If you’re anything like me, you spend hours thinking about how your business can solve problems, give customers value, but also make a nice profit.

Those thoughts usually lead to pricing…

…and when it comes to running a profitable business, pricing is everything.

Charge too little and you run the risk of not getting enough revenue. Charge too much, and potential customers will run for the hills.

It’s important to get it right.

And it isn’t as simple as just charging what you feel is best.

It’s about getting into the mind of consumers to understand what they’re happy paying so you can effectively price your product to increase sales.

And the way to do that is to understand pricing psychology.

So in this article, I’m going to show you 9 different psychology-based pricing strategies you can use, how you can increase prices without losing your customers, and real-life examples of the strategies in action.

Swipe these pages to improve your pricing strategy

Coming up with an effective pricing page isn’t easy. It takes time, consideration and research.

But the task is 10x easier when you have a curated list of some of the best pricing pages to base your efforts on.

I’ve put together a bonus resource with 10 of the best pricing pages to help inspire you to create or improve your own.

e-commerce pricing pages

Free Downloadable Bonus Get access to our swipe file of the 10 best e-commerce pricing pages right now.

What are psychology-based pricing strategies?

The thing about pricing, it’s comparative, never absolute. Nothing is ever cheap or expensive, without first having something to compare it to.

Without a thorough understanding of economic theory, it’s hard to price your products just right—at the sweet spot that encourages people to buy.

But whether you like it or not, our decisions are guided by a degree of cognitive biases.

The same goes for pricing.

That’s why psychological economists put so much time into studying the spending habits of consumers.

So, with that in mind, here are 9 pricing strategies you can use today in your online marketing.

1. Charm vs. prestige pricing

The Charm price, also known as “magic number 9,” or “left-digit effect,” is a strategy we’re all familiar with.

You might not even know it had a name because you’re so used to seeing it everywhere.

This strategy is most common with products ending in .99, e.g. $2.99 or $39.99.

It works because consumers ignore the 99 and focus on the left digit.

In its simplest terms, it works because psychologically it makes the price feel lower. $299 seems closer to $200 than it does to $300, even though that simply isn’t the case.

A price change of $3.60 to $3.59 won’t make a psychological difference because the left digit doesn’t change.

But $3.00 to $2.99 is a huge difference because the left digit changes to a lower number.

In a study conducted by MIT and the University of Chicago, they tested the cost of a clothing item at three different price points: $34, $39 and $44.

It’s no surprise then, the $39 item sold better than the $34 and $44 price points.

But why do people do this, and more importantly, is it effective?

Let’s look into this further.

Apple, who have recently declared to have a quarter-trillion dollars in cash, use the power of 9 on all of their products. This method does work.

Psychology-Based Pricing Strategies

Rounded pricing, where items are priced with whole numbers such as $4000 or $50, is an alternative to charm pricing.

If you look at high-end, luxury stores like Versace, you will see they often take advantage of this.

Psychology-Based Pricing Strategies

A 2015 study, by Kuangjie Zhang and Monica Wadhwa, showed rounded numbers are processed by relying on consumers’ feelings, rather than cognition.

For high-end, luxury products, where you’re not trying to sell value, the prices are processed quicker because they’re driven by feelings of “do I want this item, as opposed to, “is this item good value for money?.

Whether you use charm pricing or rounded pricing, will depend on what you’re trying to sell.

A hedonic purchase, something someone either wants or doesn’t want (e.g. a flat screen TV), might benefit from a rounded price.

Whereas a utilitarian purchase (e.g. a washing machine) works best in price-conscious markets and might benefit from non-rounded prices because consumers are looking for value.

2. Comparison pricing anchor strategy

$1000 is neither expensive nor cheap.

Think about it like this.

If you were going to buy a house, and the seller told you it would cost $1000, that would seem cheap, right?

What if you were going to buy a chocolate bar and the cashier told you it would cost $1000?

Suddenly, that seems expensive.

Psychology-Based Pricing Strategies

It seems that way because you are anchoring the price you’re shown, with a price in your mind, or a price you feel you should be paying.

When we make purchasing decisions, we rely on the first piece of information— the anchor—to make further judgments. Consumers are now able to browse products online, compare brands on cost, and decide which provider is best for their needs.

This strategy works especially well for those trying to sell services, especially if you adopt a tiered system.

Offering potential customers different versions, or packages of your product means they’ll naturally compare because you explicitly encourage them to do so.

Psychology-Based Pricing Strategies

The price gap between the “Garden” and “Estate” package is only $15, a small amount. In doing so, Freshdesk encourages their potential users to compare the packages and look for value.

How many times have you seen a tiered pricing structure and opted for a higher tier because it felt like a better deal?

While you might anchor your price to a figure consumers have seen elsewhere or a figure they have in their head, you can also use your own products to anchor your pricing.

A study in the book Predictably Irrational, noticed The Economist was offering three different packages:Psychology-Based Pricing Strategies
This pricing strategy encouraged consumers to think about the value they’d get. They stopped hunting bargains, looking for the best deal, and instead looked at the value offered.

In this scenario, why would consumers opt for the ‘print package’ when they could get the web and print package for the same cost?

The study showed including the print-only package changed the consumers’ mindset.

Without the print-only option, it would be impossible to compare prices. Most people would opt for the web package simply because it was cheaper.

It meant The Economist were able to generate 43% more revenue.

If you want to guide consumers to a more expensive option, you need to be tactical and price anchoring is an easy way to achieve this to make an expensive item seem more appealing.

3. Bundle extras

Let’s imagine the scene. You’ve bought a car and invested a great deal of money in it.

The cashier asks whether you want an accessories bundle for another $100.

They tell you there are 6 items in the bundle to help you get on your way.

You agree.

Now let’s imagine the same scene. Only this time the cashier asks if you’d like to buy:

Psychology-Based Pricing Strategies

Even though the items equate to the exact same amount, it suddenly feels like more of a commitment to purchase all these different items.

Amazon does a great job of this. When I went to buy this camera, for example, they listed other items customers frequently bought together.

While they list the individual prices of the items, they also include the total price of $966.97.

Psychology-Based Pricing Strategies

Because they’ve bundled the prices together, it seems like you’re getting a good deal. You don’t feel like you have to make four different purchases.

Bundling items, removes any friction or reservations the buyer has, and encourages them to spend more.

4. Fragmented pricing

For a customer, $83/month sounds much more affordable than $1000/year, even though they’re the same price.

It’s a much bigger investment to pay $1000 in one go, as opposed to $83 per month.

That’s why so many companies adopt a fragmented pricing strategy.

Fragmented pricing splits the cost of something to show the daily/monthly cost making it seem more reasonable to the consumer.

Barkbox uses fragmented pricing for their subscriptions service. Rather than paying $150 upfront, consumers are able to split the cost on a per-month basis.

Psychology-Based Pricing Strategies

It’s much less of a commitment to pay $25 a month for 6 months than invest $150.

5. Selling time over money

When it comes down to it, what’s more precious: time or money?

Time, of course.

Economists think long and hard about positioning products in accordance to how much time they’ll save the potential customer.

But how does this affect your pricing?

It’s simple.

Putting emphasis on time rather than money shifts the emotional response consumers have to a product or service.

In an experiment conducted by Mogliner and Aaker (2009), a lemonade stand had three different signs, each focussing on something different.

Psychology-Based Pricing Strategies

Participants in the study were able to pay whatever they wanted between $1 and $3 for the lemonade.

Time outperformed both “money” and “neutral” with participants paying twice as much for the lemonade stand that focussed on time.

This is because time increases focus on product experience.

When pricing your products and writing product copy, if you can, shift the emphasis to the time consumers will spend with your product. It’ll make the product seem more appealing.

According to Aaker,

“A person’s experience with a product tends to foster feelings of personal connection with it, referring to time typically leads to more favorable attitudes and more purchases.”

6. Adding a sense of urgency to purchases

“Hurry, whilst stocks last,” “This offer is only valid until” … how many times have you seen copy like this and felt compelled to take action?

Groupon let you know the product you’re looking at has a limited time remaining. They want to instill a sense of urgency in you encouraging you to make a purchase.

Psychology-Based Pricing Strategies

That’s because of fear of missing out (FOMO). We, as consumers, don’t want to miss out on something.

So, if someone slaps on a “hurry” sign, we’re much more likely to take action than we would if we knew we could spend a few minutes, hours or even days thinking about the product.

Booking.com follow a similar strategy letting consumers know how many other people are looking at the hotel right now and how many rooms are left.

Psychology-Based Pricing Strategies

If you’re considering this hotel, you know you need to take action sooner rather than later to avoid missing out on a great deal.

7. Raising or lowering prices

A simple, but effective pricing strategy is to raise or lower your prices in order to increase revenue, or to pay for outgoings like staff etc.

But have you ever considered the psychological effects of raising or lowering your prices?

Often, when an item has a high price point, it conveys a sense of quality.

In the same vain, lowering your prices attracts bargain seekers—people who are looking for quality but don’t wish to spend much on it.

So it’s important to think about what lowering or raising your prices will do for your product’s perceived value.

For example, suppose you owned an electric bike e-commerce store with bikes costing $3000+.

If you lowered these prices drastically, potential customers might question the quality of your products, or wonder why you had to lower the prices so much in the first place, when they’re used to paying $3000+

8. Reduce the pain of paying

If nothing else, the dollar sign is a symbol of spending money. No one likes that.

Removing the dollar sign, like some restaurants do can help alleviate the pain of spending.

Research by Cornell highlighted that “price formats do influence customers” spending. Where no dollar sign was visible, spending was higher.

Psychology-Based Pricing Strategies

For an online business, removing the dollar sign might not be the best decision as it can lead to confusion.

So how do you get around it?

The answer lies in making the dollar sign smaller. BuzzMonitor help consumers focus on what they’re getting, rather than the money they’re spending.

Psychology-Based Pricing Strategies

9. Discounts

It’s no secret we love free stuff and discounts. Often businesses use discounts to help promote a product and reassure their potential buyer their product is the best on the market.

It’s an effective psychology-based pricing strategy because it highlights the perceived value a consumer might receive.

Discount strategies such as “buy one get one free” (BOGOF), percentage discounts or discount codes or vouchers are all effective strategies to use, if done correctly, for the right reasons.

Psychology-Based Pricing Strategies

When the aim is to compete on price, discounts are an effective strategy.

Think about the black Friday and cyber Monday sales, people flock to websites and stores to buy, because they don’t want to miss out.

Everyone likes getting something for free and that’s why BOGOF works so well.

Granted, it doesn’t work in all industries. I think everyone would be skeptical if your local car dealership was offering BOGOF.

But when people believe they get something extra in return, they’re much more likely to purchase more.

It’s important to note, when offering discounts, you should be careful not to offer too much discount on any single product or too much discount on too many products.

Doing so can lead your potential customers to believe you’re desperate to sell the product. And with desperation comes a lower perceived value and credibility of your products.

Swipe these pages to improve your pricing strategy

Coming up with an effective pricing page isn’t easy. It takes time, consideration and research.

But the task is 10x easier when you have a curated list of some of the best pricing pages to base your efforts on.

I’ve put together a bonus resource with 10 of the best pricing pages to help inspire you to create or improve your own.

e-commerce pricing pages

Free Downloadable Bonus Get access to our swipe file of the 10 best e-commerce pricing pages right now.

So what does this all mean?

Like everything in this industry, there’s no one-size fits all approach.

Often businesses will struggle to price their products. But remember, our purchase decisions don’t always depend solely on whether the price is reasonable or fair.

Take time to think about your own pricing strategy and the ways you can influence people into making a purchase.

When you’ve successfully implemented a psychology-based pricing strategy, you’ll appeal to your customer’s emotions rather than logic. You will increase the chance of a customer making a purchase and boost your conversions, sales, and revenue.

People respond to pricing subconsciously. it evokes emotion. And it’s important to get it right if you want sales. Don’t sell a product or service—sell value.

Once you’re in the habit of selling value, your pricing will speak for itself. What pricing strategies have you used that have worked for your business? Comment below, I’d love to know.

Jordie
Jordie is a content marketer at Sleeknote. She is a writer by nature and a nurtured marketer. She loves books, her dog and good food.

You might also like these...

  1. An extremely useful and informative blog post I must say. It has given me insights into pricing, plus human psychology. Thank you so much for creating such a wonderful post

    Reply
    • Sam Thomas Davies

      Thanks, Srishti. Glad you found it helpful.

      Reply

Submit a Comment

Your email address will not be published. Required fields are marked *