The pricing strategies used by modern-day businesses are more than just a numbers game. If you think about it correctly, pricing your products can significantly impact your brand identity and profit margins.
How do businesses access the maximum power of pricing? The ideal way to do that is to understand the psychology of marketers behind different pricing strategies.
This post is a complete guide to psychological pricing. We will discuss the different types of psychological pricing and give you examples of psychological pricing strategies. But let’s begin with a definition of what psychological pricing strategies are.
What is Psychological Pricing?
Psychological pricing is a strategy that uses the power of psychology to influence consumers to make a purchase. It is an effort of pricing combined with marketing and sales. It is meant to create an attractive offer that grabs customers’ attention to the point that the product becomes irresistible, and they simply cannot wait to buy it.
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Psychological pricing strategies are not new in the business world. Merchants and vendors have used these tactics for decades to influence consumer behavior. Before price tags were introduced, store clerks learned the art of haggling to make deals that appeared to be mutually beneficial for the store and its customers. When price tags emerged, marketers started leveraging the power of price to get the same results.
Even though psychological pricing is ubiquitous, it still plays a vital role in today's marketing tactics. It is indeed fundamental to pricing, advertising, and sales. Thus, if you are running a business or planning to start a business of your own, you need to understand psychological pricing strategies.
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Why Do Psychological Pricing Strategies Work?
To find out why psychological pricing is effective, let’s observe the concepts of marketing and pricing. If you look at Maslow’s hierarchy of needs, you can see the sequence of how human beings prioritize different things in life. At the bottom of the order are the physiological needs, such as food, shelter, clothing, etc.
On the layer above the physiological needs, he placed the safety needs. This means once we as humans have the basics of our survival taken care of, we become more concerned about our safety and security.
When our safety is also covered, the next thing we care about is our sense of belonging. We want to connect with others, experience love, build relationships, and engage with the community. If we achieve the sense of belonging that we need, our focus shifts more towards ourselves and our aspirations, which takes us to the topmost tier of self-actualization.
Chances are you already know all this, especially if you have a background in e-commerce or marketing. Maslow’s hierarchy forms a foundational aspect of modern marketing theories. But how is this theory related to psychological pricing?
Well, when your marketing, sales, and pricing teams are considering different types of psychological pricing tactics, you can refer to Maslow's hierarchy for guidance. The framework of Maslow’s theory will help you be more creative in building your psychological pricing strategy.
To answer why psychological pricing strategies work - it’s because they are based on an in-depth understanding of what motivates and inspires people to do stuff. Marketers need to have a deep understanding of why people take specific actions and avoid other actions. In fact, that’s the whole point of knowing psychology.
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Examples of Psychological Pricing Strategies
Psychological pricing is used everywhere, even by some top multinational companies like Apple, Amazon, Motorola, and Costco. Let’s highlight a few examples of psychological pricing strategies.
1. Value-Based Pricing
This is a basic psychological pricing strategy but is challenging to pull together. It requires a great understanding of your niche market and a bit of self-reflection work. In value-based pricing, you use the price of your products as a means to control the consumer perception of your brand. If you want to be perceived as a luxury brand, you need to set luxury prices. If you're going to be seen as the best value-for-money option, then you need to penetrate with pricing that's slightly below the market level.
Value-based psychological pricing requires a great deal of research on your target market. You also need to consider your business goals and the competitive landscape. This requires a lot of cooperation across the different departments in your company. Only then you can come up with a cohesive value-based pricing strategy.
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2. Odd-Even Pricing
This strategy uses the influence of number psychology to get customers to take the desired action. The ‘odd’ and the ‘even’ refer to the numbers or digits in a price. Odd prices mostly use odd numbers, such as $7.99, whereas even prices feature even numbers, such as $8.00.
More often than not, businesses price their products with odd numbers. But in reality, even prices are more powerful. Odd-even psychological pricing can be used in a few different ways. Here’s an example of how Uniqlo uses odd-even pricing. The company is giving out a shirt priced initially at $24.9 (a mostly even price) for a discounted price of only $7.90 (which is an odd price).
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3. Charm Pricing
This is a bit similar to the odd-even pricing strategy. In charm pricing, companies set prices in a way that elicits an emotional response among potential customers, inspiring them to take the desired action. Some notable examples of charm psychological pricing can be found in late-night infomercials. Charm pricing is noticeable due to its specificity and exceptional bundling strategies.
Advantages of Psychological Pricing
Here are a few advantages of using psychological pricing strategies.
1. A Better Understanding of Your Target Market
Using psychological pricing effectively requires you to do a lot of market research. This makes you go through learning about your target market and potential customers. Once you understand your target customers well, you can create better marketing content and campaigns to boost your sales. You can come up with marketing messages that your audience can better relate to. Overall, the more you understand your target market, the easier it becomes for you to sell your products and take your revenue to new heights.
2. More Organizational Alignment
Since psychological pricing strategies require you to have a lot of coordination and cooperation across the different departments in your company, it can potentially lead to more organizational alignment and clearer communication chains. When your employees understand how their job scope contributes to the overall achievement of organizational goals, they feel more inspired to perform at their best. This helps you streamline your processes and attain higher levels of productivity.
3. More Strategic Business Operations
With psychological pricing in place, you can become more proactive about planning and fine-tuning your business objectives and strategies. Instead of merely trying to break even, you will become more focused on the public perception of your brand and products. This will help you enhance your brand image and customer loyalty.
Disadvantages of Psychological Pricing
Here are a couple of disadvantages of using psychological pricing strategies.
1. The Complexity
Psychological pricing is a complex phenomenon. It is not easy to keep track of your ideal customer’s psychology at all times. If you go wrong in your understanding of their perception, your strategies might even backfire and cause a drop in your sales.
2. Time-Consumption
The research and rethinking required to effectively implement psychological pricing consume a lot of time. You could also invest that time in building other strategies that could benefit your business or even more.
Final Thoughts
There could be more types of psychological pricing tactics too that were not covered in this post. But the critical thing to remember is that if you can influence your potential customers’ decisions, you will be good to go in business and continue making sales.
After all, pricing is not the only element determining your sales levels. You also need to have good visual branding, and most importantly, a professionally built website.
It is not too complicated to build a website nowadays, primarily if you use a user-friendly website builder with tons of tools to easily create beautiful web pages. If you want to build a website to showcase your business, hop on to Strikingly, sign up for your free account, select a template, and add content to your web pages.
If you have any queries, you can get in touch with us any time through our live chat customer support. We are always ready to listen to your feedback and improve our platform to provide more features to you, which will make your website building experience more convenient.
