Psychological Pricing: Strategies and Examples

Have you ever wondered why so many things in stores cost X amount of dollars/euros/pounds and 99, 95 or ninety-something cents? That’s actually not a coincidence and rather a pricing strategy called Psychological pricing. And strangely enough – it has numerous times proven to be one of the most efficient ways to boost sales through pricing strategies. But there’s more to it than just pricing every product on your physical or virtual shelves at X dollars and 95, 98 or 99 cents. Let’s look at psychological pricing with more depth and see the most prominent strategies and examples.

As one of the oldest marketing strategies, psychological pricing is mostly used by retailers to create an edge and make a psychological impact on the customer, making them more likely to commit to a purchase. In marketing related literature, the term Psychological pricing is interchangeable with price ending and a very neat term – charm pricing.

The main thing about psychological pricing is to make the price seem less than the next round number (e.g. $5.99 instead of $6.00). The trick, however, lies in human psychology because we don’t see Six dollars minus one cent. We see Five dollars and ninety-nine cents which in our minds, is a totally different thing from six whole dollars. Seems strange, right? But it’s true. This is why advertisers often claim that prices start from UNDER X amount of dollars while in reality, the difference is just one or a few cents. Just as in our example, the person will think they’re spending five USD instead of six.

Most of the time, psychological pricing is utilized by retailers, an area where price competitiveness is a huge deal. In wholesale, it doesn’t give that much of an edge, as most prices rely on quotes and individual pricing strategies.

We touched on it a bit earlier – there are a lot of different ways to implement psychological pricing into your business practices. Atlasmic is here to help out by listing the most common and most-used charm pricing (psychological pricing) strategies one by one. Let’s begin!

Strangely enough, labelling your products at $2,999 or at something like $1,859 is considered to be a weakness in pricing strategy. And that’s mainly because our brains are hardwired to see and recognize specific patterns. If we see a price with a comma and without a comma, even if it’s the same number, our subconsciousness reacts to it in different ways. It’s called the Comma Effect but it also applies to dots (decimals and stops) not just commas.

To begin with, if you see a price with a comma, you think of it as a number that consists of numerous parts. This means that is seen as

And the simple removal of a comma makes the number a tad bit shorter (physically) and at the same time, removes the thought process which results in the price seeming lower. In short – removing the comma makes the price seem lower!

If you’re retailing goods and/or services for let’s say $50.00 – you’re doing a big mistake. As we mentioned, the best-known psychological pricing strategy is the one where you sell your products for something + 99 cents. It seems a lot lower than the next even number while in reality the retailer only loses one cent.

What you can do is take every single product in your store and adjust the pricing accordingly – take the left-most digits in the price and reduce it to 98 or 99 cents. So, for example, if you’re selling a special made scented shampoo for $30, bring back the price to $29.98 and you should get a few extra sales later down the road!

The same can be applied to every single product in your store. Take the left digit and take one away whilst adding 98 or 99 cents to the price.

Yes, yes, 95 cents is also good if that’s what you prefer.

How many times have you been attracted by these phrases and these popups on all sorts of physical and e-commerce stores? Probably a lot, which means that whoever came up with this concept knew what they were doing.

We have to admit that around 10 years prior, this type of psychological pricing was very rare. However, with the rise of technology and the ability to send notifications to your clients and have much more traffic within a matter of seconds, the possibility to utilize flash deals has become bigger.

Even if you are a bit cheeky with what you say and whether the deals actually end right now or not, you can create a cool discount with limited-time applicability to see how your customers will react. Spoiler alert – you should get more sales quite quickly.

Let’s look at what price bracketing is all about.

Price bracketing only works when you’re selling multiple products or multiple variants of the same product. So, for example – let’s say you sell three types of orange lemonade. The bottles are of the same volume and the lemonades are of comparable taste (yet not entirely the same). If all of them are aimed at a different price segment (e.g. one – economy, the other – average, and the third is premium-priced), the vast majority of unfamiliar consumers who are committing to a first-time purchase, will buy the most neutral and most-average product in the range.

This means that brand loyalty aside if you aren’t a bargain-hunter based store, you can confidently use bracket pricing to increase sales of your medium or lower-premium tier products. The chart below shows an example of how sales are likely to distribute between first-time buyers who have no familiarity with the product or brand loyalty.

Decoy pricing is what Cinemas and organizations like Starbucks use to make you spend more. Decoy pricing is all about, well – setting up a decoy!

The most common way in which decoys are utilized is by having tier-based or size-based product variations and having disproportionate pricing.

So, for example, if you’re selling perfume and distribute your goods in three different sizes A – 30ml, B - 60ml and C - 90ml, you can price them like this (example):

What this does is inflates the price of the medium-sized or B option which is called the decoy. It is only there to boost sales of product variations A and C. It does that by being disproportionately too expensive in comparison to the small, or especially – large option. The businesses which sell fast food or drinks are the masters of decoy pricing. The price difference between a large and small meal at McDonald's, for example, is so insignificant that most buyers always get the large portion regardless of how hungry they are. It just makes more sense because it seems like a better deal from the customer’s standpoint.

One discount makes the customer think that they’re getting a cool and exclusive deal. But what about a double price cut? What was originally $199 was then discounted to $169 and is now only 109$ - you should get it now!

If you can get your customers to think in this way – you should be very successful in the world of e-commerce or retail. You can further encourage people to buy by labelling the 2nd price cut as a “Get it before they go”, “Final discount”, etc.

But, keep in mind that multiple price cuts are dangerous territory. If you try too hard with it, it will seem cheesy and not genuine which is going to sway your potential customers away from you because the deal doesn’t seem serious. The psychology behind this is fairly simple. A discount is a bargain. And a discount’s discount is an even better bargain, making a purchase seem to be even more beneficial. Implement this strategy by showing two price cuts – that’s our recommendation.

If you were to analyze the value of adding benefits to the product price (e.g. extended warranties, free shipping, free accessories, etc.), you’d be surprised to see how much your sales numbers can increase.

In terms of psychological pricing, add-ons and incentives are some of the easiest ways to justify a price. If you list perks in bullet points or bold font next to the price, to let your visitors know what they’re getting in addition to their purchase, you’ll make them see much more benefits and grab that impulse buy.

This form of psychological pricing actually comes from putting a positive spin on a negative situation. When you start your business or include a new product in your store, you have to determine the retail price. The final price consists of the wholesale price or the manufacturing price + any expenses that you have to deal with (transport, advertising, packaging, storage, tax, etc.). There are two ways to deal with this:

Since there is no way out of this (since additional costs are inevitable), you have to make a decision. With option one, you risk being outpriced by your competition and losing customers. By choosing the second option, you are in danger of going in the red and losing all profitability.

Luckily, someone thought about including some perks in the price and working around the threat of losing the customers or losing profits.

The infographic below shows just how effective this strategy can be. Free or cheap shipping is a huge priority for customers, as you can see.

Cars and expensive appliances are usually sold by listing the price as $249/mo or ONLY $49/mo instead of writing $24,999 or $1,499 – e.g. the full price.

Instead of making your customers think about the whole price, let them only see a fraction (e.g. a monthly instalment). This tactic proves to be very efficient on price-sensitive and hot buyers who wish to upgrade their current item to a better one.

A lot of things depend on presentation, so you can find a lot of car dealerships that only list the monthly leasing or loan instalment fee instead of the whole price. It just works.

How this works from a psychological standpoint is fairly simple to understand. An expenditure a customer has to make today seems a much larger burden than tomorrow. So, if you were to offer a buyer the ability to pay small instalments consistently or pay the whole sum upfront, a lot of them could lean for the former option.

So, we’ve pretty much covered every single way to do psychological pricing strategies. Hopefully, this article was useful for you. Remember to use psychological pricing in an efficient-most way and don’t try to seem too desperate. In addition, to flash deals, visual contrasts and other strategies that we mentioned, make sure you are able to handle an increased stream of buyers online. Implement Atlasmic in order to turn traffic into sales by utilizing proactive communication and handling requests and inquiries from your visitors in the most professional way.