Psychological pricing can have magical benefits for businesses. How you price products and market them plays mysterious tricks in the minds of consumers.
Once you understand consumer psychology, pricing strategies can be an effective way to sell more products for a higher ROI and liquidise your stock in a saturated market.
The purpose of psychological pricing strategies is to persuade customers to purchase your product over your competitors. Pricing encourages customers to spend more than they originally intended, feel they have bagged a bargain and even buy things they don’t need.
However, it is important that you get the strategy right. If consumers feel they have been tricked, it does not reflect kindly on your brand. In this article, we look at the pros and cons of psychological pricing and discuss tactics that work.
What is psychological pricing?
Psychological pricing involves setting the price of a product in a way consumers find appealing.
Obvious tactics are promotions and flash sales. Common strategies are knocking a penny off the item so the price tag reads .99p. In the mid-to-late 20th Century, pricing analysis specialists discovered that £1.99 looks more appealing to consumers than £2 and consistently boosted sales.
Other common strategies include buy-one-get-one-free deals, charm pricing that ends in a 9 or a 5 and revealing the original price.
The key to psychological pricing is to simplify the decision-making process for consumers and make them think they have walked away with a bargain - or at the very least made a purchase that offers good value for money.
To make psychological pricing work for you, understand what drives people. Let’s take a closer look.
Why every business uses psychological pricing strategy
Most pricing techniques that play on the consumer’s psyche are not long-term strategies. They are typically suited for retailers and eCommerce owners that rely on quick, one-time sales.
However, at some point, every business will employ a psychological pricing strategy of one description or another. It’s impossible not to.
If your eCommerce business sits outside retail, the smart pricing strategies are to add value rather than offering discounts. Brands that offer value also earn trust.
Pros and cons of psychological pricing
All pricing strategies have advantages and disadvantages - that’s why there are so many. Psychological pricing is no different.
When implementing a pricing strategy it is important to understand how it can impact your brand image. Pay attention to the advantages and disadvantages of psychological pricing below to avoid damaging your brand name.
- Increase sales
- Can increase ROI (if not a sale)
- Raise brand awareness
- Increase product awareness
- Can earn a reputation as offering good value for money
- Makes you competitive in the market
- Requires demand
- Fluctuating prices can make you unpredictable and unreliable
- Consumers may demand consistently low prices
- Short-term solution
Psychological pricing examples
The advantages of adopting psychological pricing strategies do outweigh the disadvantages. However, it is pertinent to use clever pricing strategies that are not perceived as deceitful.
There are over 40 psychological pricing strategies and subsets. Not all of them will work for every eCommerce business owner whilst others are standard practices you are probably already doing - even if you didn’t realise it was a bona fide psychological pricing strategy.
Listed below are a handful of psychological pricing strategies that are ideal for eCommerce business owners. They can help increase conversion, secure a higher ROI and all without damaging your brand reputation.
1. The perception of numbers
The perception of a price tag plays a significant role in the purchasing decision of consumers. For example, should you promote your sale price as 50% or buy-one-get-one-free? It would be quite natural to suspect the classic BOGOF would be the more successful campaign - even though the offer is the same price. Yet in split-testing, offering 50% off has a better conversion rate than offering the second product free. The psychology in the mind of the consumer here because they are still paying full price for one of the items and, weirdly, that overrides the free one. 50% off feels like a total discount and therefore a bargain.
2. Value for money
The value for money strategy gives a brand kudos among customers. However, it is one of the most difficult pricing tactics to get right. You need to understand your market and be confident that you have a product that really does offer value for money. If your products are among the best in the market, you can use prestige to sell at a higher price. The value for money pricing strategy essentially plays on the egos of consumers that want to be seen investing in premium brands.
3. Time restraints
Time restraints are a common marketing strategy that prompts buyers to take immediate action. It creates the impression that there is a scarcity of products left or the offer has a deadline. For example, adding “sale ends in 24 hours” after your initial price offering will prompt a quick response. Highlighting a shortage has the same effect. “Only three left in stock” is a prime example.
Ecommerce owners that have built an email list can employ exclusive pricing techniques to selected customers. The idea behind exclusive pricing is that the customer is made to feel special because they are being offered a price that is “especially for you because you are one of my best customers.”
Exclusive promotions function as a reward for loyalty or early adopters. It is a powerful strategy for building trust and long-term relationships with customers.
Researchers discovered that exclusivity pricing works best for brands that offer a unique product. Uniqueness seekers react more positively to exclusive price promotions because it reflects their individuality.
Bundling appears to reduce the price for a set of products but works best for eCommerce business owners that offer related products and have a target audience that can afford to buy a bulk of items.
For example, if you sell makeup, you can include several complementary products in a single bundle. The sale price should be significantly lower than the cost of the bundle if all the items were purchased individually.
The psychological pricing tactic here is to reveal how much the price would be if the items were purchased separately. For example, “Get £99 worth of products for just £69” or “Save £30 when you purchase £99 worth of products.”
How to make psychological pricing work for you
The majority of psychological pricing strategies relies on remaining competitive in the market. This is particularly critical for eCommerce owners that are paired up in price comparison matches.
To maximise your profits, you need to know what your competitors are offering. The only time-effective way to do that is with a price monitoring service that gives you easy access to thousands of product prices advertised online. If you want to beat the competition, you need to know what the competition is doing.