Psychological pricing is the act of pricing your product so that it appeals to customers’ emotions rather than their logic. Done right, it could give you an edge and help you increase sales. Let’s take a look at the most common tactics and discuss how they’re best used.
Start With the Basics
The prices you choose for your products or services will largely impact your sales volume. Set them too low and consumers may perceive them as cheap or ineffective. And if you set them too high for a product that doesn’t warrant it, they’ll feel that they were overcharged or tricked into paying too much. So the first step in setting your prices is to determine exactly what your product or service is worth. Do this by looking at your competitors’ prices and talking to suppliers and trade associations.
Once you have a baseline price set for each of your products, you can use these five psychological pricing tactics to increase your sales.
Appeal to Value-Driven Consumers
To appeal to these consumers, you have to set your prices so that they will “see” a bargain when looking at the price tag. To do that, you should make use of odd numbers instead of rounding up to whole dollars. For instance, something priced at $1.99 will be viewed as a better value than something priced at $2, even though it’s only a 1 cent difference. The reason for that is because we read left to right, and the first number is a 1. Consumers will subconsciously view the price as closer to a dollar because when there are cents attached to a sales price, they will usually round down, not up. It’s why you see new cars priced at $29,999 instead of $30,000. A perfect illustration of this was reported in the Daily Mail a few years ago when a dollar store went out of business after a 99-cent store opened across the street.
Use the Number 9
Have you ever wondered why so many retailers use the number 9 in their pricing? It’s because it works. In fact, William Poundstone, author of Priceless, says using the number in prices will increase sales by 24 percent compared to prices with whole numbers. What’s more, MIT and the University of Chicago did a study on the effectiveness of using the number 9 to sell women’s clothing. The items with prices that ended with a 9 sold more, even when the other prices were lower. (The same shirt priced at $39 sold more than when it was priced at $34.)
Give Something Away for Free
In a study published in the Journal of Marketing, researcher Akshay Rao showed that people prefer to get something free, such as a bonus pack, instead of receiving a discounted price. For instance, if you sell trendy pillows and bundle two for the price of one, the study suggests that you would sell more than if you gave a 50 percent discount off of one.
Shape the Views of Undecided Buyers
Dan Ariely was perplexed when he came across an ad for The Economist that gave three options. The least expensive option was for a web-only subscription, the middle option was for a print-only subscription, and for the same price as the middle option, you could get both web and print subscriptions. He conducted a study with his MIT students and determined that when all three options were offered, the students selected option 3. But when the “useless” middle option was removed, they chose the least expensive option. He concluded that by offering a useless middle option, it would make people stop bargain hunting and become value shoppers, because the middle option made them think option 3 was a great deal. Watch Ariely discuss this further in this video.
You can apply same principle to shape your customers’ opinions about which of your offerings are a better deal.
Appeal to Class-Conscious Buyers
If you have a unique item or service, you may be able to set a high price tag and appeal to class-conscious buyers. Some buyers want to know that they are getting quality and exclusivity, and they actively prefer to pay a higher price to ensure it. In the book Influence: The Psychology of Persuasion, author Robert Cialdini talks about a jeweler who intended to slash some jewelry prices by half because they weren’t selling, but accidentally doubled the prices. She quickly sold out of the items because when customers saw the high prices, they perceived the jewelry to be more valuable.