Pricing Strategy

What Pricing Psychology Techniques Can SaaS Startups Use to Frame Their Offers More Effectively?

Shad Super

• 2 min read

Summary

SaaS startups can use various pricing psychology techniques to effectively frame their offers and enhance perceived value. These techniques include anchoring, decoy pricing, charm pricing, and offering tiered pricing models. By understanding customer perceptions and behavioral cues, startups can better position their products in the market.

Anchoring Effect

The anchoring effect involves setting a price point that customers use as a reference when considering a purchase. For instance, displaying a higher-priced plan alongside lower-priced plans can make the latter seem more affordable. This effect leverages customers' tendency to rely heavily on the first piece of information offered when making decisions.

Example: A SaaS company offers three pricing tiers: Basic, Standard, and Premium. By listing the Premium plan first at $99/month, it makes the Standard plan at $49/month appear more reasonable and attractive by comparison.

For more on this concept, see [Behavioral Economics, 2023].

Decoy Pricing

Decoy pricing involves introducing a third option meant to make one of the other two options look more appealing. The decoy is strategically priced to nudge customers towards the more profitable option.

Example: If a SaaS company offers two plans, one at $50 and another at $100, adding a third plan at $90 that offers fewer features than the $100 plan can make the $100 plan seem like a better deal.

Read about this strategy in more detail at [Simply Psychology, 2022].

Charm Pricing

Charm pricing involves setting prices just below a round number, such as $29.99 instead of $30. This technique takes advantage of the left-digit effect, where customers perceive prices ending in .99 as significantly lower.

Example: By pricing a SaaS at $29.99 instead of $30, customers may perceive the service as more affordable.

For further reading, check out [Practical Ecommerce, 2021].

Tiered Pricing Models

Offering tiered pricing allows customers to choose from different service levels, increasing the likelihood of meeting various customer needs and maximizing revenue. Each tier should provide increasing value to justify higher costs.

Example: A SaaS may offer Basic, Standard, and Premium plans where each tier offers additional features. This structure caters to different customer segments, from budget-conscious users to those requiring comprehensive features.

More insights into tiered pricing can be found at [Forbes, 2020].

References

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