Thursday, 20 February 2020 14:28

Pricing Psychology Cheat Sheet

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Why Is Everyone Talking About Pricing Psychology? More By Us - Why Is Everyone Talking About Pricing Psychology?

Pricing Psychology Infographic

 

In today's world of cutthroat marketing, pricing psychology has become a key strategy in helping make a store's products more attractive. Pricing psychology is the art of setting prices for customers at a number that encourages them into believing they are realizing savings more than they actually are.
By analyzing how certain numbers, images, or words associated with different products are perceived by customers, stores can maximize their sales more effectively.
Here are twelve of the most common psychological pricing strategies used today proven to have a significant impact on store sales.

Charm pricing

One of the most prevalent concepts of pricing psychology is charm pricing. Charm pricing involves the lowering of a product's price by one cent ($2.00 becomes $1.99) to make the item appear to have a more desirable price to the customer.
Customers are more attracted to $1.99 instead of $2.00 because they isolate the left-most digit of the price and associate it with $1.00 instead of the actual value of nearly $2.00.
Charm pricing works because customers tend to round off numbers downward rather than upward when they shop.

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Prestige pricing

Prestige pricing involves pricing products higher than others. This builds their credibility, and customers believe that more expensive products have a higher quality.
When merchandise is priced at a higher level, it indicates to a customer that more time and effort has gone into creating the product and that higher quality materials were probably used in its manufacture. Buyers, therefore, consider the higher price justified and will often pay more for the quality.

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Displaying Discounts

How a store displays a discounted offer can have a significant bearing on the customer deciding to buy. Regardless of the actual value of the discount, it's a fact that the font, size, and even color of
a product can play a significant role in the way a customer interprets and reacts to the product's sales message.
An example of this would be to display the discount price of a product in a smaller font. This leads the customer to believe they will realize greater savings buying at the discounted price and urge them to buy while the item is on sale.

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Flash Sales

A flash sale introduces an element of urgency and demand that influences a customer to save money and make their purchase immediately.
When a product is shown to the customer as being in limited supply, unusually low-priced, or on sale for only a short time, the customer feels they are under high pressure to buy so they can take advantage of the deal.

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Comparative pricing

Comparative pricing offers the customer a more expensive product as an upgrade to a product they originally intended to purchase. Customers see the higher-priced option as being less of a financial commitment since the difference in price is less than they expected.
As an example, a customer might be looking at a $399 smartwatch in a retail store. The salesperson shows the customer a $499 version of the same watch. He explains that the more expensive version has a longer warranty, a higher resolution screen, and is submersible. The customer is more likely to purchase the higher-priced option because they believe the advantages are worth more than the price difference.

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The Decoy Effect

When offering two options to a customer, often a third illogical option is added to create what is called, the decoy effect. The decoy effect tends to confuse the customer and makes one of the two other options more attractive.
This works because when the customer cannot readily determine the best value option because of the decoy, they are persuaded to choose the more obvious of the other two other options as being the better value.

 

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Pricing order

When displaying a list of prices of a product in descending order, customers tend to conclude that the more expensive version is more attractive.
This human phenomenon does not occur when the prices are listed in ascending order. The customer fears that choosing a lower-priced version of the product would cause them to lose out on the better quality purchase.

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Price Bundling

An example of price bundling is when a store bundles products together and prices the bundle at a lower price than if it had been purchased individually. This encourages the customer to buy the package and take advantage of the savings; even they might not have wanted to buy one or two of the items included in the bundle.

Price bundling disrupts a customer's ability to quickly assess what they believe would be a fair price for each of the products included in the bundle. The technique can also introduce other products in the product line that the customer might not have typically purchased and can lead to repeat sales of the new product.

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Price Reformatting

By displaying a discounted price in an alternate format, a customer may perceive the value of the sale price more profoundly and be more inclined to make the purchase.
Studies show that consumers tend to prefer to see price reductions in dollar value when the item is in a higher price range. On the other hand, they are generally more receptive to buying lower-priced items when the price is expressed as a percentage off rather than in a specific dollar amount.

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Zero Pricing

Customers are always attracted to "free" products.
A customer will often choose from a variety of products based on which one appears to have the most cost-benefit.
When a product is offered free, and one purchases a similar product at the regular price, the benefit to the customer is more highly perceived, than if only the lower cost of the item was advertised.

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Slight Pricing Changes

When a store makes a small pricing change to similar products, customers have an easier time recognizing the difference. Furthermore, they are more likely to buy a product that is lower priced.
The slight difference in cost encourages customers to choose between the different options, and, as they spend more time thinking about the purchase, they become more inclined to buy.

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Price Anchoring

When a store selects differently priced products as reference points, it encourages a customer to justify purchasing the costlier option.
As an example, a store may show two differently priced versions of a product to the customer.
Even though the more expensive option is a better quality option, the customer may not be able to justify the cost difference. By showing the customer an even more costly option, they become more likely to choose the second option.

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Stores know that by practicing pricing psychology, customers tend to spend more than they intend. Pricing psychology leverages consumer behavior so that it influences customer's; buying decisions every day.

By changing the perception of pricing, it is possible to convey more value for your products and increase sales. When using psychology in pricing, you can provide an unexpected psychological impact that the customer does not expect and deliver a sense of urgency or desire that isn't usually present in the customer's mind. 

 

Pricing Psychology Infographic

 

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Melissa Schmidt

Melissa Schmidt is part of the content marketing team at Conjoint.Online. They provide tools and support for product and pricing research.