What is psychological pricing? 

Psychological pricing is a strategy that considers the emotional effects prices have on customers. A good example is the idea that prices such as $19,99 are lower than they are. 

The theory says that people perceive $19,99 as closer to 19 than 20, therefore, it seems like it costs less. The point is that such perception causes greater demand. 

The thesis was first presented by Kaushik Basu, who used it in Game Theory to argue that customers value time and effort when buying. He also argued that consumers process time from left to right and replace the last two digits. 

In practical terms this effect would make possible for sellers to charge the largest possible value on cents, which means 99 cents, without affecting the consumer behavior. 

Psychological Pricing Strategies 

The idea to minimize price in the perception of customers while obtaining a higher value can be used in different ways.  

For instance, it can attract attention to your business, like any other promotion if you pass the impression of lower prices your brand will gain attention. So, the cents strategy is a good request in promotions. 

On the consumer’s side, those strategies will simplify the decision-making process. The perception of a lower price impacts positively and usually makes people buy without considering too much. 

The greatest advantage of psychological pricing, though, is the high return. As people buy more with the impression of lower prices, you’ll experience an increase in sales and therefore profits. 

But every benefit comes with it’s cons. The first one is that customers may see the price as deceitful. Understand the strategy and consider that the business is taking advantage of buyers. 

Another con is the perception of buyers on the quality of your product. The perception of lower prices comes with the idea of a worse product, and that may influence the perception. 

See below some examples of strategies with psychological pricing. 

Charm Pricing 

The title “Charm Pricing” is the official name of the 99 cents at the end of the price. It creates an increased customer demand for products. A good strategy then is setting the price with the final 99.  

That can be used on full values too, such as changing the price from $100 to $99. The drawback effect of doing that is establishing prices that end with 0 as prestigious, which can also be used as a strategy for determined products. 

Comparative Pricing 

Another heavily used strategy is putting products with elevated price next to the ones with lower prices. This also gives the perception that one is much more attractive than the other. 

This affects customers psychologically because they must choose between similar products with different prices. But this also can be explored in the idea that high priced products have more quality. 

That can be enhanced visually with price displays. Highlight the product on sale with different fonts and numerals. That will help create the difference and increase sales. 

Artificial Time restrictions 

This strategy basically consists in creating a sense of urgency on the price. Even if that will go on for a long time, if is placed a warning of urgency it will make customers think that they can’t lose that promotion. 

This is supported by the herd effect. If people, see others buying a item with discount they feel pressure to participate in the promotion and buy more. Even if they didn’t want the product in the first place. 

In sum 

Using psychological strategy in pricing is good to increase sales and create a sense of urgency in customers. Also, you can change the perception of value to establish higher prices. 

But by itself it will not drive sales, you need a solid pricing before you can think of applying these strategies. You always must keep in mind that your prices impact on your brand, and that can be beneficial or not. 

In the end, a good way to practice those strategies is to be transparent about the process and avoid clients perceiving as manipulation.  

 If done with care, these strategies can help your business be more profitable and create a positive brand on the market, attracting even more customers. 

With Supply Brain price optimization tool, you will be able to analyze how price influences demand and simulate scenarios to identify the best pricing strategy for your audience. Want to learn more? Get in touch!

    Carol Gameleira

    Carol Gameleira

    Graduated in Public Relations and post graduated in Marketing by ESPM, Carol possess 7 years of experience in the area of Comunications and Digital Marketing, acting in the Artificial Inteligence and Supply Chain realm since 2020.