Industry • Perspective
The Psychology of Pricing: Maximizing Client Value While Maintaining Profits
Nov.14,2023By Boulevard Staff
Why higher prices can be more effective at portraying value and influencing purchases than a bargain
Attaching a dollar value to your salon or spa’s services is a delicate dance. You want to ensure clients receive the best value for their money, but you also want to maximize profit margins. Going with the lowest price you can get away with is tempting — everyone loves a bargain, right? But the number attached to your offerings does a lot more than bring in cash. In fact, it can change how current and future clients perceive your entire business; a higher dollar value can be more enticing and more effective at increasing sales than a lower one.
It all comes down to human psychology. People see prices as an assignment of value and make decisions based on whether that value offers any meaning to them. By understanding the relationship between pricing and human behavior, you can adjust your own menu’s prices to reflect the unique value of your services, influencing clients to perceive them as worthwhile investments in their well-being, all while enhancing your bottom line.
The informational value of pricing
The prices that you set aren’t just a way to generate profit. They are a tool that salons and spas can use to convey information about the value of the services they provide — especially if the perceived value of those services is difficult to describe. And while setting the price of a haircut too high will scare people away, setting the price too low will raise doubt as to the quality of your service.
Let’s explore this with an example: The Hermès Birkin bag is one of the most sought-after handbags in fashion, with some designs easily fetching six figures at auction. However, if a reseller lists a bag on eBay for $20, you will instantly start asking questions about the quality and validity of this listing. Is this an actual Birkin bag or a knock-off? Is the condition as good as the seller claims? Is the seller trying to rip me off?
The same psychology applies to salon pricing. If your business offers luxe-quality services but charges budget prices, people will likely assume that the quality of your services is on par with other budget salons, rather than thinking they’re getting a huge bargain.
Be sure that you’re doing your research — look at what similar salons or spas charge for their services, as well as what your current clients are responding to — and adjust pricing accordingly. If you’re finding that your staff is spending most of their time servicing clients and your retention rates are high, it may be time to increase prices. You may be surprised at how receptive your clients will be to the change.
Pricing tricks that influence client behavior
In addition to controlling the perception of service quality, how you price your salon or spa menu can impact consumer behavior. These tricks can influence what your clients buy or the frequency of purchases, helping to increase profit margins with minimal lift.
Human memory and decision-making are often influenced by two factors: primacy (the first thing a person sees) and recency (the most recent thing a person sees). Anchoring relies on primacy to influence purchasing decisions, wherein a potential client sees one price first and bases subsequent decisions on this initial information.
Salons and spas can use anchoring in several ways. They can display the higher “retail” value of a particular product or service and list the discounted price underneath it to underscore its significance. If your business offers several tiered bundles, you can showcase the most expensive package first and list less-expensive tiers after it — effectively weighing the cost savings of your lower-cost items against it to highlight their value.
Have you ever been to a fast food restaurant and opted to splurge for a large soda or fries because it’s only a few cents more than the medium? Then you’ve been influenced by decoy pricing.
Your business will need to serve both budget-conscious clients looking for a little bit of luxury as well as those for whom price is no object. However, you still want to push as many people into your higher-tiered services and products as possible. To do this, you need a mid-tier item that serves as a bridge to the more expensive service that you actually want to sell.
For example, you could offer a no-frills manicure for $10, a spa manicure for $18, and a deluxe gel manicure for $20. In this case, the spa manicure is the decoy pricing for the deluxe package — which is the service that offers you the most significant profit margins.
Ever wonder why everything you buy at retail ends in 99 cents instead of a flat dollar amount? Thank the psychology of charm pricing.
Charm pricing relies on the psychology of odd dollar values to increase the perceived value of a particular product. A study conducted by MIT and the University of Chicago analyzed the price of a specific item of clothing marked at $34, $39, and $44. Customers responded best to the $39 price point — even though a cheaper option was available.
The number 9 is particularly valuable with a charm pricing strategy because it changes the left-most digit in the cost of an item to a lower amount without negatively impacting profits. In the above example, $39 feels much less expensive than $40, even though it’s only a dollar off. And the increase in sales is enough to offset the slightly lower price point.
Experiment with the pricing of your services to try to take advantage of charm pricing psychology. A decrease of a dollar — or even a penny — that drops the cost to a psychologically compelling odd number can pay dividends.
How consumption affects sales
Bundles and membership programs are helpful ways to increase sales while offering additional value for your clients. However, it’s crucial to understand how the consumption of those offerings can affect repeat purchases — both for good and ill.
For example, your business may offer monthly and annual subscriptions to a loyalty program that provides additional benefits for repeat clients. While the yearly subscription may offer more value to clients in the form of a less expensive upfront cost, you may find that those clients use their subscription less than those who subscribe monthly — and are less likely to renew their subscription as a result. Monthly subscribers are constantly aware of the need to receive value for their purchase, while the larger purchase of an annual subscription can quickly fade into the background after a few months. Keeping your business top of mind for yearly subscribers is crucial for ensuring that they’re continuing to receive value for their purchase, increasing the chances they’ll come back for more.
Bundles are another area where you must ensure that the value provided is clear. Sure, clients may understand they’re getting multiple services at once for a lower price, but unless this is spelled out clearly, they may not internalize the full benefit of what they’re buying. Offering an itemized receipt of the original cost for each service along with an adjusted total will help form a psychological link between payment and benefits.
However you approach your pricing structure, it’s essential to constantly analyze your sales data and experiment with ways to enhance the perceived value of your salon’s services. Lean on your marketing suite, test, and adjust as you receive new data — you’ll likely find that you’re able to optimize pricing to maximize revenue along with client satisfaction.