4 popular psychological pricing strategies
There are popular strategies behind each discount, promotion, advertisement, and deal out there. Here are the four most favored.
1. Artificial time constraints
“BUY ONE GET ONE FREE! ONE DAY ONLY!” We’ve all seen this ad to some tune. Stores will place an artificial time constraint on a sale to create a sense of urgency. Stores employ time restrictions because they act as a catalyst for consumers to spend. The psychological tactic creates a sense of fear in consumers. If they don’t act now, they risk missing out. The truth is, though, there will always be another sale.
2. Charm pricing
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 “1” first and perceive the price closer to $1.
Charm pricing can have the opposite effect as well. Prices that end in “9” connote a value price, meaning you’re getting a good deal. On the flip side, prices that end in “0” may connote a prestigious price and a higher quality product. If you want your product to be perceived higher value, charm pricing is a bad idea.
When offered “Buy one, get one 50% off” versus “50% off of two items” most people select the first option even though both result in the same price. This scenario best describes innumeracy, a phenomenon in which customers are unable to recognize the fundamental math principles applied to everyday life.
A study by Akshay Rao from the University of Minnesota’s School of Management found consumers are waning on discounts in favor of receiving something extra. We actually prefer receiving more items than a discount.
Another psychological tactic nestled under innumeracy is double discounting, where the item will be marked down with an original percentage then an additional percentage off. For example, an item may be advertised as 25% off. Then, the company will offer an additional 20% off. Customers may perceive this as 45% off the item when really it’s just 20% off of the discounted price.
4. Price appearance
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.