What is it about sales that make them irresistible? We have all be enticed by a sale before and bought more than we intended to or maybe something we definitely didn’t need. Even though we are deep into the retail consumer’s mindset, we all end up making purchases based on psychological pricing. These prices appeal to us emotionally, even if we don’t realize it. As retailers and brands, harnessing the power of psychological pricing is an invaluable asset.
We all know that psychological pricing works. And the key questions that follow are: why does it work and how can you use psychological pricing to your advantage in a genuine way? You don’t want promotions that simply blend in with competitors’, instead you want something that is unique to your brand. You already focus on differentiation of your products, so why not extend that to pricing as well?
Psychological Pricing in Practice
There are several ways to put psychological pricing to work, depending on your target market. On the commodity side of the market, Walmart is known for odd pricing. Their prices might seem random and you might ask yourself why a pack of tooth brushes ends in .12 versus the more common .99. Walmart’s loss leader image drives their pricing strategy. By offering products at strange prices, they catch shoppers off guard and effectively capture their attention with deals that seem too good to pass up.
Commodity retailers and brands often sell products with a .99 tacked on the end. This fits in with the charm pricing strategy, which includes prices that end in a nine, such as 3.49. It conveys to shoppers that they could have rounded up to the next dollar or cent, but instead chose to pass on those savings. Walmart and other unusually priced retailers take this to the next level and seem to offer products at the lowest price they possibly can.
On the other side of the market, higher end and luxury items typically practice whole pricing. They don’t have any cents tacked on to them, but they often still include nines. The number nine is the golden child in pricing, it makes shoppers checkout, even when there is a lower cost item available that didn’t include a nine.
If a shopper is in the market for a new iPad, they may click over to the Apple website. Beyond the sleek design of the site, they will be greeted with prices that aim to convey the prestige and quality inherent in the Apple brand. These prices like $349 and $799 include the seductive number nine, but they imply a firmness. Apple rarely offers promotions on their products and they don’t have to. Their products speak for themselves and shoppers looking for a bargain over quality choose other brands.
One of the newest brands to cause a stir with their pricing is Brandless. They offer a number of grocery and personal care products that are all $3. They are putting whole pricing to work and showing that their brand is no-nonsense. If other brands and retailers are seen as playing mind games with the consumer to sway them, Brandless has bowed out and run off to create its own category. While it’s too early in the Brandless story to know how successful they will be in their quest to turn psychological pricing on its head, it is certainly an interesting case.
Another type of psychological pricing that Brandless escapes is tiered or comparative pricing. In this pricing strategy, products are pitted against each other and made to seem like they have different levels of quality. A slightly higher priced version of a product may seem to have more features and entice shoppers who want to get a considerable amount more for just a bit less. This is also related to volume discounts, as shoppers are easily swayed by a higher quantity of items for less (although some retailers offer a higher volume of product that is actually a higher price per product, ounce, etc, as they bank on shoppers not doing the math.)
Lastly, there’s buy one, get one. Shoppers love free things. Even if they have to buy something they didn’t intend to or buy a higher quantity than they actually need, free is irresistible. What about buy one, get one a certain percentage off? These are also highly effective, even more so than blanket discounts that add up to more savings. It’s just the allure of the get one that attracts shoppers.
How to Put Psychological Pricing to Work
If you’d like to appeal to shopper’s psychology, you’ll need to take a look in the mirror.
- Who does your brand target?
- What does your brand convey?
- How have your products been priced in the past?
- Which prices have been most successful?
- How are your competitors priced?
- What do you want to achieve with a psychological pricing strategy?
The answers to these questions will illuminate the correct psychological pricing strategy that you can price test without any negative feedback from customers. But there are reasons to proceed with caution.
A Cautionary Tale
When running a promotion, make sure the original price is visible so that shoppers can feel like they’re getting a good deal. But watch out with this pricing strategy, you need to have actually sold the product at that price, otherwise you are opening yourself up to legal trouble. Years ago JCPenney found itself tied up when shoppers stated that the deep discounts they offered were fraudulent, since they had never actually sold their products at the lofty original prices they stated. Don’t put yourself in this position. While psychological pricing can work wonders for your bottom line, deceptive pricing in order to cash in on shopper emotion won’t end well.
Pricing and retail in general evoke an emotional response. The more you can connect with shoppers, the more likely they are to buy from you. Take lessons from retailers that have excelled and failed at various psychological pricing strategies to set yourself up for success.