- Contest Factory
- October 22, 2019
When a company comes out with a new product or service, they are harnessing the need for a solution to a problem from their customers. This product may be the next best thing since sliced bread, but how should they go about pricing the product in order to gain an edge over their competition and win the consumer’s sale? Psychological pricing strategies hold the answers.
What is a psychological pricing strategy? It is based on the principle that certain price points trigger our psyche into thinking that a price is much better than it really is.
Psychological pricing strategies:
1. Buy One, Get One (BOGO)
BOGO is a very popular strategy for driving sales. It can be buying one product at full price and getting the second product at 50% off, or more commonly, buying one product at full price and getting the second product FREE. We as customers love the BOGO concept because it makes us feel that we are getting more for our money. The takeaway is the BOGO plays on our emotional need of getting a better deal than the next guy convincing us to buy multiple items of a product when we may have otherwise only bought one, or even none at all. BOGOs are usually implemented to clean out excess inventory and/or to create a large cash flow.
2. Odd or Charm Pricing
What is “charm pricing” or “odd pricing”? This strategy is when a product’s price is reduced by one dollar or one penny, creating a price ending in the odd numbers “9” or “99”. When we see a price of $9.99 instead of $10.00, our brain sees the $9.99 price as a more attractive bargain than the rounded-up, $10.00 even price. While the seller loses a penny for each sale, they more than make up for it with the increased number of sales gained by the charm pricing.
The charmed pricing strategy is often seen when selling women’s clothing. Research done by the University of Chicago and MIT set prices of women’s clothing at $44.00, $34.00 and $39.00 and much to their surprise the item that sold out was the $39.00 item.
3. Prestige Pricing
Prestige pricing employs the opposite philosophy to charm pricing by pricing products at a slightly higher price in order to give the impression of higher quality. This pricing rounds the number up with zeros, i.e. $99.99 to $100.00. Rounded numbers are based on a customer’s “feeling” about the product or service. The rounded number just “feels right”, therefore, processing the price more quickly. The perception is seen as higher or more prestigious.
4. Anchoring or Focalism Pricing
This pricing strategy is used when selling similar products of various prices and quality in order to make expensive items appear cheaper. For example, if you place a $1,000 TV next to a $5,000 TV, your brain sees the $1,000 TV as the better deal. This is based on a cognitive bias where the customer relies too much on the initial piece of information to make a decision. The value of the anchor (i.e. $5,000 TV) triggers our minds to see the $1,000 TV seem like a bargain. Turn the tables and place the $1,000 TV next to a $200.00 TV and the same $1,000 TV appears to be an upscale, premium purchase.
This strategy is often used in restaurants where they place expensive items on the outside of the menu, this triggers our brain that the other prices are cheaper by comparison.
5. Value Pricing
With this strategy, the marketer re-describes the value of a product. This is especially successful in subscriptions. A customer might see a monthly amount as less expensive than a yearly amount, when in actuality the yearly subscription price is cheaper, e.g. $8.99/month vs. $96/year. The marketer must always consider their goals when pricing for value — if you want to sell more yearly than monthly subscriptions, then you must make it clear to the customer that the yearly subscription is the better deal, and not leave it up to them to do the calculations.
Whichever pricing strategy works for your company, remember consumer’s behaviors are based on psychology or neuromarketing. As marketers, we are always trying to figure out what makes the consumer act the way they do!