What is behavioral pricing?

Behavioral pricing is a marketing approach that focuses on how consumers react to different prices offered for a product or service. This approach draws on consumer behavioral data to establish pricing strategies tailored to their preferences and purchasing habits. The main objective of behavioral pricing is to maximize profits by using price persuasion techniques that would influence consumers’ purchasing decisions.

Where does this behavioral pricing approach come from?

Behavioral pricing is largely inspired by psychological research into how consumers make purchasing decisions. It subsequently developed to become a marketing technique in its own right to help businesses so that they could better understand the factors that influence consumer purchasing behavior. The principle then consists of using the knowledge obtained to encourage consumers to initiate the act of purchasing. Behavioral pricing emerged during the 1970s and 1980s and has become increasingly popular in recent decades, particularly due to the rise of information technology and the growing availability of behavioral data on consumers.

An example of behavioral pricing

Here is a concrete example of behavioral pricing.

An online retail company sees a tendency for consumers to purchase a product when they see that other people have already purchased that same product. The company then decides to analyze this information in order to encourage consumers to purchase the product by displaying the number of times the product has been purchased on the company’s website.

When a customer visits the site and sees that many other people have purchased the product, they are more inclined to buy it too because they perceive the product as a popular and quality product. This is called the mass effect or group effect, and it is a representative example of how behavioral pricing influences consumer purchasing behavior.

How to identify consumer behavior?

Survey customers

First, it is possible to collect data on consumer behaviors by conducting online or in-person surveys.

Analyze sales-related data

By using the company’s sales data, it is possible to better understand consumer behavior. The frequency of purchase, the amount spent as well as responsiveness to promotional offers constitute valuable data in understanding consumer behavior.

Track consumers online

When browsing the web, consumers’ attitudes can be tracked by companies with the use of certain tracking tools such as cookies and tracking pixels.

Observe live

However, it is possible to observe consumers’ purchasing habits in person. By going directly to the store, we have privileged access to consumer behavior because they act before our eyes. One of the most used approaches by businesses is setting up live events. This makes it possible to group several consumers together at the same time and observe their reactions to different price and marketing stimuli.

To conclude, when collecting consumer information, applicable privacy laws and regulations must be respected. Consumers must obviously consent if the company wishes to be able to process the information obtained.

What is the cost of implementing a behavioral pricing strategy?

The total cost depends on many factors such as the complexity of the strategy, the amount of data to collect and analyze, and the internal and external resources required.

Cost of data collection

It is common for companies to have to pay to gain access to certain databases or to carry out in-depth consumer surveys.

Cost of data analysis

Certain data requires the use of data analysis software and/or analytics consultant services. However, these uses are chargeable and therefore influence the total cost of implementing a behavioral pricing strategy.

Cost of implementing the strategy

In some cases, it will be necessary to pay to update a website or sales management system to include this strategy.

Cost of strategy management

Strategy management also requires costs, particularly in carrying out tests and adjusting the strategy based on the results obtained.

It is difficult to give a precise cost without knowing all the details of the behavioral pricing strategy and the overall strategy of the company. However, it is strongly recommended to carry out a detailed cost assessment to better understand the total cost of implementing a behavioral pricing strategy.