You've seen it all the time, but have you ever wondered why something costs $9.99 instead of $10 or why you will usually pay an extra 50 cents to get a large Coke instead of a medium?
These small pricing gimmicks are powerful pricing strategies rooted in psychology to influence customer decisions and nudge them closer to making a purchase.
We will look at four simple but effective psychological pricing strategies you have likely seen before, which you can also use to set the prices for your own products and services.
When a price ends in .99, .95 or even .97, customers tend to see it as significantly lower than the rounded-up price, even though the difference is just a few cents. This is because people read numbers from left to right, focusing more on the first digit. For example, $9.99 feels closer to $9 than $10, making it seem like a bargain.
Most major retailers like Walmart and Amazon use charm pricing extensively, especially for everyday products. You'll notice that many items on Amazon are priced at $19.99, $49.95, or $99.99—tricking the brain into perceiving a better deal than the next whole number. But it's not just the big players. Take a look next time you're at your local supermarket. The odds are that you will see a charm price or two.
Apply charm pricing to your everyday or mid-range products to make them more attractive, but save rounded prices, like $100 instead of $99.95 or $3,200 instead of $3,199 for premium items to convey quality.
When customers see a high price first, they use it as a mental "anchor" to judge other prices. This makes lower-priced items seem like a better deal.
An ASICS outlet store in Sydney displayed its latest running shoes for $300 a pair, but it also displayed last year's design for $120. Considering it's basically the same shoe, it feels like a bargain. But on the flip side, if they didn't show the $300 pair, you may consider $120 a bit pricey.
Place your higher-priced items in a prominent location that can be seen easily, but also make sure you have your lower-priced items nearby so customers can make a quick comparison.
Adding a third, less-attractive option nudges customers to pick the product you want them to buy. This trick works by framing one option as an apparent "better deal."
Movie theatres use this trick with popcorn sizes. They'll offer a small for $5, a large for $8, and a medium for $7. Since the price of a medium is close to that of a large, customers feel like the large offers more value, pushing them to choose it. They might not even eat the whole thing, but hey, it's a great deal!
If you have a product you want to promote and sell, introduce a decoy option to frame it as the best deal. For instance, offer three service tiers where the middle option is slightly cheaper than the premium one so your customers will opt-in the more expensive option as it provides better value.
Bundling related products encourages customers to spend more by making them feel like they're getting a deal. People love bundles because they seem like greater value for the price.
Fast food chains are masters of bundling. Everything is a 'meal deal' Even if you only feel like a burger and a drink, you'd find yourself paying another dollar extra to get the fries. You justify the purchase by telling yourself, 'Might as well get the fries. It was only a dollar extra', and you totally forgot that you originally ONLY wanted a burger and a drink!
Bundle complementary products, like pants and a matching belt or offer discounts on multi-packs (get three cans of shaving cream for the price of two!).
Psychological pricing strategies are great as they influence customer behaviour and drive sales. These simple strategies tap into how people naturally think and make decisions.
However, it's important to remember that pricing strategies should enhance the customer experience and make them feel they are receiving genuine value, not being manipulated into paying more than they have to.
If you need someone to bounce pricing strategy ideas with, our team here at Spesh are more than happy to help!