Psychological pricing is a universal technique that you can apply to virtually any other broad pricing strategy. The general idea behind the concept of psychological pricing is to play on the mental tendencies of consumers, establishing a price that they perceive as better value. It uses the customer's emotional response to encourage sales. By pricing products strategically, a business can increase sales without significantly reducing prices, or use a higher price that will actually increase sales. It's not about fooling the customer, it's about making them feel good about the price of their purchase – and boosting your profits along the way.
Follow these psychological pricing techniques to draw in more customers:
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Appeal to your customers' emotions. Your psychological pricing strategy should aim to strike a thrifty note with a bargain or stir up feelings of prestige with a higher-priced item.
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Use an Odd Pricing Strategy - also known as Charm Pricing. Price your products just below the whole pound amount. As an example, instead of charging £5 for a product you might charge £4.99. People naturally read prices from left to right and buyers associate the price closer to £4 than £5. Similar strategies can be used for larger amounts too. It all conveys better value
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Use Psychological Pricing to give you a larger target audience. By pricing at £29.99 instead of £30, for instance, your audience includes people looking to make a purchase "below" £30. At the £30 price point, someone comparing options would more likely leave your product out of the consideration set. This also applies in larger increments, such as a customer looking for a car under £5,000, and seeing one at £4,999.99.
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Encourage Impulse Buys. As an example, a 99p chocolate bar in or near the checkout aisle in a supermarket is more likely to motivate an impulse buyer than a £1 chocolate bar. The items for sale as you approach the checkout are generally tempting, attractive, seasonal – and psychologically priced.
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Experiment with pricing fonts. Have you noticed the difference in font size between the pounds and pence on shop billboards? That “99p” is tucked up in the corner in a tiny font in order to make you forget it even exists.
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Try "Bundling" to reduce purchasing pain. You throw in more products and offer a slight discount on the unit price in return. The customer feels they've bagged a bargain.
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Flash sales can be very effective psychological tools. They convey exclusivity in addition to urgency.
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Have a Ceiling Price. Your customers will feel more comfortable knowing the ceiling price of your products – say it's £100. They understand the upper limit and that they are not going to have a heart attack glancing at the price tag!
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Apply temporary discounts. This attracts customers who feel they should buy now to take advantage of this discount – next week will be too late.
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Try Price Lining. This strategy involves distinct lines of products, each in a distinct price range, such as budget, mid-range and high-end. Adding enhancements on your most expensive lines doesn't typically cost much but allows you to increase the price significantly – and appeals psychologically to customers who aspire to purchasing a high-end product.
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Offer 'Buy one, get one free', colloquially known as BOGOF. Your customers will feel they've got a good deal on a product they normally buy anyway – or it might tempt them to try a newer, normally more expensive item.
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Revise your brand. Without making significant changes to your product you can rebrand and change customer perception. This can make your product suddenly seem like a great bargain or elevate your luxury product to the top of the available options.
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Appeal to the needs and aspirations of your customers. Determine who you are trying to reach and how your target audience will respond when setting your prices.
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Consider your Competitors. Never forget the competition because straying too far from similar products when implementing prices can make you less competitive.
Psychological pricing centres on the use of a simple but impacting pricing tactic that is based on natural, irrational thought processes that typical customers follow when shopping. The primary advantage of psychological pricing is that it should contribute to increased sales volume when effectively applied. Experiment with one or more psychological pricing methods to help find a price point that increases your sales.
Sources
- http://smallbusiness.chron.com/psychological-pricing-11862.html
- https://hbr.org/2002/09/pricing-and-the-psychology-of-consumption
- https://www.wiser.com/infographic-leveraging-psychological-pricing-to-boost-sales/
- Pricing Strategy: how to price a product, Bill McFarlane, 2012.
- Pricing for Profit: how to develop a powerful pricing strategy for your business, Peter Hill, 2013.
- The Psychology of Price: how to use price to increase demand, profit and customer satisfaction, Leigh Caldwell 2012.
- The Strategy and Tactics of Pricing, Tom Nagle and John Hogan, 2016.