Today we’ll discuss the impact of psychological pricing on the decision making process of customers when they visit the market.
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What is Psychological Pricing?
Psychological pricing is the art and process of using the factional numbers instead of the whole figures. For instance, marketers price their products 499/-, instead of the whole number 500/-. Secondly, they capitalize the first digit and make the font of the other digit smaller. All customers would see is the capital 4 and not the smaller 99.
In simple words, it’s the process of deceiving the perception of customers at first appearance and tricking them into visiting your shop or outlet.
Psychological Pricing FAQs
It’s a smart way of tricking customers into perceiving that they can save some money, and a little less price doesn’t affect the overall profit of the company. The total sale of the company increases exponentially due to psychological pricing.
Shopping malls, food chain hotels and restaurants like McDonald’s and grocery retail stores use such pricing strategy, where they use fractional figures, big font and small font combination, limited offers, or buy one and get one free offer. It creates a win-win scenario both for the customers and the company as well.
5 Psychological Pricing Strategies
As we have discussed the impact of psychological pricing in the minds of customers. However, different marketers use different strategies for pricing, here are some of the most commonly used strategies are as follows;
Charm Pricing Strategy
It’s the type of strategy that ends with the number 9 or 99. There are two major reasons are behind it; first, people consider the number 9 as a lucky number in many cultures. Secondly, marketers changed the whole number just by reducing one cent. For instance, reducing one cent from 5, it becomes 4.99, and consumers perceive the fractional figure cheaper than the original price. Even though there isn’t much any difference.
Thomas and Morwitz conducted a study by the name of ‘the left digit effect in price cognition’ in 2005. According to their finding if the left-digit ending price is nine which is one cent lower than the whole number, then customers would see it as cheaper price. Like; 10 to 9.99. If lowering one cent doesn’t change the whole number, then it wouldn’t make any impact like 5.60 to 5.59.
University of Chicago and MIT experimented with the women’s clothing line. The purpose of the experiment was to check the impact of left-digit pricing. However, they changed the prices of clothes from 45 to 44, 40 to 39, and 35 to 34. Surprisingly most of the customers bought the items priced as 39 because they thought the other items were expensive.
The gist of the matter is that if you want to increase the sale of your product or service, and then just change the ending of zero of the price with 9. Keith Coulter, professor of marketing at the Clark University, said that the only way it would enhance the impact of left-digit pricing strategy if you use smaller fonts of 9.
Prestige Pricing Strategy
Prestige pricing is the absolute opposite of charm pricing strategy. Where marketers don’t use fractional figures, rather they prefer round numbers. For instance, instead of using 499, here they’d say 500.
In 2015, Monica Wadhwa and Kuangjie Zhang conducted a research study. According to their report that customers find round numbers more convincing and reliable than the fractional number, because it’s easier to process round numbers.
Perhaps you might be wondering, how and why? It is because customers feel at ease with round pricing, and they find fractional pricing confusing.
Wadhwa and Zhang explained prestige pricing with the example of champagne sale, it was high when the price was $50 than it was $49.50 or $50.45.
Comparative Pricing Strategy
It’s a very tricky strategy where a company launches two similar products at one time, but the price of one product is striking and eye-catching than the other. Such offers create a conflict in the minds of customers in terms of choosing between two products. Whether customer chooses a lower-priced product or the higher price product, it’ll be a win-win situation for the company either way.
Cosmetics, fashion and luxury items industries usually adopt such strategies. Where companies launch the same products at one time as the company offers two tuxedos at one time, but their prices are different. Now, customer would tend to think that more costly mean more quality.
When prices are changed in the market, smart marketers advertise their products with the old price. The sale of the company increases as a result because people want to take advantage of the old price.
Companies should use attractive fonts and charming eye-catching colors for the price to make it look interesting. Big fonts and colorful descriptions bring the customer to your doorstep.
Here I’d like to reference the research study of Robin and Keith, according to their report, if you change the font, size, and color of two prices, make the targeted price in bigger font size and another one in the smaller size. These small things have unintentional psychological connotations, whether customers think about it or not. He’d go for it.
Competitive pricing is the strategy of setting the price of your product or service relevant to the competitors’ pricing schemes. It is the first thing that a customer notices because price matters in day to day routine things.
The final result of competitive pricing doesn’t end well because both competitors would end up lowering each other’s product prices. But marketers have gotten very smart over the years, now; they lower the price of their product at a level because it’s very costly to drown your competitors.
Companies keep in mind the image of their respective brand, social awareness, usage of the product and how often people buy your product or service.
Advantages of Psychological Pricing
More Sales Generation
Prices of the product is the main concern of the majority of consumers, whenever they come across such offers. Then they prefer to buy it and take advantage of the limited offers. The marketers who implement their psychological pricing effectively, they gather a lot of public attention. When you have the attention of people, then you can sell whatever you want. Sale of companies increases after the psychological pricing.
It’s all about market research and studying consumers’ behavior and finding out their pain points. Target those things that they are looking for when you implement your pricing like this, and then you can have the desired result. Implementation of psychological pricing is not a difficult process if you have done your basic homework.
Having said earlier that it’s all about pricing when you go out for shopping most of the time; customers also compare different brands based on their prices. When one brand offers something at a lower price, then it gets the attention of people and becomes their price brand. Even though it’s only less with some fractions, but it matters a lot to the consumers.
For instance, a person wants to buy an automobile vehicle, one brand is selling it at $15000, and the other is selling it at 14999. The difference of $1 between both of these brands would make one price brand over the other.
Round figures are very easy to calculate and manipulate it for your purpose. Fractional figures, on the other hand, are difficult are calculate and misuse. Therefore, intra-organizational fraudulent activities happen because of the round figures most of the time, where employees of the company move around the cash and take their cut out of it.
Round figures aren’t easy unless you do the complete mathematical calculations. Therefore, the company would get a better control over its employees and system.
It has a unique non-rational impact on the minds of customers, whether it’s right or wrong that’s another topic for discussion. But we can’t deny its impact, and companies increase sales because of the non-rational pricing strategies.
Disadvantages of Psychological Pricing
Long-term Pricing Expectations
Fractional pricing doesn’t give you the immediate market response sometimes; you have to wait for the market to respond to your psychological pricing. It may vary from strategy to strategy; it’s usually a long-term process.
Manual calculation of fractional pricing would be a bit tiresome, especially when there are more figures. The more the figures are, the more laborious it would be. If the cashier has a computer and tag sensor, then they can overcome the calculation problem.
Sometimes customers don’t like confusing pricing, and they reject all types of fractional figures. Therefore, it’s not a good pricing strategy if your target market is comprised of rational people.
Examples of Psychological Pricing
499/-, 999/-, buy one get one free offer, 1000/-, and 10,000/- all are the examples of different types of psychological pricing of various product categories.
It’s better to know the market and read customers’ type, whether they are rational or irrational. If they are rational, then they’d prefer round figures, vice versa for the irrational market. If you apply the wrong pricing strategy in the wrong market, then it won’t work. Therefore, it’s better to know the market and customers’ behavior before applying any strategy.