Price says something about the product. For example, many of us use price to judge quality. A £100 bottle of perfume may contain only £3 worth of scent, but some people are willing to pay the £100 because this price indicates that it’s something special.
When using psychological pricing, sellers consider more than just the economics. Psychological pricing utilizes specific techniques to create a subconscious impact on consumers.
There are many different psychological pricing strategies.
Reference prices are prices that buyers carry in their minds and refer to when looking at a given product. The reference price might be formed by noting current prices, remembering past prices, or assessing the buying situation. Sellers can influence or use our reference prices when setting prices. For example, a grocery retailer might place its store brand of Honey Crisp apple priced at £2.34 next to another brand’s Granny Smith apple priced at £3.19, thus making its apple look cheaper. Or a company might offer more expensive models that don’t sell very well to make its less expensive but still high-priced models look more affordable by comparison. For example, a kitchen-wares retailer once offered a fancy bread maker at the steep price of £279. However, it then added a £429 model. The expensive model flopped, but sales of the cheaper model doubled
This is the fancy and more official name for all the prices you see in-store that end with “9.” Researchers at MIT and the University of Chicago found prices ending in “9” create increased customer demand for products. The science behind this is that people read from left to right. So, if they encounter a price at £1.99, they see the number “1” first and perceive the price closer to £1. You see such prices everywhere. For example, browse the online sites of top discounters such as Target, Best Buy, or Overstock.com, where almost every price ends in 9.
How a price looks to the naked eye impacts the psyche. Longer prices appear to be more expensive than shorter prices, even if they’re the same number. The reasoning is that longer prices take longer to read so people subconsciously couple time with cost. You’ve definitely seen this in a restaurant. Many restaurant menus will have the prices in smaller font and will omit “0s” and dollar signs. Omitting the dollar sign makes the price look shorter and eliminates the direct association people have with the cash in their wallet.
Some psychologists even argue that each digit has symbolic and visual qualities that should be considered in pricing. Thus, eight (8) is round and even and creates a soothing effect, whereas seven (7) is angular and creates a jarring effect
We usually perceive higher-priced products as having higher quality. When we can judge the quality of a product by examining it or by calling on past experience with it, we use price less to judge quality. But when we cannot judge quality because we lack the information or skill, price becomes an important quality signal. For instance, who’s the better lawyer, one who charges £50 per hour or one who charges £500 per hour? You’d have to do a lot of digging into the respective lawyers’ credentials to answer this question objectively; even then, you might not be able to judge accurately. Most of us would simply assume that the higher-priced lawyer is better.
Although actual price differences might be small, the impact of such psychological tactics can be big. For example, in one study, people were asked how likely they were to choose among LASIK eye surgery providers based only on the prices they charged: £299 or £300. The actual price difference was only £1, but the study found that the psychological difference was much greater. Preference ratings for the providers charging £300 were much higher. Subjects perceived the £299 price as significantly less, but the lower price also raised stronger concerns about quality and risk
For most purchases, we can lack all the skill or information we need to figure out whether we are paying a good price. We don’t have the time, ability, or inclination to research different brands or stores, compare prices, and get the best deals. Instead, most of us may rely on certain cues that signal whether a price is high or low. Interestingly, such pricing cues are often provided by sellers, in the form of sales signs, price-matching guarantees, loss-leader pricing, and other helpful hints. Being aware of these tactics can help us be more mindful and conscious when making a purchase decision.
Sign up to Quirky Fridays for a round-up of the week’s most important news on the economy and tips that will help with your personal finances. Every Friday at 4PM straight to your inbox.