8 Examples of Psychological Pricing Strategies You Need To Know
#1 Charm Pricing
The first example is called charm pricing. It involves setting prices just below a whole number, such as $1.99 instead of $2.00. This psychological pricing is effective and capitalizes on customers' tendency to perceive prices as significantly lower due to the left-digit effect. It's not surprising that we more often see prices with just such endings - we're already used to them, and when we see a rounded price, we don't feel so comfortable with it.
You can use charm pricing and create the perception of a lower price, making the product appear more affordable and enticing to potential buyers.
#2 Odd-Even Pricing
The idea behind odd-even pricing is to create the perception of a discounted or special price by using numbers like $19.95 or $44.49. Customers tend to associate prices ending in odd numbers with discounts or value. This pricing is one of the strategies that tap into the psychological bias where consumers perceive prices as more affordable or reasonable compared to prices ending in even numbers.
Therefore, using this method can positively influence the subconscious of customers by making them willing to use your offer or even buy more and more often.
#3 Bundle Pricing
The third option is bundle pricing. It involves offering multiple products or services together for a single price. By packaging related items, businesses give the impression of a better offer and increased value for the customer. Above all, they get the impression that they are getting something for free, so they don't have to overpay. This will keep the customer coming back to the brand for more such offers.
This strategy encourages customers to perceive the bundled price as lower than the sum of individual prices, leading to increased sales and customer satisfaction.
#4 Decoy Pricing
Decoy pricing is a strategy that involves introducing another option with a higher price to influence customer choices. The presence of the “inferior” option makes the first two seem more attractive. Therefore, by presenting a decoy product or service that is less attractive but priced similarly to the desired option, customers are more likely to choose the main offer, perceiving it as a better value proposition.
Decoy pricing nudges customers towards the desired choice while creating the illusion of an ideal deal.
#5 Price Anchoring
Price anchoring involves setting a higher initial price to anchor customers' expectations and make subsequent prices seem more reasonable or affordable. Thanks to presenting a premium or high-priced option alongside other alternatives, customers tend to perceive the lower-priced options as more attractive and worth the value. So, once the price has been reduced, companies should see a wave and sometimes even a flood of buyers.
Price anchoring helps businesses achieve their goal as customers perceive a price as good enough and guides them toward choosing options that align with their preferences.
#6 Loss Leader Pricing
Another example is loss leader pricing. It is a strategy where a product is initially sold at a loss or very low price to attract customers. The goal is to entice customers with an exceptionally affordable product, with the expectation that they will make additional purchases of higher-margin items. What's more, if a company applies this strategy on a permanent basis, customers already know to buy as soon as possible because prices will rise later.
Loss leader pricing can help businesses increase customer traffic, promote brand awareness, and generate sales that offset the initial loss.
#7 Artificial Time Offers
Artificial time constraints involve creating a sense of urgency and scarcity by imposing time limits on purchasing opportunities. Limited-time promotions, flash sales, or countdown timers create a fear of missing out, compelling customers to make quicker buying decisions. And it actually works! How many times have you failed to buy something from a sale because it was limited in time and people actually rushed to buy it?
With exploiting customers' inclination to act impulsively under time pressure, artificial time offers can drive sales and create a sense of exclusivity.
#8 Prestige Pricing
Prestige pricing, often used for luxury or high-end products, involves setting prices at a premium level to create an aura of exclusivity, quality, and status. Higher prices can enhance the perception of luxury and desirability, attracting customers who associate price with superior quality or unique features. Sometimes even products that are not prestigious are given high prices to create an aura of high quality. Here, one has to be careful not to deceive customers.
Prestige pricing establishes a brand image and can generate higher profit margins based on customers' willingness to pay for the perceived prestige and luxury experience.
What is the most powerful psychological pricing tactics in SaaS?
Let me get this straight: psychological tricks are great, but only if they are a cherry on top of an actual pricing strategy.
Too many of our pricing conversations start from: “we have made this plan more expensive to anchor the customers on the middle plan”. It’s simply wrong, doesn’t communicate the value, and makes a fool from a customer. We don’t do it here on value, then do psychology.
What I recommend though are: anchoring – goes great with ROI value selling examples; framing – makes wonders when it comes to plan presentation; loss aversion (prospect theory) – if you present something in this context, you can boost willingness to pay; magic numbers – yes, 9s and 5s still work, so remember about them – especially if you have an SMB product.
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In conclusion, psychological pricing offers several benefits, including enhanced price appearance, increased perceived quality, impulse purchases, improved brand perception, and optimized profit margins. With mentioned techniques, businesses can effectively influence customer behavior, drive sales, and achieve their pricing objectives.
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Psychological Pricing FAQ
#1 What is Psychological Pricing?
Psychological pricing is a strategy you can use to set prices in a way that leverages human psychology and influence customer behavior. Such pricing includes techniques like using odd numbers, charm prices (e.g., $9.99), and bundle offers to create a perception of value and encourage purchases.
#2 What are the Benefits and Drawbacks of Psychological Pricing Techniques?
Psychological pricing techniques can enhance price appearance, increase product value, and make customers feel like they are getting a better deal. They also create a sense of urgency and encourage purchases. However, drawbacks include the potential afraid of manipulation, limited effectiveness, and the risk of perceived cheapness.
#3 What are the Popular Psychological Pricing Strategies?
Common psychological pricing methods include charm pricing (e.g., $9.99), odd-even pricing, bundle pricing, decoy pricing, anchor pricing, and prestige pricing. Such strategies have a psychological impact on how users perceive the price and can encourage customers to purchase.