Psychological Pricing

There are thousands of different ways to price a product, present a product, and frame the sale. However, have you really thought about the best pricing for your products that will get you the most sales?

Here today we will have a quick overview of as many pricing strategies as we can. Hopefully this blog will give you enough psychological understanding to bring into your own business, and that you stick with me through all this new information! SO here we go:

First we come to possibly the most common pricing strategy: Charm Pricing. This is when one pence is removed from the end of the price eg- £7 becomes £6.99. The idea behind this is that the brain takes a shortcut and remembers the 6 as being lower than 7. In reality it is only 1p cheaper, but the brain sees it as a significant amount cheaper, as it falls into the pound below.

Odd-Even Pricing comes next, as the second most common pricing strategy. This is the psychological phenomenon that people are more inclined to buy a product when the price ends in an odd number than when it ends in an even number. As such, products with prices ending in 9 are more likely to be bought then one ending in 8.

Contradicting both of these concepts, however, is Prestige Pricing. The name is a little misleading here, but the idea is that a round number is more pleasing and easier for a customer to process than pounds and pence. Therefore a product that is £7.00 will sell better than a product that is £6.99, or £7.15. 

Innumeracy is a strategy that takes advantage of those shortcuts that your brain takes, by looking at the maths of pricing and finding which make greater sales. The best way to explain this is with the example of 50% off vs Buy One Get One Free offers. Now when you stop and think, you can see that these offers are actually the same. You get the same amount of product for the same price. However, shoppers often don’t stop to think. Therefore, their brain sees the word “free”, or sees that they get two products where they would normally buy one, and believes that Buy One Get One Free is the better offer. 

Next we have RRP (or MSRP for Americans). RRP is “Recommended Retail Price” which means the price that the product is recommended to be sold at, therefore most companies will sell it at or around this price. However, a psychological strategy to increase sales is, when selling a product cheaper than RRP, display the original price, and replace it with or put it next to the new lower price. This allows customers to compare and see how much they are “saving”.

A similar concept is the idea of Comparative Pricing. This works by selling two similar products at the same time, but at different prices and placing them together in a store. Many people will opt for the higher priced item, believing that it is better quality.

Slightly different from our previous strategies is Price Appearance. This concept is not about changing the price of your products but changing the way it is displayed. First, remove pence from the price (£7 not £7.00) as this creates a shorter number and the illusion of a lower price. Secondly, remove the £ from prices (this is especially effective for high end stores with high prices), as £ and other currency symbols have been shown to increase “pain of paying”, therefore by removing them customers feel more open to purchasing the product.

Another strategy is partnering yourself with a company such as Klarna, that allows customers to spread the cost of a purchase. This is beneficial with larger purchases as well as small, as a small payment every month is a lot easier for a customer to swallow than one big upfront payment. This once again tackles the issue to “pain of paying”, as well as opening up your products to those who may not have the money for a big purchase but can budget a lower cost every month.

High Pricing and Low Pricing are next. Pricing a product highly may seem counter productive however, this does not put off customers and can help to create an image of quality and prestige about your company. Adding to this is the idea of exclusivity, which leads to desire. Not everyone can afford such “high end” and “high quality” products therefore making them more desirable.

Our final strategy that does not relate to actual price is pricing transparency. This is good if you have products that are high quality or ethical but as a result are higher priced. By having a policy of transparency and explaining where each element of your pricing comes from, customers are more likely to trust your brand and more open to purchasing your product as they do not believe that they are being ripped off.

Congratulations if you made it through all of these strategies! I hope that somewhere in there you found some useful concepts and ideas. However there are many more out there that I have not been able to cover here today. Somewhere out there is the right pricing strategy for you.

-- From Marketing to Mind --