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Psychological Pricing Tactics: Playing Mind Games for Profit

Maciej Wilczyński
Managing Partner, Founder Valueships
July 2, 2023

Buy two products and the third one you will get for free! 💸

Big sales day - all our services are -30% lower❗

Are you ready for sales? The prices start from $9.99! 🤯

You can certainly list with us more and more similar slogans, but nevertheless, there is a strategy behind them. It's called psychological pricing. 

In this article, we will delve into the fascinating world of different psychological pricing strategies that exploit the intricacies of human psychology. Meet the psychological pricing definition, learn the types of psychological pricing, and equip yourself with valuable insights into how effectively use this pricing strategy in your business.

What Is Psychological Pricing?

Psychological pricing is a pricing approach that capitalizes on consumer psychology to influence purchasing decisions. It is used by businesses to set prices in a way that influences customer perception. Instead of straightforward pricing, psychological pricing helps create a specific sense of value.

One common tactic is using price points that end in .99 (e.g., $ 9.99), which makes the price appear lower to consumers compared to a rounded number. Another method is offering a higher price for a product or service and then presenting a lower price by using discounts or sales. This can create the perception of a greater deal. 

Additional pricing methods include displaying prices in smaller font to make them seem lower and using limited-time offers to create a sense of urgency. By employing these popular psychological pricing techniques, businesses can shape how customers see the quality of the price and attractiveness of their offerings. 

How does Psychological Pricing Work?

Psychological pricing works by leveraging various factors that influence consumer behavior. The use of incomplete values, such as $9.99 instead of whole numbers like $10, creates the perception of a lower price, even though the difference is minimal. Retailers often employ tactics like "buy one, get one free" to enhance the sense of the offer profitability. Additionally, pricing that appears lower can attract more customers, leading to increased sales. 

You can use psychological pricing in your on a daily basis, as thanks to understanding and utilizing psychological pricing techniques, businesses can strategically shape consumer perceptions and drive purchasing decisions.

Advantages and Disadvantages of Psychological Pricing

✅ Advantages

Enhanced Price Appearance

Psychological pricing techniques, such as using odd pricing ($5.99 instead of $6.00), create the sense of a low price. This subtle difference can make customers feel like they are getting a really good deal, leading to increased sales. The innumeracy of consumers often overlooks the minimal difference and focuses on the lower digit, making the price more appealing.

Increased Perceive Price of an Item

Psychological pricing strategies can also influence customers' interpretation of worth. Thanks to offering:

  • discounts,
  • promotions,
  • or bundling products together,

businesses can boost perceived value. For example, a "buy one, get one free" offer creates a view of a better deal and receiving something extra for free. This can ultimately increase purchase intent.

Impulse Purchases

The effect of pricing on customer behavior can trigger impulse purchases. Low price points, limited-time offers, or flash sales create a sense of urgency and encourage customers to make purchases on the spot. This impulsive buying behavior can lead to increased sales volume and a boost in revenue.

Perceived Quality and Prestige

Pricing can also influence the perceived quality and prestige of a product or service. Higher price points can create an association with exclusivity, luxury, and premium quality. Customers may see higher-priced items as superior or more prestigious, leading to increased demand and a positive brand image.

Enhanced Profit Margins

Psychological pricing techniques can be used strategically to optimize profit margins. By carefully establishing prices, businesses can maximize revenue while still appealing to customer preferences. For example, starting prices just below a round number can create the sense of a low price while still maintaining a profitable margin. This approach allows businesses to find a balance between generating sales and maximizing profitability.

❌ Disadvantages

Afraid of Manipulation

Psychological pricing techniques can sometimes be interpreted as manipulative or deceptive by customers. The use of odd pricing or inflated original prices may erode trust and harm the reputation of a business if customers feel misled or tricked into making a purchase.

Limited Effectiveness

While psychological pricing strategies can be effective in certain situations, they may not always yield the desired results. Some customers may be aware of these tactics and see through them, rendering the pricing techniques ineffective in influencing their purchasing decisions.

Perceived Cheapness

In some cases, using psychological pricing strategies, such as setting prices at odd numbers or using low price points, may inadvertently create a bad perception of value for the specific product. Customers may associate low prices with inferior products, leading to a negative impact on the perceived deal and desirability of the offering. This can hinder premium positioning or cater to a specific market segment seeking higher-priced products.

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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.

Improve your Psychological Pricing Tactics with Valueships

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.

If you have no idea how to deal with your pricing, get help from Valueships

We specialize in pricing consulting and value-selling, among others. Therefore, we will empower your:

  • pricing strategy, 
  • pricing execution, 
  • pricing capabilities, 
  • sales team support,
  • value-based pricing of products and services,
  • sales strategy based on value,
  • and more. 

We empower industries like SaaS, E-commerce & Marketplce, Subscription & digital aspirations, Private equity & venture capital, Custom Software Development, and Professional Services.

We will do our best to maximize your revenue, increase your profitability and give you a competitive edge in the market.

Read our case studies and find out what we can do for you!

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.

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Maciej Wilczyński
Managing Partner, Founder Valueships

Expert in B2B pricing, monetization and value-based selling strategies. Over the past year, he has completed over 40 consulting projects in Europe. Prior to founding Valueships, he worked at McKinsey & Company, mainly in the TelCo, software, and banking industries. He completed his doctorate in pricing in SaaS start-ups at the University of Economics in Wrocław, where he also lectures.

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Maciej Wilczyński
Managing Partner, Founder Valueships

Expert in B2B pricing, monetization and value-based selling strategies. Over the past year, he has completed over 40 consulting projects in Europe. Prior to founding Valueships, he worked at McKinsey & Company, mainly in the TelCo, software, and banking industries. He completed his doctorate in pricing in SaaS start-ups at the University of Economics in Wrocław, where he also lectures.