Psychological Pricing is the concept of setting a price that sounds lower than it actually is. The customer will treat the product as lower than what they actually pay. We believe that customers focus on the left digit and ignore the last few digits on the right.
This strategy will set the price lower than actual price and expected the customers to ignore the figure on the right side. It will persuade customers to pay more than they wish. However, there are many psychological pricing forms which we will discuss more below.
Psychological Pricing Forms
Artificial Time Constraints
The seller may offer us the limited time offer for the special price such as “One day only”, “1 week left”, “The first 50 customers receive a 50% discount”. This kind of pricing is putting pressure on customers to buy now; otherwise, the offer will run out. The sellers will keep changing the promotion one after another one.
This method tries to reduce the left number by one digit, and it makes the last digit to number “9,” which we can see everywhere in the store.
For example, the price will look like $ 4.99, $ 0.99, and so on. Our brain will differentiate the amount of $5 and $ 4.99 differently. Most buyers will treat the $ 4.99 as $4 rather than $5.
It also applies to higher price items where the price will be $999, $499, it intent to trick the customer into counting is at $ 900 and $ 400.
According to the research conduct in 2005 regarding “The Left-Digit Effect,” it shows that the people will pay high attention to the right and almost ignore the left digit even it is as high as 9.
Innumeracy, buy one get one free
This pricing work very well even it is the same as giving a 50% discount. People intent to receive the free item by purchasing the first item at full price. It is less attractive if the item sells at a 50% discount.
The other forms of innumeracy pricing include:
- Purchase the first item and receive X% on next purchase
- Purchase one and receive a discount coupon value of $50
- Buy one and get two items for free
This technique will show the price in a small font, which catches less attention from the buyer. The price will look like $15, not $ 15.00. The zero at the end will be deleted as it makes the goods look more expensive than it actually is.
The consumers will treat the short price tag as the cheaper option compares to the full form price.
Some seller even removes the “$” sign from the price to make it look cheaper. Combine all these, and the price will only have the whole number without zero and $ sign.
This pricing is opposite from Charm pricing, and it will round up the price to the higher amount. The price will be $ 100 rather than $99.99. They believe that consumers will make a quick decision and push them to purchase faster.
It will make sense for this strategy when the price is $ 50.00, not the $ 48.99. We will be able to process and think quicker.
This strategy will put similar products next to each other; one of them has a high price while the other is significantly cheaper.
We usually see this price tag in the supermarket when similar products are placed next to each other.
Visual High Light
We may see the price discount with a big font, colorful sign, and some other attractive picture. It is the way that the seller tries to catch our attention with the high visual light.
It is also placing the old price and new discount price to show the customers that the price looks cheap now.
Example of Psychological Pricing
The best example of this pricing stays within your phone. If we take a look at the AppStore or Play Store, we will see plenty of apps that cost $0.99, $ 1.99, or $ 2.99. Most of them end with 9 or .99.
Another easy example is the price item in the supermarket, and we will be able to find many price tag with $ 99 or $ 0.99.
What are the Advantages of Psychological Pricing?
|Psychological Pricing Advantages
|A slight decrease in price will be a massive increase in revenue as the customers believe that they can save some buck on the purchase. They will increase their purchase to save some buck, and the eye-catching price will attract new customers. The existing customers will increase their purchase while we also attract new customers as well. If our quality is better than competitors, it will be a chance that they will stick with us.
|Shorten customer decision
|It will help the customer to make a quick decision when they saw this price tag. In today’s psychology, most people will regret their purchase after they arrive home and realize they do not need the items. So it is very important to persuade the customers to buy our product within a short time.
|Customer view as a discount product
|Some customers view that they are buying a discount product while there is only 1 cent lower. The people prefer to get a discount and free stuff, using all these strategies will encourage them to buy more while we do not get hit by a considerable discount.
|Reduce the product’s price range
|In this era, people tend to search online before they make any purchase. Product review, price comparison, coupon, these are the universal search for people when they want to buy any high priced product. By setting a price of $ 99 instead of $ 100 will help to show our product in a search result when customers search for the product below $ 100.
|Attract customer in the supermarket
|The supermarket is the place where similar products are put near each other on the shelf. A slightly low price will catch customers’ attention and encourage them to purchase to save those few cents.
|Optimize for online search
|One cent below the competitor will consider a lower price when customers difference online comparison. The reviewer and customer will put our product in a lower price group.
What are the Disadvantages of Psychological Pricing?
|Psychological Pricing Disadvantages
|Cause difficulties to the cashier
|It is not the difference when customers pay by cash. One cent discount is mean nothing, and it creates problems for our cashier to make the change.
|Not effective for all customers
|This price strategy will not trick every customer, they will know the intention of the company to play around with the price.
|Customer negative though
|The customers may feel negative about the company that tries to play around the price tag as they suspect the company to play around with the product’s quality too.