Every retailer knows that psychological pricing for business is key to the brand’s success. As such, retail brands hold buy-one-get-one (BOGO) deals or offer products at tiered prices to attract customers and increase their sales. These effective tactics have been in practice for many years, even before malls or online marketplaces came to be.
Likewise, psychological pricing for business is vital to your success. As long as you know how to entice your customers with attractive prices, you can grow your brand and secure your place in the ever-evolving retail landscape.
Check the infographic below to learn more about psychological pricing and how to use it to craft your pricing strategy effectively.
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What is Psychological Pricing?
Psychological pricing is a business strategy that nudges consumers into making certain purchases. Businesses often apply this by pricing an item lower than its value or offering attractive deals to make consumers feel they’re getting more bang for their buck.
For example, a consumer would likely read P199.75 as P199 instead of P200 because their brain is wired to register the number as they read it from left to right. They would also be drawn into a Buy One, Get One (BOGO) deal rather than a 50% discount because they prefer to receive an extra product for free rather than pay for it.
Before price tags, businesses used to apply psychological pricing tactics by haggling or making deals mutually beneficial to them and their customers. Companies could increase their sales and move their inventory, while customers could purchase products or services they can afford.
Why is psychological pricing effective?
Many businesses know that pricing directly affects a consumer’s decision-making process. For instance, consumers typically look for a cheaper product or service if their first option exceeds their budget. Conversely, others choose expensive goods if they want to embody a luxurious lifestyle.
Pricing also influences product demand as per basic economic principles. That is, high prices generate low demand while affordable prices create increased demand.
This is why psychological pricing is effective. Consumers presented with attractive deals and discounts are enticed to make impulse purchases. As a result, businesses can move their stocks and boost their sales. More specifically, they can direct customers to certain products or services, stand out against their competitors, and generate customer loyalty.
Psychological pricing shows that running a business is not only all about selling products and services. It also involves evaluating consumer behavior and aligning your marketing strategies to their perceptions.
7 Psychological Pricing Strategies
Psychological pricing comes in different strategies with distinct objectives and outcomes. While some tactics are suitable for specific businesses, you can apply them to your brand as you see fit.
Here are seven psychological pricing for business strategies to boost your sales, brand awareness, and customer loyalty.
1. Artificial time constraints
Businesses that hold sales for a limited period can compel consumers to make impulse purchases because they feel they’ll miss out if they don’t. This tactic is called artificial time constraints, which plays into a consumer thinking process called loss aversion.
You can easily spot artificial time constraints in brick-and-mortar stores or online marketplaces that display signs such as “Early Bird Sale,” “Only a few hours left,” and “Payday Sale.” This tactic helps businesses quickly boost sales and even sell their old stocks.
Take online gadget store Kimstore as an example. On March 23, 2022, it held a midweek flash sale for electronic and homeware products, allowing customers to purchase items that are lower than what they’re usually worth for a limited time.
Popular eCommerce platforms like Shopee and Lazada also hold payday and digit day sales such as 11.11 (November 11) and 12.12 (December 12) to entice consumers to buy discounted products. Since these sales have been commonplace over the past few years, some consumers budget their money in anticipation of them.
2. Charm pricing
Charm pricing makes consumers believe they’re spending less than the product’s value. A typical example is prices that end with nine, such as P599. Here, the left-digit bias influences one’s perception.
Consumers perceive a product’s price by reading it from left to right. So, if a product is priced at P599, a consumer may round it down to P500 instead of P600. This psychological pricing is ideal for vendors who want to convince customers that they’re getting a steal with the prices.
3. Odd-even pricing
Similar to charm pricing, odd-even pricing uses number psychology to attract customers. For instance, some consumers become attracted to prices ending in odd numbers like P199.75, while others become drawn to prices ending in even numbers like P88.
Odd numbers make prices look cheaper than they are. Consumers also perceive odd-number prices as honest since they’re too specific. Meanwhile, prices with even numbers are perceived at a higher value since they’re rounded up. As such, some luxury brands use even-number prices for their products.
For comparison, affordable fashion brand Parisian sells handbags between P299 and P799, while high-end brand Marc Jacobs offers bags from P9,000 to P30,4000.
Businesses that offer BOGO or “buy one, get 50% for the second item” deals use the innumeracy tactic. They capitalize on the fact that consumers prefer to receive free goods more than discounts and cannot quickly understand fundamental math principles when shopping.
Take local makeup brand Colourette Cosmetics as an example. They once held a BOGO deal for their multi-use color tints for P299, which is the typical price for one stock-keeping unit (SKU) of their product. They even allowed customers to stack products in multiples of two for more significant discounts.
While these deals are great short-term sales strategies, they’re not sustainable for businesses in the long run. Instead, the innumeracy method could be applied to move inventory, increase sales during dry retail seasons, and boost brand awareness in the absence of new products.
5. Price appearance
How prices appear also influences consumers’ perception of the value of products. For example, consumers may find P350 cheaper than P350.00 because the former looks shorter. Longer prices appear more expensive and daunting because they take more time to read.
Even adding the currency symbol before the price makes some consumers uncomfortable because they eventually have to spend their hard-earned money.
For these reasons, some businesses remove or make the currency symbol and cents appear smaller on their signboards. You can commonly see this in food establishments, but they’re also applied in physical and digital retail stores.
6. Price anchoring
Price anchoring involves giving consumers a price point they can use as a benchmark when considering other products. For instance, if a desk lamp is being marketed at a discounted price of P300 from P600, the seller will still show the original cost to serve as the anchor.
Another example is when an electronic brand promotes its 55-inch TV at P32,350 and later offers a 50-inch TV at P28,750. Consumers on a budget would naturally choose the second option because they’re given a benchmark at the onset.
This psychological pricing tactic is ideal for businesses that offer tiered prices and various product versions.
7. Decoy pricing
In decoy pricing, a business offers a plain-looking product or service to nudge consumers toward a more attractive option.
For example, if an online graphic design tool provider wanted to promote its premium service priced at P500 per month, it would offer fewer perks for its free services. It would market its premium service by providing more graphic design tools and features and allowing more users to share one account.
Businesses that offer different pricing plans could significantly benefit from this psychological pricing strategy.
Name Your Price
Pricing plays a vital role in business. With psychological pricing for business tactics, you can better market your products and services while boosting brand awareness to key target markets. You can also combine pricing strategies to make your products and services more attractive.
Apart from knowing psychological pricing, businesses must have a highly functional eCommerce platform to survive and thrive in the modern retail landscape. This is where Vessell comes into play. We offer custom eCommerce website solutions to companies looking to build their digital presence.
Request a free demo to learn more about starting in the eCommerce landscape.