Why do so many prices end in .99 cents? Why does it seem like most businesses that offer levels offer 3 options? As a business owner, you know that these pricing trends are no accident. They are a marketing strategy that uses the psychology of pricing to help entice people to buy.
What is the psychology of pricing? According to Wikipedia, it is “a pricing and marketing strategy based on the theory that certain prices have a psychological impact.” In simple terms, this means it’s a pricing strategy that encourages the customer’s brain to think they are getting a deal or a great price.
Examples of Psychological Pricing
Let’s use .99 cents as an example. Doesn’t it seem silly to price something at $5.99 instead of $6? What are you really gaining with a one-cent difference? We can tell you that one-cent difference has nothing to do with increasing margins and everything to do with the customer’s perception of the product.
There’s a funny thing that happens in our brains when we see $5.99 versus $6. We automatically discount the change and round down to $5 even though the cost is much closer to $6. This is called the left-digit effect. It means that our judgment of the prices gets stuck on the left-most digit, in this case, $5. So we perceive the difference in price to be closer to $1.01 instead of $.01.
We’ve all encountered this and been sucked into the too-good-to-be-true deal. The BOGO effect is real and is a great way to increase sales of a struggling product or unload surplus inventory.
The psychology behind this is simple: greed. Why have one when you can have two? Customers tend to throw logic to the wind in favor of getting a free or discounted item. There are many variations to this pricing strategy and there’s definitely one that you can implement today. To take advantage of this, businesses can offer:
- Buy one, get one 25% off
- Buy one get 30% off your next purchase
- Buy one get three samples free
Limited Time Only
Did we get your attention? Setting arbitrary or artificial time constraints is another pricing trick that you’ll see everywhere because it works! By creating a sense of urgency you’re creating a need in the customer to not miss out on this deal because they don’t know what or when the next one will be.
Another way to think about this is like FOMO. By creating offers only good for short periods of time, customers have to act now to buy or risk missing the deal completely. This pricing strategy should definitely be used with caution as you risk losing customers’ trust if these types of sales are run all the time. For example, if you receive an email from a brand offering 40% off your purchase today only, but you’ve received a similar email every week you won’t be pushed to purchase because you know the deal will come around again next week.
Psychological Pricing in Your Business
When it comes to pricing strategies, keep in mind that this is just one piece of a much bigger puzzle. You also have to take the item’s perceived value into consideration. No amount of psychological pricing will increase sales if your products aren’t even close to what the market says it’s worth.
Your price conveys the value of your products, these psychological strategies are just the nudge your customers need to purchase today instead of tomorrow.
- How to Price for Profit, during COVID-19 - July 2, 2020
- Should You Sell Licensed Collegiate and Sports Apparel? - June 25, 2020
- What Streetwear Brands’ Response to COVID Says About the Future of Apparel - June 19, 2020