its website as well:

trunk club

Trunk Club is an online personal stylist. It sends you clothes on a regular basis.

But to make its service more appealing to the general population, the company needs to segment its prices based on the type of clothing people want to wear.

That’s why it has this questionnaire in place. Asking customers what they normally spend on different types of clothes helps them decide what to send them based on quality and price.

There is a big difference between the type of customer who spends $50 and a customer who spends more than $200 on shoes.

Offer big discounts

This is one of the oldest pricing strategies in the book. Set your prices high, then offer promotions, sales, and discounts.

Check out this example from the Lucky Brand homepage:

lucky brand

This promotion has discounts up to 75% off.

Buying a pair of jeans at the regular price will typically cost customers about $100. But if they can get that same pair for $25, the deal seems too good to pass up on.

They could potentially get four products for the price of one.

You need to be careful though when implementing this strategy. Running sales too often could hurt your conversion rates when you don’t have any products discounted.

If your customers get used to buying only when items are discounted, full price products may never get bought. That’s OK if this is part of your anchor pricing strategy, discussed above.

But if you want to drive conversions, it’s always a good idea to discount your prices.

Research shows that retailers with active discount codes are eight times more likely to drive sales.

Know your margins

Understanding your margins is especially important if you’re planning to offer discounts.

You need to make sure you’re still turning a profit. That profit needs to be enough to pay your bills, pay your employees, put money in your pocket, and invest back into your business.

As I said before, you can’t blindly set your prices.

You need to know your profit margins before and after you offer discounts, put items on sale, or run other promotions.

If your margins don’t make sense, you could be generating tons of sales but losing money at the same time.

You obviously need to avoid that.

Bundle packages

Another common pricing strategy is the bundling concept.

Basically, you set your prices so that it’s cheaper to buy items together than buying each one separately.

Look at how Domino’s does this on its website:


Its mix and match deal makes buying two or more items less expensive.

Dominos also has a combo for full meals, at a higher price point. This is an example of segmenting prices based on the needs of your customers, which I talked about above.

How can you apply this concept in your business?

It’s a great opportunity to improve your upselling and cross-selling strategy.

For example, let’s say your brand makes and sells musical instruments.

You sell guitars for $600 and guitar cases for $150. But if someone buys a guitar and case together, the total price gets discounted to $675.

Create a sense of luxury

Depending on your brand image, you may never want to offer a discount.

In this case, you would be trying to appeal to a certain type of customer. Some consumers don’t want to buy products on sale.

They believe higher prices translate to higher quality. These customers also want to buy from brands that convey prestige.

Some consumers with deep pockets look for brands with higher prices because they know not everyone can afford their products or services.

If this is the kind of pricing strategy you’re trying to implement, don’t worry about the customers looking for bargains. Instead, you’ll probably get fewer conversions, but your profits will be much higher.

Look at the Gucci website:


Does anything on this website stand out to you?

For starters, it’s very simple. Websites with simple designs have higher conversion rates.

But that’s not all. Unlike on the majority of ecommerce sites, on the Gucci site the prices are not listed upfront.

There’s an old saying, which I’m sure you’ve heard before:

If you have to ask, you can’t afford it.

That’s the idea here. The customers the brand is targeting don’t care about the price. They’ll buy the products regardless.

To see the prices, you have to click on the items, like the $4,850 jacket above.

Focus on quality

There’s nothing wrong with having higher prices, but you need to be able to justify your reason for having them.

Just to be clear: I’m not referring to the luxury brands as in the example above. Those kinds of prices are in a league of their own.

But if you charge $100 for a t-shirt, you need to give your customers some kind of explanation for that price.

Why should they buy your shirt when they can buy it somewhere else for $5?

Here’s an example from the Lululemon website that focuses on quality:

lululemon 2

The brand’s prices aren’t outrageously high, but a seemingly simple pullover costs $120.

This is more money than most people would spend on something like this, but the brand justifies the price by emphasizing the quality of its product.

To reduce irritation, the company removed seams from the sides, which is a common construction for similar pullovers.

The material is lightweight and made to stretch. It’s also made with a fabric that fights bacteria that causes odor.

This is the brand’s justification for charging these prices. By focusing on quality, it’s able to generate more profits.

Put emphasis on value

What type of value are you offering your customers?

You need to position your prices so that the customer feels they’re getting a deal. Some of the previous strategies use this concept, such as bundling products and offering discounts.

But there are other ways to do this as well.

You want to make your prices seem as affordable as possible. It’s all about how you deliver the information to your customers.

For example, look at the pricing options from Harry’s Razors:


It delivers shaving supplies to its customers every two months with its subscription service.

Look at its most expensive package: $16 per month sounds more appealing than $32 every two months, even though it’s the same thing.

It’s also better than listing it as $192 per year. After all, $16 sounds much more reasonable and affordable.

Plus, there is added value in the subscription. Customers are paying for the convenience of having products shipped to their doors on a regular basis instead of having to go to the store or to constantly re-order products online.


Your prices will directly impact your sales. Implementing the right pricing strategy will increase your profits.

Don’t set similar items at the same price. Apply the anchor pricing tactic.

Encourage your customers to spend more money with each transaction. Bundle packages together. Offer big discounts.

Segment your prices to appeal to a wider range of customers.

Research your competition. Know your profit margins.

If you want to appeal to a certain type of customer, create a luxury brand with high prices and never run a sale.

Prioritize quality and value.

No matter what type of business you have, I’m confident you’ll find an appropriate pricing strategy in this guide.

How will your brand generate higher profits with your updated pricing strategy?


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