Unlock the Power of Psychological Pricing
Your head is spinning often… Should I introduce cheaper prices? Should I raise my prices?
How the hell do I know what to charge?
Even if you think your product value is based on a tried-and-true pricing strategy, supported by competitive analysis and market research,
there’s still another, very powerful way to price your products/services-
— human psychology.
Table of Contents
- Charm Pricing
- Decoy Pricing
- Prestige pricing
- Rounded Pricing
- Pricing Display: Size & Colour does matter
Introduction to Psychological Pricing
Welcome to the world of pricing.
In today’s competitive world, pricing strategy can make or break your business.
You’re in the right place.
By the end of this article, you will understand customer behaviour, emotions, and how they make purchasing decisions. You will be fully equipped to create an effective and profitable pricing strategy.
Your most burning pricing questions will be answered in a moment.
Psychological pricing is a powerful strategy that you can use to influence consumer behaviour and boost sales.
Psychological Pricing is like
unlocking the hidden treasures in a temple locked away behind an intricate array of locks– once you figure out the keys to unlocking it, you are rewarded with an abundance of riches that benefit both the customer and the seller.
What is psychological pricing?
Psychological pricing is a pricing method that rests on the idea that different kinds of prices prompt different psychological responses. For instance, items are often priced at $1.99 and not $2.00 because people perceive odd prices — those slightly less than round numbers — as being lower than they actually are.
Psychological pricing strategies are essentially ubiquitous. When you see a candy bar priced at $0.99 at your local drug store, you’re witnessing an instance of psychological pricing. The same goes for when your favourite clothing retailer offers a “buy one, get one free” promotion.
There’s a diverse array of psychological pricing strategies. Different methods are bound to suit certain companies better than others, and your business stands to gain a lot from finding one that’s in keeping with your products and promotional preferences.
So, it’s well worth understanding how some of these most powerful methods work.
Have you ever wondered why some products are priced at $0.99 instead of a round $1?
It’s because of psychological pricing, a strategy that leverages how consumers perceive price points and value.
For instance, studies have shown that customers perceive prices ending in a “9” to be lower than prices that include a “5,” creating a mental disconnect between the price being presented and the perceived value of the product.
This suggests that strategically placing price tags on products could increase the number of sales, as the customer may perceive a higher value from a more “rounded” pricing strategy.
You might also consider the fact that people like to experience the feeling of getting a good deal, and this can be influenced by your pricing strategy. For instance, running discounts at certain times could be a great way to create incentives for customers to purchase at a specific time, as the feeling of getting a “better deal” would be likely to increase the desire to buy.
Finally, you have to be aware of how your pricing will work in its entirety. Customers might be more likely to purchase, for example, when an item is priced slightly just under similar things they have viewed online.
This shows that carefully choosing your product’s price in comparison to your competitors’ products could be a great approach to maximize sales and improve client satisfaction.
Let’s examine the 8 most effective strategies.
- Charm Pricing
- Decoy Pricing
- Prestige Pricing
- Rounded Pricing
- Pricing Display: Size & Colour Does Matter
Bracketing is a strategy that offers buyers multiple products at different prices, with a single product that the seller wants most buyers to choose.
To lead buyers to the preferred product, sellers offer three choices:
- a lower-quality option
- your preferred median option
- a premium option
The key here is to offer your lower option at a bargain and the premium option at a significantly higher price point.
What bracketing works like crazy?
Consumers tend to avoid extreme options, so the median option becomes the most appealing and valuable.
Let’s say you’re pricing a gaming console. You offer three separate iterations — lite, standard, and pro — at different price points.
You’re looking to make the standard option as appealing as possible. The lite option has fewer features than the standard model, and the pro-option isn’t of considerably higher-quality than the tier below it.
For this strategy, you’d price the lite option slightly lower than the standard, and you’d price the Pro model considerably higher than its median counterpart. The idea is that consumers won’t see the lower quality option as a considerable bargain, and will see the higher-priced option as having frivolous features that aren’t necessarily worth the higher price tag.
By bracketing your standard option, you’re creating the impression that it’s the most sensible, valuable choice.
2. Charm or Odd Pricing
Charm Pricing is a technique that involves pricing at odd numbers, often ending in nine. Research shows that consumers perceive prices ending in nine as cheaper than those ending in zero. For example, a product priced at $39 might sell better than the same product priced at $34.99.
In 2003, researchers from MIT and University of Chicago conducted an experiment about pricing in retail. They offered the same piece of clothing at three different prices — $34, $39, and $44.
They found that the product sold best at $39 — even better than the option that was $5 cheaper.
Another study found that consumer goods priced with “.99” endings were consistently perceived as being considerably less expensive than those that ended in “.00.” The results of both experiments are a testament to the power of “the magic nine.”
There’s a reason gas and retail prices typically aren’t listed as even numbers.
Charm pricing is one of the most prominent psychological pricing strategies employed by businesses, and for good reason — it’s ridiculously easy to do and is incredibly effective
3. Decoy Pricing
For instance, if a small popcorn costs $3 and a large cost $7, introducing a medium option for $6.50 can make the large popcorn seem more valuable
In all likelihood, a disproportionate number of consumers will favor the small option because it clearly appears to be the better deal.
if you were to introduce a medium option for $6.50, the $7 suddenly seems more valuable — consumers will choose the large bucket because they think they’re getting a substantial upgrade for just $0.50.
In this case, the medium option would be considered a “decoy.” The objective in this scenario was to sell as many large popcorn tubs as possible. The medium option itself was virtually irrelevant in this context. Its sole purpose was to frame the large popcorn tub as being more reasonably-priced than it actually was.
4. Innumeracy /BOGOF’: Buy One, Get One Free
Innumeracy is a strategy often employed in retail. Say you’re offered two deals.
One says, “Buy one, get one free,” the other says, “Two items 50% off.”
Which of the two sounds better to you? If you’re like most consumers, you’d probably say the first — even though both pose the same value.
This trend is the basis for a psychological pricing strategy known as innumeracy. It plays on consumers’ lack of motivation, inclination, and ability to apply fundamental maths principles in everyday life.
Taking fractions and percentages out of the promotion of flash sales, general discounts, and other deals is a straightforward, effective psychological pricing strategy that businesses should always consider employing
Price anchoring is a way that companies use pricing to help people make decisions about what to buy.
It works like this: a company will set a super high price for a product, like a super fancy toaster, so that when they offer a different toaster at a lower price, it still looks like a good deal.
For example, if the super fancy toaster cost $100 and the more basic toaster cost $50, then $50 looks like a great deal, even though it probably isn’t.
Why it works like crazy?
When you price your product at flatly $50 — without any additional context — you create the impression that your product is worth exactly what you’ve priced it at.
But when you introduce a high price (an anchor) of $100, crossing that price out and displaying a “discounted” price of $50, then this price of $50 seems like a bargain (%50 discount).
Wohooo. You have just discovered the most powerful ways to price your products. Most powerful ways to find the “sweet spot” in your customers’ minds
6. Prestige Pricing
Raising Your Prices to Increase Perceived value and Sales
Prestige pricing is when companies set their prices higher than normal to make people think their products are special and worth more money.
For example, a company might charge $100 for a t-shirt when similar ones are being sold for $20. People would think the $100 t-shirt is special and better quality, so they may be willing to pay the higher price.
Examples of companies using prestige pricing include
charges a premium for iPhones, MacBooks, and other Apple products
charges a premium for its designer handbags
charges more than other watchmakers for its luxury timepieces
7. Rounded Pricing
The charming pricing strategy works for rational purchases, but if your customers buy for pleasure-you will sell more
Using ‘double 0’ style pricing (which rounds up for neat amounts).
These are emotional purchases.
The experiment conducted in 2015 proved, found that
Customers prefer to buy a bottle of champagne priced at $40.00 rather than at $39.72 or $40.28.
Emotional purchases “feel right” with rounded prices.
It’s efficient because the purchase is being driven by feelings, and rounding up the price to a “neat” amount also gives an easy-to-understand cost figure that customers appreciate.
Instead of having to remember the exact amount, like $10. 99 or $11. 45, they can just remember the rounded price, like $10 or $11.
This allows them to make decisions quickly, as the numbers often have an intuitive appeal.
If you want your customers to make an emotional purchase, using the rounded pricing strategy will help you increase your sales. People are more likely to make an impulsive purchase when the price is rounded, as it helps the customer engage with their feelings. Seeing the neat, round numbers will help them make a decision more quickly compared to more complex prices.
Luxury brands highly benefit from rounded pricing strategy.
Gucci, Guess, Apple, Louis Vuitton just to name a few.
Let’s say you buy a bag. A bag from Mango for $ 50 or Louis Vuitton for $ 10000. No matter the price, the bag is just a bag and its duty is to carry your stuff.
When emotions take over the logic, we end up buying expensive purchases. It increases self-esteem, provides a sense of belonging, or shows a sense of accomplishment.
8. Pricing Display: Size & Colour Does Matter
Pricing display is when businesses think carefully about how they show their prices to customers.
They use size, colour, fonts and other cues to make prices stand out, remembered or make it feel it’s a good price.
Bigger and brighter price is easier to remember.
“SALE” banner is usually red or other eye-catching color.
You can display premium prices in a subtle way-smaller font size or without zeros at the end. For example, “49”, instead of “$ 49.00.
The human brain perceives shorter prices to be cheaper than longer prices, even if they are the same.
A study by Puccinelli showed that men are more likely to make a purchase when prices are shown in red instead of black. This is because the colour red makes a quick impression and draws people’s attention, while other details of the advertisement like descriptions, visuals may not be processed. Additionally, people associate red prices with savings.
- Red – Red is often associated with discounts, specials, and urgency, making it a great tool for sale pricing and limited-time offers.
2. Orange – Orange can give the impression of friendly, inviting energy, and is a great choice for pushing impulse buys or price drops.
3. Green – Green is the go-to for healthy deals and eco-friendly solutions, making it a great choice for natural and organic products.
4. Blue – Blue conveys trust and authority, and is a great option for higher-end, luxury products.
5. Neutral – Neutral colors like black, grey, and beige convey professionalism, making them a great option for businesses offering professional services.
If you’re using red for discounts and specials, make sure to clearly communicate what the offer is and encourage users to act now.
Make the most of a color scheme and pair it with well-crafted copy. It’s possible to make an impact that leads to conversions.
Advantages and Disadvantages of Psychological Pricing can have a significant impact on consumer behaviour.
Keep reading to discover main advantages and disadvantages
Many psychological pricing methods require little effort or meaningful price reductions to see higher returns. For instance, dropping a price from $10.00 to $9.99 has virtually no impact on your profit margins, but can increase demand through its psychological impact.
These methods can also streamline and enhance the purchasing experience for your customers. Almost every psychological pricing method is centered around the process of creating the impression of a good deal. By leveraging these methods, you can sell at price points that both put customers at ease and work well for your business.
A well-crafted psychological pricing strategy can also capture consumer attention for similar reasons. If your methods can create a solid perception of value, potential customers will take notice. Everyone loves a good deal, an effective psychological pricing strategy lets the world know you’re offering one.
Let’s summarize advantages of psychological pricing
- Increases perceived value: Consumers tend to perceive products priced using psychological pricing strategies as more valuable.
- Boosts sales: Pricing products at odd numbers or offering discounts can attract more customers and boost sales.
- Competitive edge: Using psychological pricing can give your business a competitive edge by making your products appear cheaper or more valuable than competitors’.
Psychological pricing might seem like a sure-fire home run for your business, but it relies on the idea that consumers operate according to collective patterns of behavior. It can be easy to assume that those trends will always hold up, but consumers are often more rational and savvy than some businesses give them credit for.
Consumers seeing through your psychological pricing strategy and feeling manipulated is a risk you often run with these tactics. The best way to avoid this pitfall is to be reasonable with your methods.
Don’t price specifically to push a deal that’s clearly not in your customers’ best interest. A psychological pricing strategy rooted in outright greediness or shifty intentions might be transparent, and you could lose credibility when customers figure it out.
Psychological pricing is a concept that can take on many forms, so it might be hard to determine which strategy (or strategies) will work best for your business.
Still, it’s worth understanding the principles behind it and trying to identify methods that are in keeping with your sales process, sales methodology, and company values.
Let’s summarize disadvantages of psychological pricing
- Negative perceptions: Some consumers view psychological pricing as manipulative and dishonest, leading to negative brand perceptions.
- Complex strategy: Implementing psychological pricing requires in-depth knowledge of consumer behavior and can be challenging to execute correctly.
- Reduced margins: Discounts or promotions can reduce profit margins, and low prices can harm a brand’s perceived value and quality.
By understanding the psychology of consumers and the power of pricing, you can increase your sales and grow your business.
Psychological pricing is used to make you open up your wallet. Choose wisely a pricing method to create the most effective pricing model for your business. Additionally, monitor the success of each pricing strategy over time and make adjustments as needed.
If you use these pricing strategies strategically and consistently, you will create an effective pricing model that will attract more customers and generate more revenue.
Not only this…
It will better satisfy your customers.
So, it’s a win-win.
Psychological pricing is a creative way to sell more. By leveraging psychological pricing effectively, you can gain a competitive edge and create a positive brand perception among consumers.
You have just discovered the most powerful psychological pricing methods you can employ into your business.
Get creative and implement psychological pricing strategies that billion-dollar companies use every day to make billions.
Choose the right pricing method for your products and services.
So, if you have a great premium product, don’t be afraid to raise the price.
By putting your price above the competition, you are likely to outperform the super cheap competition.
Would you expect the same quality from a €10 course and a €1000 course?
“What’s the problem? What’s the catch?”
It’s much more likely to sell at a price that seems reasonable, than something that knocks the reader off their chair with the cheap price.
Only years ago, People wanted things that were very reasonable, cheap and they worked. They were practical and accessible.
Times have changed.
Nowadays, it has to be the fastest, the best, the most powerful, the coolest, the easiest and least complicated to use. Now is the best time to take advantage of it.
Do not put your products on the bargain list if they are premium products.
Whatever pricing you choose, make sure your pricing strategy matches your product and your market.
The first question you have to ask yourself is:
- Is it an emotional or a rational purchase?
Is there an emotional appeal of your product or service
- experiment with different pricing strategies
Explore tools such as A/B testing to help you compare different prices and gain insights into customers’ preferences.
And always think about the value it provides.
Take into account the following advice if you want to further enhance your pricing approach.
To compare rates and learn more about your clients’ preferences, look into using tools like A/B testing first.
Second, keep an eye on your competitors’ price and make any adjustments if needed.
Finally, while choosing a pricing, take into account the emotional appeal of your good or service; this will enable you to connect with potential clients more effectively and increase earnings.
To make sure you’re charging a reasonable price, accurately evaluate the worth of your services.
You can increase your profitability and maintain an edge over the competition by putting these methods into practice.
If you find this article helpful, please leave a Facebook/Google review,
because positive feedback & customer success is what motivates me to create more for you.
Spread the love and share this article.