evidence-based-pricing

What this skill does

# Evidence-Based Pricing

Behavioral economics applied to pricing decisions. All tactics are testable hypotheses until validated with your data.

## Evidence Marking

- 📚 = Peer-reviewed academic research
- 💼 = Practitioner-validated (widely used, not academically tested)

## Core Principles

| Principle | Effect | Risk | Source |
|-----------|--------|------|--------|
| **Anchoring** | First price sets reference | Low | 📚 Tversky & Kahneman, 1974 |
| **Decoy Effect** | Inferior option makes target shine | Medium | 📚 Ariely, 2008 |
| **Charm Pricing** | $X99 feels cheaper than $X00 | Low | 📚 Thomas & Morwitz, 2005 |
| **Choice Overload** | Fewer options = more conversions | Low | 📚 Iyengar & Lepper, 2000 |
| **Center Stage** | Middle option chosen more | Medium | 📚 Valenzuela & Raghubir, 2009 |
| **Endowment Effect** | Ownership increases value | Low | 📚 Kahneman et al., 1990 |
| **Loss Aversion** | Fear of losing > desire to gain | Low | 📚 Kahneman & Tversky, 1979 |

## Decision Framework

### When Analyzing a Pricing Page

1. **Audit current tactics** — Which principles in use?
2. **Identify gaps** — Which low-risk tactics missing?
3. **Prioritize tests** — Start low-risk, high-impact
4. **Define metrics** — Conversion, plan distribution, refunds

### When Designing Pricing

1. **2-3 options** — Avoid choice paralysis
2. **Charm pricing** — $199 not $200 (value positioning)
3. **Social proof** — "Most Popular" on target plan
4. **Anchoring** — Show reference price or lead with higher tier
5. **Test one variable** — Isolate changes to measure

### Testing Priority

| Priority | Tactic | Why |
|----------|--------|-----|
| 1 | Anchor text | Zero risk |
| 2 | Presentation order | Zero risk |
| 3 | Social proof badge | Low risk, proven |
| 4 | Charm pricing | Low risk |
| 5 | Strikethrough pricing | Medium risk |
| 6 | Decoy plan | Higher risk, test carefully |

## Common Patterns

### 3-Plan Structure

```
Basic $99        Pro $199 [Most Popular]     Premium $349
(limited)        (recommended)               (unlimited)
```

- Center Stage effect pushes to middle
- "Most Popular" adds social proof
- Premium anchors perception

### Decoy Pattern

```
Basic $99         Pro $199 [Decoy]      Premium $249 [Target]
(5 users)         (10 users)            (unlimited)
```

Pro at $199 for only 10 users makes Premium's unlimited look like a steal.

### Strikethrough Pattern

```
~~$399~~ $199
```

- Reserve for sales events
- Risk: Can feel gimmicky if overused
- Monitor refund rates

## Anti-Patterns

| Avoid | Why |
|-------|-----|
| Fake scarcity | Damages trust |
| 4+ options | Decision paralysis |
| Hidden fees | Increases abandonment |
| Discount popups | Trains discount expectation |
| Round numbers for value products | $200 feels more than $199 |

## Metrics to Track

- **Conversion rate** — Pricing page → checkout
- **Plan distribution** — % selecting each tier
- **Refund rate** — By plan (impulse vs. considered)
- **AOV** — Average order value
- **Time on page** — Confusion indicator

## References

- **[references/experiments.md](references/experiments.md)** — Academic studies with citations
- **[references/tactics.md](references/tactics.md)** — Complete tactics taxonomy
- **evidence-based-persuasion** — For deeper research on underlying principles

*Part of the Evidence-Based Marketing series.*