Pricing is an area which isn’t discussed nearly frequently enough. Many businesses never have anything other than a standard retail price, in the hope that some buyers will just pay the full amount. They’ll always have a margin built in for negotiation, however. Others are in markets where discounted prices have to be published or easily available just to stand a chance of competing.
The psychology of pricing – and this includes special offers – is fascinating. If you’ve never really studied the subject, I found this really good introduction – The 11 Ways That Consumers Are Hopeless at Math (sic) – on The Atlantic. There have been loads of interesting experimental results over the years, including that we prefer ‘extra for free’ over a discount. So if you normally sell 10 items for £100, your buyers will prefer a special offer of 11 items for £100 (or “one item free”) over an offer of the normal 10 items for £10 off. If your cost price is £5 an item, then the first offer sees you making £45, while the second offer sees you making just £40, so the customer’s preference is also better for you.
The article concludes: “the shopping brain uses only what is knowable: visual clues, triggered emotions, comparisons, ratios, and a sense of bargain vs. rip-off. We’re not stupid. Just susceptible.”