This article will look at some of the behavioural economic principles that underlie how individuals react to good offers. Since almost everyone has bought something on sale, I anticipate you will find numerous insights to be extremely obvious, but I also aim to persuade you to consider them in some fresh ways.

You’ll discover:

Definition of reference pricing.

What advantages reference pricing can offer your company.
There are several methods for including it in your sales approach.

Definition of Reference Pricing
This sneaky trick may have been seen before. There are large signs wherever you turn in a store advertising a significant sale where the original price has been drastically reduced and the new price is tantalisingly cheap. But in reality, it isn’t since the “original price” is inflated. Similarly, you might have noticed that shops frequently undercut the “recommended retail price” of various products, indicating that it might also be more than it has to be. Both of these strategies are intended to give you the impression that you are receiving a good deal, which any store or salesperson is aware is crucial to the majority of customers.

With reference pricing, there are undoubtedly a variety of games that can be played, and they don’t necessarily have to be dishonest. For instance, if your company competes on pricing, highlighting the higher prices of competitors’ items is a tried-and-true and effective strategy. If your potential customers believe that your opponent is asking a “regular” or “ordinary” price, taking this a step further and using the competition’s pricing as a benchmark, your less expensive product will be viewed as an even better value. Offering even a small discount and then contrasting the new price to the competition will be very appealing, even if your pricing are identical to those of your rivals.

Using methods for reference pricing

Imagine Zappos wishes to promote the purchase of a specific brand of dress shoes. They may employ one of the two strategies illustrated above: either they could promote the shoe as part of a favourable comparison while offering a sale and displaying both the old and new pricing. They could also combine the two:

Keep in mind that things that are genuinely on sale are not the only items for which reference prices can be used. The most important thing to keep in mind is that customers are extremely sensitive to comparisons, so the more favourable comparisons you can provide, the more likely it is that they will view your store as a place where they can obtain good discounts.

People don’t simply buy products based on how much they value the goods; they also buy things based on how much they value the deal.
Give your customers a reference pricing wherever you can so that your offer appears favourable in contrast.
Make that the reference price, whether it be an older pricing, a price from a rival, or the cost of a comparable or related product, is accurate.