When it comes to business, psychology plays an integral part in how products are advertised and sold. Marketing, economics, and math are important aspects as well, but psychology has had a particularly strong influence on the way products are advertised, marketed, and even packaged. In fact, the psychology behind price and how much people are willing to pay dramatically affects the amount of money companies can charge for a product.
Here’s a look at some common pricing strategies that are influenced by psychology:
99 Cent Pricing
This is one of the most common pricing practice that marketers use, but if you think about it, it seems a little silly that people are more likely to purchase an item for $14.99 instead of $15. However, pricing products this way is a deliberate decision based on psychology and how our brains work. Whenever we scan prices, we don’t remember the entire amount, but rather the first few numbers in the sequence. So if we see a $14.99 item and a $15 item, our brains immediately conclude that the $14.99 item is a better deal because 14 is less than 15 (if only by a penny).
You’re probably already aware of this psychological trick, but even so, you might unconsciously fall prey to it when you go shopping. As long as it works, companies will still use it.
Whole Number Pricing
On the flipside, you might have noticed that some products are listed as whole, round numbers such as $70 or $100. If the 99 cent pricing is so popular, then why are these companies deliberately breaking that rule and using whole numbers instead?
Items priced with 99 cents are more appealing to people because, in their brains at least, 99 cents equates to a deal. Going along with that, our brains often associate price with quality, so something that is viewed as discounted is synonymous with lower quality. This is why most luxury brands offer their products at whole numbers because our brains assume that, since it is more expensive, it is better quality and should be worth more.
This is a new pricing strategy that companies are starting to try out. If they are selling a particular product, they will often create multiple tiers for it so that consumers can choose exactly what they want.
- If they are working on a budget, they can get the cheapest option.
- If they are looking for a more premium product, they can get the most expensive.
However, this is merely an illusion of choice as companies want you to pick the middle item. When presented with three pricing tiers, most consumers will select the middle ground as they perceive that it gives them the most bang for their buck. The lowest option is the cheapest one (which makes consumers think it is lower quality), but they can’t justify getting the most expensive option. In the end, they choose the middle option which is precisely what the companies want them to do. Simply put, the other two items are there just to make their goal product look good. We often see this in subscription plans (such as Netflix) or with pricing on brand new smartphones. (Apple and Samsung both use this strategy.)
If you are a business owner, you can use these pricing tricks to your advantage. They can significantly increase your sales and ensure that you remain competitive in the market.