Using psychology in pricing is not a new strategy. Retailers have always been using different tricks to ensure their products sell well. Over time, some Psychological Pricing Strategies showed better results than the others, and what was a good profit-making marketing and pricing strategy in the past, may not be so useful nowadays.
It’s not always about being the cheapest – it’s rather how appealing your price is! So, don’t always rely just on competitive pricing, get creative and try to use imagination to provide psychological price points people just can’t resist!
Let’s try to explain what is psychological pricing first. After that, we will list the top strategies with some psychological pricing examples.
Psychological pricing is a pricing strategy that implies using psychological tricks when setting the price of a product.
In other words, every tactic whit a purpose to “hit the sweet spot in customers’ minds” or to make prices more eye-appealing and customers ready to buy, can be considered psychological pricing. The idea behind this is to appeal more to the customer’s emotions and less to the rational side.
There are many tactics to perform psychological pricing – we call those strategies but it is important to bear in mind that all of them are actually a part of the larger, unique, pricing strategy. This means that they can be combined or modified in order to see what fits you the best and to get the best results from them.
Even though the actual number of possible psychological tactics is only limited by your creativity and willingness to experiment with your prices and perform price testing, we picked some of the most common ones, that showed the best results in different industries.
This is a psychological pricing strategy, or to be more specific – a tactic – where the pricing point is set in a way for the number to look better for a customer.
Charm pricing is a way of pricing where the prices are slightly lower just to avoid the even number. This is why it could also be called odd pricing. If the price ends with 9, it can also be referred to as nine-ending pricing.
The psychology behind this way of setting prices is relatively simple. People tend to read from left to right, so when you put a price of 19.99 it appears lower than 20 because customers will most likely read only the digits on the left side.
Nine ending pricing is the most common tactic, as you already noticed. It is so widespread that it’s almost impossible to go shopping and not see it everywhere. However, this caused people to create some sort of guard when it comes to this kind of pricing. Nowadays, when a customer sees a price ending in 9, he may feel like you are trying to trick him since the tactic is so common. This is why many retailers in recent years are trying to avoid this situation by setting prices to .98 or .95 or even .90. It makes no difference but there is a chance the customer is not going to notice or feel the same way he would if the price was ending with a 9. We looked into the Price2Spy App to find an example: you can see that the product price was ending with 99 and then it switched to 90.
On the other hand, researches from recent years, including the one from the Journal of Consumer Research have shown that using an odd price is not always the best policy. Even or rounded prices can bring better results when the purchase is driven by feelings and not just by pure rational reasoning. For example, if you are booking a hotel for a family trip, you will feel better with the rounded price and on the other hand, if you are booking some rooms for a business trip, you would most likely go for the odd price, having a feeling that you spared some money.
Prestige pricing or premium pricing is the tactic of setting the price in a manner to make the customers feel like they are buying a premium product and getting more features for the given price. The prices are always higher than for the “regular” product and they are almost always rounded, so it is similar to rounded pricing.
The psychology behind this trick is to make the customer feel like they are not “cheap” or not “saving where you shouldn’t save”, Marketing strategy is to make customers believe that they are buying a better product that will provide more options, last longer or simply make them feel better, as a status symbol – because you don’t want to buy a diamond ring and still feel cheap about it.
“Hurry up! 3 hours before this special offer expires! “
If you have ever bought anything online, you most likely run into some offers of this kind. Although it is mainly a marketing trick, it still has a lot to do with the pricing, since the idea is to offer a special price for a limited period of time. The psychology behind this is that an urgent situation is created, so the customer has to make a decision faster. This way, you don’t have much time to look for different offers and compare prices. Also, you will feel under pressure not to miss the chance to buy something for a lower price, so you can rush into a decision and get yourself something you might have not ever wanted, or if you were indecisive, you would decide in favor of buying. We found many examples with Price2Spy app, here is one:
What happened is that the current price is presented as a perfect opportunity for you to buy, while it can actually be the case that the same price will be here again, tomorrow, or next week, or even right after the promo period ends.
To put it simply, this is placing expensive products next to standard ones. This is usually done in the sores, but it’s a common practice online as well. Although this is one of the best psychological pricing strategies, it’s not spread equally in all industries. Most of the time, you will run into this kind of trick in the fashion industry. Many famous brands are placing side by side suites of similar quality, but different prices. Consumers usually tend to take price as one of the quality signs, so if the price is higher, the quality must be better. The idea behind this trick is to make customers buy the more expensive product, expecting to get superior quality. A very good example can be found in a case study published by The Wall Street Journal.
Humans are visual beings and this fact applies to prices. The same price for the same product can bring different selling results – it all depends on how people perceive that price. Here are a few points you can improve, to make your prices better:
You can experiment with the look of your prices and see what is the best fit for you. The only limitation is your creativity.
BOGOF (Buy One Get One Free) is one of the Bundle pricing strategies. Apart from this one, which is the most famous, there are many different variations. For example, some companies started using promotions like “buy one get 2 free” or offering some special credit for the next purchase.
It is not a surprise that this strategy is very beneficial for retailers since it relies on the consumers’ need to get more for the same price. Instead of offering something abstract like a discount can be, where people have to do the calculations on their own, you are offering something material and concrete. For example, people will find it more tempting to buy one product if they will get the other for free, than to get 50% off the price for both products. This is simply because they will feel like they got something realistic instead of just some percentages.
Setting prices is not an easy thing to do. A good pricing strategy can help you, and if you implement some knowledge from psychology and use tactics that have already been proven, you can expect some results. However, planning your price strategy and repricing can be very time-consuming. This is why we recommend using software such as Price2Spy to help yourself out. Take your free 30 days trial and see what benefits it can bring to your business.