A Quick Guide:

How to Present Prices to

Reduce Sales Friction

By
Per Sjöfors
aka “The Price Whisperer”
 A Quick Guide:
How to Present Prices to
Reduce Sales Friction

Introduction

The price is where the rubber meets the road whenever you sell something. It is the point
you will get the business or not. How the price itself is presented will affect your closing
rate. In this guide, I will explain how you and your company can ensure that you present
the price in such a way that minimizes sales friction and maximizes sales volume - often at
higher prices.

Context

First, we must consider that every purchase we make is made within context. This context
is internal and external to the buyer at the purchase decision point.

The internal context is called heuristics and combines the in uences we amassed leading
up to the purchase decision. This includes what we might have read about the product or
service, the advertising we might have been exposed to, and what we might have heard
from other people who bought the same product or service or purchased something from
the same vendor, retailer, or manufacturer. Heuristics also includes earlier experiences with
the product, the service, the vendor, the retailer, and competing products.
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 The external in uences we use when making a buying decision are the price and the
context in which the price is presented to us. This includes text, images, and messages
around the price, even how the numbers themselves are formatted. Get it right, and sales
friction is minimized, get wrong, and your company will not reach its true potential.

All of this is called the Decision Landscape. This is not something I pulled out of a hat but
has been investigated and con rmed by three Nobel Prize winners, among others. First,
Herbert Singer (Noble Prize 1978) established that we are not using an optimal context
when making a buying decision and that we accept decisions that are "good enough."
Second, Daniel Kahneman (Nobel Prize 2002) established that we rst evaluate and decide
which of the inputs we will use (that may include or exclude relevant context) and then use
the sub-set of inputs for the decision. Kahneman also established that our fear of making
the wrong purchase decision in uences our decision more than twice compared to the
expected bene t of the purchase. Finally, Richard Thaler (Nobel Prize 2017) concluded that
small changes in the decision landscape would change how we make our purchase
decision. He called this the Nudge Theory. Thaler also found that we put our prior
purchases in mental compartments and that they are not always in uenced by consequent
purchases (as they possibly should be).

The result is that a seller can in uence how a buyer makes its purchase decision by
providing context into the buyers' decision landscape that minimizes sales friction and
in uences a higher willingness to buy and pay. This is why advertising, discounts, product
bundles, etc., work.
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Examples

But let's start from the other side - companies are making serious mistakes here.

Example 1:

This company is a signi cant public tech company. When I spoke to them, the reason for
the call was that their customers (and non-customers) complained about their pricing. But
the company was not pro table and needed to increase prices but felt they would not be
able to do so due to the constant complaints about their high prices. They told me they
thought their prices were low, there "should" be room for price increases, and they could
not understand the constant complaints.

I took a look at their website, and especially the pricing page. The website was very
technical and short of what bene t a buyer would enjoy once their prospects became a
customer. The pricing page was one of these long pages that needed me to scroll down to
get to the actual price. The text, including customer testimonials, which I read as I scrolled
down, was a never-ending story of how cheap the company's service is.

Endlessly repeating how cheap and affordable the company's service is sets an
expectation in the potential buyer's mind of very low prices. The low price context to the
price set an expectation that prices would be so low that, in fact, it did not matter
whatever the prices were; a potential buyer inevitably perceived them to be very high—
creating unnecessary sales friction.
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After this website review, I spoke to the company and told them my assessment, as just
mentioned. I also advised them to remove prices from the website - this service requires
some technical con guration; thus, a sales rep and engineer would need to be part of the
sales conversation anyway. Furthermore, due to the technical nature of the service, a
customer would not simply buy from the website. In a subsequent follow-up conversation,
the company told me they had removed the pricing page from their website - with the
result that prospective customers stopped complaining about the high prices. Removing
the pricing page solved the price friction problem, and they were consequently able to
increase prices to become pro table. And still are.

Example 2:

A few weeks ago, I was looking for a shared storage service for the les my team and I
need to share. Having had a poor experience with some of the market-leading companies
in this space, I decided to check out some lesser-known competitors.

The general price structure of these services is pretty well established. It typically (at least
in my experience) is a per-user price that scales with the amount of storage the user wants
access to. The price levels are also pretty well established. It is typically around $10 - $15
per user per month. Maybe a little less or a little more from a few vendors.

You may understand my astonishment when I checked the pricing page of one of the
minor players in this eld. Here displayed in a font big enough to take up 1/4 of my screen
height and in a bright color, was: $385. I almost fell out of my chair.
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 Ok, I then looked at the ne print, which said the $385 was for a lifetime subscription. And
I could now also see that the company also offered an option for a monthly subscription.
But the damage was already done, and I clicked away, crossing off this company as an
alternative for shared storage even though $385 for a lifetime is not a bad price compared
with typical subscription prices, as the ROI is a couple of years. That's assuming the
service works and the company stays in business for that long. I'm sure I'm not the only
one, and the company will lose many potential customers from this chock treatment.

The company violated several of the "rules" we discussed above:

• It is a minor player in the shared storage business and thus does not have a

recognized brand name. Brand, as mentioned above, is a promise of quality and

bene t. To spend $385 per person on a lifetime subscription is simply too risky for
the vast majority of potential buyers. A leading shared storage vendor could
possibly get away with this pricing strategy, but a no-name company cannot.

• By emphasizing the price in the way they did (the font size, bold color), the

company made the price the only reason to buy. Or, in this case, for me, not to buy.
I don't recall if they had any bene ts or features statements on the pricing page. No
context. The way the high price was presented overshadowed anything of
uniqueness and value they would have attempted to communicate.

The bottom line, the company decided to scare away potential customers with the way
they presented their prices. Not something I recommend.
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Example 3:

This company provides a tech platform to corporations and other organizations allowing
these companies to sell a service to the ultimate customers. It is a marketplace that
connects buyers and sellers, allowing sellers to market their services to buyers. The buyers
place orders on the platform, and the entire transaction is facilitated on the platform.

The market the company is in is relatively commoditized. There are a couple of fairly
dominant platform providers in the market and a slew of smaller companies that all provide
similar main functionality. I'm sure there are differences in features and functions looking
deeper into the product, but for a casual viewer and potential customer, they all look pretty
similar. My company is a customer of one of the leading platforms here.

A company or organization wishing to use one of these platforms signs up online. Thus,
they all have their pricing structure online. Also, pricing is commoditized, with virtually all
the platform providers charging sellers a small percentage of their transaction fee, very
much in line with the fees credit card companies charge vendors.

So here we have a situation with a pretty commoditized marketplace with several vendors
selling similar services with a similar pricing structure and commission-based levels. They
also all provide a freemium service. Thus, there is very little sales friction here. If the seller
successfully promotes its services, they pay a commission. If not successful, there is no or
minimal cost.
 But this doesn't apply to the speci c company in this example. Having educated myself on
the pricing structure of the various competitors and alternatives in the market, I (again)
almost fell off my chair when I saw the company's pricing page. It was a good-better-best
offering, and so far, so good. The rest was not. Let us consider:

• First, as opposed to all their competition, this company charged their customers a

at fee. The at fee means that as a seller, you have to be pretty sure about how
much you would sell or use the platform to justify paying a xed fee when the
competition's price is based on usage and the success of using the platform.

• Secondly, it was the scaling the company decided on - it was based on the number

of administrators of the platform. Again, as opposed to competitors who charge a

commission based on how much business ows to the companies using the
platform.

• Thirdly, it was the actual price levels. For two admins, it was $12,000/year, and for

ve admins $19,000/year. Then there was also a "call for enterprise pricing" level.

So, what went wrong here? Well, just as in the previous example, we have a company that
is a minor player in a commoditized marketplace that decides to use a pricing strategy that
signi cantly increases sales friction. Therefore, buying from this company is seen by buyers
as a high-risk option. The risk is on you as a buyer, whereas the competition, with
commission-based pricing, takes the risk.

When I spoke to the company, the salesperson spent at least 10 minutes trying to
convince me that their pricing was cheap and much more affordable than the competition.
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I did not buy it, and neither will most of their prospective customers. The company is small
and struggling and will continue to do so until they change their pricing strategy.

A better way

So, what is a better way? Well:

Your price has to make sense to your customers. Unfortunately, in examples two and
three, the pricing structure is so far away from what a buyer would expect, based on what
is common among competitors. Therefore, it creates very substantial sales friction.

But it is not only the price structure that matters. Let us dig a little deeper into how we
make our purchase decisions. Warren Buffett famously said, "Price is what you pay - value
is what you get." Think of what this means. "Price" is negative. You or your company pay
for something, and thus you are deprived of cash - negative. "Value" is positive. You or
your company get something of importance. Something that makes a difference. So, when
you present the price to your potential buyer, you also need to present the value or bene t
the buyer will get. Something many companies forget. Like in the rst example, they kept
repeating how cheap their service is and did not mention the value and bene t their clients
would get. Likewise, it is pretty common to rattle off features and functions on a pricing
page but not mention speci c bene ts. But both need to be included - to offset the
negative impact on potential customers of the "price."

Price Walls are psychological price points where a large number of potential buyers in a
market all agree that the negative impact of the "price" is more important than the bene t
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 of the "value". The result is that if your price is on the wrong side of one of these Price
Walls (i.e. too high), it does not matter much what you do - unless you lower the price to
below a Price Wall, you will not see much sales. Thus, it is absolutely crucial that you and
your company know at what price these Price Walls occur so you can price on the right
side.

Certainly, in B2B sales, you probably want to scale the price based on some variable that
makes sense to the buyer. In example 2 above, the price scaling is based on the storage
capacity and the number of users. This makes sense, and this has become the industry
norm. In example 3, the company violated industry norms by scaling by the number of
administrators while competitors scale based on sales on their platform. Make sure you
scale your product based on what makes sense to the buyer.

If possible, you also want to spread out the payments, so selling a subscription as
opposed to a one-time fee. As buyers, we rarely add up a monthly subscription fee to the
yearly cost. Thus, it signi cantly reduces sales friction. Even if what you sell in your
company does not make sense as a subscription, you may still want to spread out the
payments somehow.

Many companies selling a subscription present the price as a monthly fee but then in the
ne print say they will charge their customers annually. I know this works as the customer
makes a buying decision based on a relatively low monthly fee and will only discover that
the charges were annual when looking at their credit card statement. But, honestly, I think
this is borderline unethical, even though it is not illegal, thanks to the ne print. You decide
if this is within your ethical boundary or not. Solely for the ethical impact, I would prefer to
display an actual monthly price and then offer a discount for those buyers who elect to be
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charged annually. So, something like: 11.99 per month if billed monthly, or 119.64
(equivalent to 9.97 monthly) if billed annually. A more honest presentation, in my view, but it
achieves the same objective: to lower sales friction.

Other actions

But there are also more subtle actions companies can do to reduce sales friction:

We are all familiar with Pricing On The 9, meaning you price $9.99 instead of $10 or
$999.99 instead of $1,000. It is clear from multiple empirical research projects that Pricing
On The 9 decreases sales friction and can increase customer spending by up to 20%. But
there is more to this. First, ending the price on a 7 is typically more effective in reducing
friction than ending on a 9. Furthermore, suppose you sell a high-value, differentiated
product or service like capital goods. In that case, Pricing On The 9 devalues that high-
value product or service, and this strategy should therefore only be used for commodity or
near-commodity products or services.

As humans, we cannot avoid comparing numbers. We see one number and another
number, and we decide which is higher and which is lower. This can be used in a method
called Price Anchoring or, as I prefer to call it, Price Imaging. The trick with Price Imaging is
to have your customer read a high price rst and then a lower price, the price of what you
want to sell. By rst exposing your customer to a high price, it sets an expectation of cost.
A reference and consequent prices they read will appear more affordable than should that
anchor or image have not been used. The price image reduces sales friction.
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 The Price Image price also means that the high price should be to the left, as we read left
to right, if, for example, your current prices are on a website. Or, if we are talking about a
price list or a menu (which, if you think about it, is a price list), there should be a high price
in the left top corner. This is what your customers are likely to read rst. It needs to stand
out and be bold. If you don't have a product or service that is really expensive, try to make
a bundle of many cheaper products or services to make it expensive. You may never sell
any of these expensive options, but the point here is to use them to drive sales of other
products or services.

Let me give you an example: My friend owns and runs a Thai restaurant. It is fairly
upmarket and thus fairly expensive. But my friend complained to me that his costs had
gone up so much that he felt he needed to increase his prices. He was worried he would
lose too much sales volume because of the price increase. So, I told him about Price
Imaging and asked if he could place a special meal at the very top left corner of the menu.
His answer what that he had access to some exclusive and expensive sh (not pompano,
as those are pretty common in Thai restaurants) and could use that as the price image
reference. We discussed this further, and I suggested that he should make that dish with
the expensive sh a family meal. So, it would be four servings of the sh dish. The price
here was now really quite high. A few months went by, and when we next talked, my friend
could tell me that they did the price increase (with about 15% - 20% deepening on the
dish), and he made the change to the menu we discussed. The result - a slight increase in
sales volume. My friend was delighted. He also told me they never sold any family meals of
the exclusive sh…
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Price Imaging is also one reason you should have a good-better-best product or service
strategy. But it should be presented as best-better-good, so the highest price of the best
product works as a Price Imaging for subsequent products or services as we read left to
right.

If we remove the comma denoting thousands, a buyer, we will then focus less on the
number of thousands in the price, and the price appears more affordable and reduces
friction. On the other hand, adding the comma puts more emphasis on the thousands, and
the price seems less affordable than it would be if no comma were used.

The dollar sign just in front of the number that is the price of a product or service reminds
the buyer that this is "a price" and that the buyer will be deprived of cash, something
obviously negative when making a purchase decision. Thus, it generates some sales
friction. Removing the dollar sign mitigates that friction. Just consider that removing the
dollar sign may be illegal, depending on local laws and/or for some products or services. If
so, making the dollar sign as small and intrusive as possible (small font and the sign in light
gray) will have a similar effect.

All purchase decisions are emotional. Some more than others, but emotion is always
involved. Even if your company is selling B2B and your clients say they do a technical
evaluation and buy only what is the best value for money, emotions are involved. See my
discussion above about behavioral economics. The buyer will evaluate prior experience
with the vendors and their products or services. They will determine what others may say
and, of course, consider the sales material. Emotions come in when the buyer assesses
how well a vendor is likely to meet or exceed their promises and how they feel about doing
 business with a company. Thus, in all sales situations, B2C and B2B, make sure to use
emotional bene ts statements to minimize sales friction.

Colors also evoke emotions, and you would want your price to be a light shade of either
blue, green, or red, as these are usually seen as emotionally positive colors. The font used
also makes a difference, and you would want to use a font that is thin without being
dif cult to read. This reduces the price's negative impact on the buying decision and thus
reduces sales friction. Never use a bold, black font.

The price, as we discussed above, is negative, as it deprives us of cash. Thus, the price
should not be unduly emphasized as that emphasizes the negative aspect of a purchase.
It should be clear, but by using weak or grayed-out colors for the actual price number,
sales friction will be reduced. For the same reason, it is crucial to always include bene ts
with the price in such a way that buyers read the bene ts before they read the price.
Consider what many companies do when they present prices on their website. They have
a table with three, sometimes four, product or service versions in a good-better-best
fashion. So far so good, but, as we learned above, it should be presented in best-good-
better order. The mistake t many companies make is putting the price at the top of that
table, again emphasizing the price, the "negative." A better way is to put the various
features/functions, and especially the bene ts, on top, ending the table with the price. As a
potential buyer reads (or at least scans the website) left to right and top to bottom, he or
she becomes aware of said bene ts before getting to the price, and prices therefore are
presented in the context of bene ts. Thus, sales friction is reduced.
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 Discounts:

Price and discounts are, of course, intimately related. Discounts are handy tools to close
sales, increase closing rate, and overall drive business. But discounts should also be used
with some level of discretion. Indeed, a company should not get into the habit of always
discounting and discounting deep.

A low price and a discounted high price are not the same things. The price of a product or
service sets an expectation of its quality and bene t. In fact, in many cases, it is the most
potent message of quality. This means that the price sets that expectation of said bene ts
while the discount makes the product or service more affordable, reducing sales friction.
Thus, if you are in the situation of considering lowering your prices, instead introduce a
discount.

As just mentioned, a discount is used to lower sales friction and increase sales volume.
But discounts higher than 15% - 20% will not typically lead to an increased sales volume
but just for the seller to leave money on the table. Discounts above 50% usually lead to a
lower sales volume as the discount sets an expectation among buyers of inferior quality
and bene ts of the product or service. It also sends a message of the desperation of the
seller.

When messaging the discount, use the largest number of percent or dollars. So, for
example, if your product has a list price of $5, and you offer a 20% discount (or $1), use
the 20%. If, on the other hand, your product is $500 and you offer a 20% discount (or
$100), use the $100.
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Discounting also has to be considered potentially dangerous. Exposing your customers to
never-ending discounts will tarnish your brand, and they will expect your product or
services to be low quality and bene t. So, discount with care and only when necessary.
Consider Apple. Rarely do they discount, and if they do, it is not by much. They care
tremendously about their brand and brand value. Instead, what they do is bundle. A
bundle is a discount that does not tarnish the brand, and at the same time, it adds value to
the customers. Assess how you can provide bundles in your company that might be
products only, products and services, or services only. And that will add to the value of
what your customers want to buy.

Summary:

I trust that in this document I have established that how pricing is presented makes a
difference, and that with the information herein, you have a chance to present your price in
such a way that sales friction is reduced and sales volume increases, even at higher prices.
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