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10 Psychological pricing tactics

Pricing plays a huge role in business. It is what separates businesses from digital startups. Offer your product for free and even if 1 million people use it, your business is struggling and not considered investable. But if you price the product even a dollar, you generate a million dollars in revenue.

Price also impacts profits. Even a 1% increase in price can push your profits up by 10%. At the same time, a wrong price can kill sales too.

Let’s look at some psychological pricing tactics to get people to buy your product.

Is the price right?

Paying is painful, especially if the customer thinks that the price is not right. The pain in paying comes from the perceived fairness or unfairness of the deal. So for example, when you put a coin in the vending machine and nothing comes out, that’s painful irrespective of the amount we put in.

There is no single fair price. A Starbucks coffee might be a justified price for many but others might consider it as a ripoff, especially when your local coffee vendor is selling coffee for a fifth of the price.

Here context also plays a great role. A famous study showed that thirsty beachgoers would pay nearly twice as much for a beer from a resort hotel than for the same beer from a small grocery store.

If your product is more expensive compared to others, you need to explain why it is a premium product.

Bundling minimizes pain

A lot of products come in bundles. Things like auto part bundles, laptop accessories, and even meals at fast-food restaurants. When you offer products in a bundle, the customer can’t relate to a specific price to each item in the bundle and hence can’t judge the fairness in the pricing of the product.

If you find yourself in a place where the price of a product is likely to produce an “oh my god” reaction from your customers, see if some kind of bundle with complimentary items can reduce the dread.

Credit is a painkiller

Credit cards take the pain away from purchasing.

A credit card reduces the pain by moving the cost to a future period where it can be paid in the form of small payments. A credit card, not only helps a consumer buy something without having the cash, but it also tips the scale one’s brain weighs in favor of the benefit of purchase versus the pain of paying for the product.

Offer an “all you can eat” price

Selling products where the consumer sees the price increase with every bit of consumption can cause a lot of pain. Whether you’re eating sushi or paying for a taxi ride by the meter, for every additional piece you eat or kilometer you travel, you’re thinking about how the price is increasing and what the final price might be.

Businesses have realized this and have responded with product offers designed to minimize the pain associated with purchasing. All-inclusive buffet meal options are popular at many restaurants. Netflix uses an “all-you-can-watch” price strategy. Cruises have become more popular because they deliver a complete vacation experience for a fixed price. In each case, the marketer offers a single, relatively attractive price that makes the buying experience more pleasant.

To minimize customer pain, you should try to avoid multiple pain points in the buying process. Obviously, this can’t be applied to all cases; for example, a grocery store can’t offer fee-based shopping instead of item-by-item pricing.

Many business situations, though, will permit some experimentation with a single-price approach for items usually purchased separately, such as a monthly or annual fee instead of individual transactions.

Visualizing money

Psychologist Kathleen Vohs has studied and found out that when people are given visual cues related to money, it increases their selfish behavior. She concludes that even small money cues change the way people think: they don’t want to depend on others, nor do they want others to depend on them.

On the contrary, a study found that in the case of restaurants, customers paid more when menus displayed prices without the currency symbol.

Use currency symbols in ads for products consistent with selfish feelings—products that offer financial independence, or even a self-indulgent or material purchase like a sports car. For products focused on giving and thinking about others, such as gifts, nonprofit appeals, and so forth, you may want to be a bit cautious and should likely avoid introducing financial imagery.

Anchor prices

An anchor price for a product is a price we are familiar with relative to other prices. The better you can understand how anchoring works, the more creative and effective pricing strategies you will can make.

Apple’s iPhone introduction is a good example of using anchor pricing to keep demand strong. When they first released the iPhone, it ranged in price from $499 to $599, establishing the initial anchor for what the unique product should cost. Apple reduced the price of their phones by $200 after only a few months, creating an apparent bargain and stimulating more sales. When they introduced the iPhone 3G, pricing was as low as $199, and they sold one million phones in three days.

Decision making assessments for startups

High price is perceived as high quality

It might be surprising to find out that wine thought to be more expensive really does taste better at the most fundamental level of perception. Researchers at Stanford University and Caltech demonstrated that people’s brains experience more pleasure when they think they are drinking a $45 bottle of wine instead of a $5 bottle, even when in reality it’s the same cheap drink!

And, it’s not only wine. Baba Shiv and his fellow researchers, in an experiment, showed that people who paid more for an energy drink actually solved puzzles more quickly than those who bought it at a discount. The higher price made the drink more stimulating.

Another study showed that 85 percent of subjects given a pill for pain relief reported a reduction in pain when they were told the pill cost $2.50 per pill. When told the pill cost 10 cents, only 61 percent of subjects reported a pain reduction. The pills, of course, had no actual active ingredients.

There are multiple studies showing that people enjoy a product more when they pay more for it.


Precise pricing

There is new research that tells us why consumers respond better to a $499 price versus a $500 price, and it has more to do with the apparent precision of the odd number than the lower price. Customers believe in precise prices.

If we think a hairdryer priced at $20 is overpriced, we estimate it might be worth $19 or $18. For the same item priced at $19.97, our measuring stick has more precision, so prices like $19.75 or $19.50 come to mind.

Another study looked at the price of houses and found that sellers who listed their house at an odd price, such as $494,500, sold at a price closer to their asking price than houses priced at even numbers, like $500,000. Oddly, the even-priced houses lost more value as they aged on the market, too.


Choice fatigue

Consumers must like lots of choices—why else would there be hundreds of shampoo brands and variants on a typical supermarket shelf? Actually, it’s been known for a long time that too many choices can actually reduce consumer purchases.

A study at Columbia University compared consumer behavior when presented with a selection of either 6 or 24 gourmet jams in a high-end grocery store. The bigger selection did cause more customers to stop and check out the assortment—60 percent looked versus 40 percent for the limited selection. However, the interesting part was the purchase behavior. Whereas 30 percent of the customers presented with the limited selection made a purchase, only 3 percent of those who saw the extensive selection bought something.

Adding more choices because you want to have what looks like a large selection is a bad strategy; if poorly selling choices are removed, sales may actually increase.



Do you want to sell more of a product or service? Here’s a counterintuitive idea: offer your customers a similar, but inferior, product or service at about the same price. While it’s unlikely that they will actually buy the less attractive item, you may see a jump in sales of what you are trying to sell.

Relativity is the key element in decoy marketing. Our brains are not good judges of absolute value, but they are always ready to compare the values and benefits of two or more products. When used proactively by businesses, a decoy product or offer can make another product look to have better value.

In his book Predictably Irrational, author Dan Ariely describes an experiment using magazine subscription offers. Like most of Ariely’s experiments, this one is simple. Two groups of subjects saw one or the other of these offers to subscribe to The Economist magazine:

Offer A

$59—Internet-only subscription (68 chose)

“$125—Internet and print subscription (32 chose)

Predicted Revenue—$8,012

Offer B

$59—Internet-only subscription (16 chose)

$125—Print-only subscription (0 chose)

$125—Internet and print subscription (84 chose)

Predicted Revenue—$11,444


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