Could psychological pricing be the answer to increasing your sales? Most businesses agree that choosing the right price is often the toughest part of setting up a store. Online or offline, the price you charge will determine how effectively you can attract customers. Price too high, and you’ll lose out on sales to clients who simply can’t afford your items. Choose a cost that’s too low, and you risk convincing customers your products are low value.
Psychological pricing is a strategy intended to eliminate confusion and help you find the best pricing based on scientific research. Here’s your guide to using psychology for better pricing strategies.
What Is Psychology Pricing? Psychological Pricing Definition
Before you can begin experimenting with the concept of pricing psychology magic numbers, you’ll need a basic understanding of where this concept comes from.
Psychological pricing is a method of assigning value to your products based on the mental processes that your customers go through when interacting with your company. By understanding some basic components of human psychology, you can predict how your customers will choose which products to buy or services to invest in.
You’ve probably noticed a few psychological pricing examples in your day-to-day life. For example, grocery stores often list prices that end in .99 instead of .00. The nines in the price do a great job at convincing people that they are getting a nice deal.
Psychological pricing strategies can include things like a buy-one-get-one-free promotion that encourages customers to buy products they’d normally otherwise ignore. There are also a host of pricing strategies intended to make your offering seem more luxurious or valuable. To succeed in psychological pricing, you simply need to know how your customer’s brain works.
Let’s dive a little deeper into the psychology of pricing.
Types of Psychological Pricing
As mentioned above, there are various psychological pricing strategy options to choose from. The strategies you use depend on your target audience and the kind of company you’re running. Options include:
A basic psychological pricing strategy, charm pricing is where companies use the odd pricing strategy to make a price look a lot smaller than it really is. Our brains perceive prices like $29.99 and $30.00 as two entirely different numbers. According to studies, the price of $29.99 will seem closer to $20 than $30. Prices like $29.95 and $29.90 could also work.
Prestige pricing is a strategy you’d use for a high-end or luxury brand. The idea is to convince your customer that your product is more valuable because it has a higher price. This strategy works the opposite to charm pricing. If you want a product to seem luxurious and valuable, a rounded number works wonders, encouraging customers to rely on feelings rather than logic.
Freebies or BOGO
We all love an opportunity to get something for free, even if it’s only something small. Adding free delivery to the cost of an item your customer purchases online instantly makes it seem like a better deal. You can also offer ”buy one get one free (BOGO)” options or give someone 50% off their next purchase when they buy something today. The latter strategy encourages customers to come back and spend more, which they may not have done without the offer.
When we’re shopping online or offline, we want to ensure that we’re getting the best possible value for our money. Bundling several products into one purchase can make your customers feel like they’re getting a better deal. Even if the bundle's price doesn't save the consumer more than purchasing the products separately, it still feels as though you’re getting a bargain, and you feel a little less guilty about buying more items. We perceive bundles as a single purchase rather than multiple.
The odd pricing definition can differ depending on who you ask. More than just adding a .99 to the end of your price, the benefits of odd pricing accelerate when you make the displayed price look a little strange. For instance, instead of charging $199.99, you’d charge $187.96. These types of psychological pricing methods suggest that you’ve calculated all of the costs for the different components of the pricing you’re selling, making the cost fair.
Advantages of Psychological Pricing Techniques
Psychological pricing works because it responds to the things that are already happening in your customer’s head. Human behavior analysis consistently proves that we respond in different ways to different numbers in the consumer journey. What’s more, implementing psychological pricing methods usually requires little effort on a business owner’s behalf.
Implementing an odd pricing strategy, for instance, won’t have a huge impact on your profit margins, but it could significantly improve the demand for your products. Some of the biggest benefits of leveraging the psychology behind pricing include:
- Improved customer loyalty: Customers are loyal to brands that offer a fantastic purchasing experience. If you convince your clients that you’re giving them a great deal, they’re more likely to remain loyal to your organization, allowing for more long-term sales.
- Improved revenue: Product pricing is one of the most important considerations for modern customers. A well-crafted psychological pricing strategy improves the chances of your customers taking advantage of available deals.
- Simplicity: It doesn’t take a lot of effort to research your customers and experiment with different pricing strategies. The benefits of psychological pricing are easy to access, and they could transform your business outcomes.
- Competitiveness: A good pricing strategy helps to differentiate you from other companies. Regardless of which strategy you choose, picking a price that’s a little different from those offered by similar companies gives you instant appeal.
- Control: You’re free to use the psychological pricing method that makes the most sense to you. There’s no need to follow the same guidelines as competing brands if you have a plan that works.
5 Psychological Pricing Strategies to Consider
The benefits of psychological pricing can be fantastic. However, before you can leverage them for yourself, you’ll need to figure out which strategies you’re going to use. There’s no one-size-fits-all strategy here. One advantage of psychological pricing is that you can experiment with a range of different options and pay attention to the results in your conversion rates and profits. A/B testing your pricing options will eventually help you understand which campaigns are most likely to push your customers into a purchase if they’ve been sitting on the fence.
Here are some psychological pricing strategy options and when you might use them.
1. Work the Charm
The best-known version of psychological pricing, charm pricing is all about getting into the minds of customers and convincing them that a price is lower than it really is. Typically, charm pricing will involve using .98 or .99 at the end of your price rather than making it a round number. The addition of the “9” in the body of the price makes a significant difference too.
Experts believe that there are many reasons why charm pricing makes a difference to conversions. Some people consider the number 9 to be lucky. Plus, seeing a “lower” number at the beginning of a price means that we give the most attention to that number. This is why people frequently believe that $29.99 is closer to $20 than $30.
If the standard charm pricing method doesn’t work as well for you as you’d hoped, you can extend your strategy even further into odd pricing territory. Consider experimenting with other numbers aside from “9” in your pricing, with options like $27.85, for instance.
2. Try a Mix of Prestige and Odd
If you’re selling high-quality or luxurious items, look at your audience and ask yourself whether prestige pricing might work for you. Studies indicate that customers automatically find round numbers more reliable and convincing for expensive items.
Try mixing up your pricing strategies if you have multiple products to sell. You could use prestige pricing for your more high-end luxury offers and odd pricing for less expensive purchases. Whether you’re selling through a mobile app, a website, or a retail store, being smart about pricing can improve your profits.
3. Let Customers Compare
Speaking of companies with multiple products, there may be times when your company needs to launch two similar solutions simultaneously. The price of one product on your list might be more compelling to a customer than the other. Making it easier for your clients to compare what they’re getting on your site will help them make a more “informed” decision.
This strategy is similar to using bracket pricing, often in the SaaS environment or tech landscape. Bracket pricing involves using different tiers to separate products. You might have a “lite” bundle with minimal features and an “enterprise” option with more capabilities. The idea is to make the middle product seem the most appealing by comparing it to the low-cost and high-cost products.
Another method of comparative pricing is to place the previous cost of an item on sale next to the sale price. This helps customers to compare what they would have paid before instantly. You can also place your competitor’s price on the page to show how much a customer is saving when working with you, or simply compare your price to the “recommended retail cost.”
4. Practice Innumeracy
Innumeracy is a pricing strategy frequently used in retail. The idea is to make a deal sound as appealing as possible in the way you present it to customers. For instance, if you usually charge your customers $3 for postage, telling them that you have a deal available in your store offering a $3 discount doesn’t sound overly exciting. On the other hand, “free shipping” tells your customers that they’re getting something for free and instantly showcases more value.
The same is true for companies that offer “buy one get one free” deals. You’re really just giving your customer 50% off a product. However, the promise of something for “free” captures our attention more rapidly. This psychological pricing strategy plays on the lack of motivation consumers have to apply math principles to their day-to-day shopping habits.
Rather than asking your customers to do their own math and remove a certain percentage of a price to determine value, you’re giving them an instant insight into value there and then.
5. Play The Flash Sales Card
Flash sales are another fantastic form of psychological pricing, building on the well-known concept of FOMO (Fear of Missing Out). Customers are more worried about “losing out” or “missing out” on something than they are about making a purchasing decision they might regret later. Flash sales leverage this psychological principle by embedding urgency into a sale.
A flash sale tells your customers that they can get a great deal, such as a free product or a discount on an item. However, the sale only runs for a specific period. This further enhances the desire to buy, which is created by the discount by letting customers know they don’t have long to make a purchase decision.
Customers will leap at the chance to get a product that seems “exclusive” or in high demand too. If you combine your flash sales with copy informing your customers that you only have so much of a product available, it makes your items seem more desirable.
Human psychology plays a huge part in the way we make decisions every day. Your customers will be driven by subconscious activities whenever they interact with your brand. As a business leader, it’s your job to step into your customer’s shoes and deliver pricing offers that appeal to their subconscious behaviors.
Successfully implementing psychological pricing strategies allows you to appeal to your customer’s emotions and social behaviors, rather than just logic. The result is often more sales, more money, and happier clients too.