Pricing Psychology Unpacked: Drive Sales and Boost Profits with These Strategic Insights

Have you ever walked into a store, or shopped online, and found yourself spending way more than you intended? We’ve all been there!

Normally, when you find yourself in this predicament, you may have fallen victim to pricing psychology. This is a strategy that brands use to make their products look cheaper and more appealing to customers – even when they’re not really cheaper at all.

It’s why you’ll see sofas listed for £499 instead of £500, or a pair of shoes discounted to £48.99 instead of £50. These prices haven’t been heavily discounted by any means, but psychologically they seem more attractive to customers. If you’re running an eCommerce business, you should be learning how to implement these pricing strategies for yourself and win over potential customers.

When used correctly, a pricing strategy can help you encourage customers to spend a bit more on your high-margin items than they normally would and choose the items you want them to purchase.

But what’s the secret sauce to a winning eCommerce strategy using pricing psychology?

We’ll be covering everything you need to know in this article:

●      What is Psychological Pricing?

●      The Importance of a Psychological Pricing Strategy in eCommerce

●      Psychological Pricing Strategies You Need to Know

●      How Audience Engines Enhance Your Pricing Strategies

● How to Start Your New Strategy Today

What is Psychological Pricing?

Psychological pricing is when brands price their products in a way that will influence a customer’s spending or shopping habits. The goal is to use psychology to drive more sales for certain products and boost revenue.

It’s a subtle way to nudge customers towards buying things by meeting their psychological need for a certain item. Have you ever found yourself in the supermarket on a Friday evening after work searching for a bottle of wine to go with dinner? Study the shelf closely and you’ll probably see that there’s a cheaper bottle of wine, a mid-price wine and then a more expensive wine. Most customers tend to go for the middle option rather than the cheapest or most expensive, so arranging the bottles cheap to expensive actually nudges you towards buying the £9.99 bottle rather than the £3.99 one.

Of course, a customer’s decision to buy something does not completely rely on price – there are a lot of other factors like marketing, quality, shipping, etc. – but psychological pricing could be the missing piece of your marketing puzzle.

The Importance of a Psychological Pricing Strategy in eCommerce

Did you know that 64% of items on IRL and online shelves have a 9 at the end of their price? The reason why so many brands use this pricing formula is that more people buy their products when priced this way – or so they believe…

Even if you don’t think you’d be influenced by a small change in price, you’d be wrong – and studies are out there that prove it! According to a 2021 study carried out by Ohio University [1], setting a price just below a whole number (for example, £5.99 instead of £6.00) leads consumers to think that the price is cheaper than it really is. 

 However, some studies are in disagreement with this. One study on a UK non-fashion retailer found that sales of items would rise when prices ended in an even number compared to odd numbers [2] which throws the idea that customers love the .99 ending out of the window.

Whatever way you look at it, the fact of the matter is clear, the way you price your items does have an impact on the likelihood of customers making a purchase from your eCommerce store. But, it’s important to remember that although a good psychological pricing strategy can draw more attention to your products, it must be part of an already-effective marketing strategy to enjoy more sales and customers.

Psychological Pricing Strategies You Need to Know

Depending on your brand and the products you sell, some psychological pricing strategies will work better for you than others – but, don’t worry, you have plenty to choose from.

Here are some of the most popular strategies and examples of how businesses use them.

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Price Anchoring

This psychological pricing strategy involves having a higher initial price (known as an anchor) that makes the current price of an item seem like it’s had a major discount.

This is a strategy that’s heavily used on eCommerce sites during sales. Not only does it make your product look like it’s cheaper but it also encourages your customers to make a purchase quickly because they don’t know when the sale will end.

A great psychology pricing example of this in action is on these shoes from ASOS. Below you can see the price of these shoes is £12.50, which is highlighted in eye-catching red font. Right below that you’ll see the shoes were initially £26 and have been discounted by 51%.

Price Perception

A lot of times customers will buy a product based on its perceived value – if you’re able to control their perception you can also influence their buying habits.

To change this perception, you can do things like keeping your prices short, changing the font size on your price tags, using eye-catching colours, or using animated graphics to draw a customer's attention to the price online.

You can see this in the example above where the new price of the shoes is in large red font, very different from the small black font below which is difficult to read.

Decoy Pricing

According to research, customers are likely to change their minds when comparing two products if a third option is thrown into the mix. Usually, this decoy option is less attractive than the original two, which makes the other options seem more appealing.

You see this strategy a lot for subscription-based products like newspapers, online tools, or streaming services. They’ll propose subscription levels that don’t give you much control so you’re encouraged to purchase the full plan that includes everything.

Dynamic Pricing

Every customer is different, so one good way that you can encourage individuals to purchase a product is to tailor the price to them.

Using audience engines, which we’ll discuss in more detail later, eCommerce businesses can collect data on customer behaviours, demand, and other factors that you can use to adjust your prices in real-time.

Value-Based Pricing

The last psychological pricing example is value-based pricing where you set your prices according to the perceived value to the customer.

It’s common in industries where companies are seemingly offering the same thing - like coffee shops. It’s normal to see independent coffee shops that use locally roasted coffee beans in a trendy setting to charge much higher prices than your typical chain – it’s because customers perceive greater value.

How Audience Engines Enhance Your Pricing Strategies

Audience engines use AI to learn about the people that are visiting your eCommerce business; it collects data on how long they spend on your website, and what products they are looking at, and can even give you a good idea of how much they’re willing to spend.

At the moment, 8 out of 10 visitors to your website are never going to make a purchase [3] – and part of that reason may be down to your pricing and how they perceive it.

Using the data you collect from an audience engine like QUIN, you can find the best way to display prices, meet your customers’ needs, and create a personalised pricing strategy that matches consumer behaviour.

How to Start Your New Strategy Today

If you want to attract new customers and ensure more sales on your eCommerce website, it’s important to have a good pricing strategy under your belt. To learn more about how you can do this, book a pricing psychology consultation with us today.

Sources

[1] https://www.sciencedaily.com/releases/2021/08/210826170122.htm

[2] https://www.tandfonline.com/doi/abs/10.1362/026725706777978631

[3] https://www.quinengine.com/post/you-need-an-audience-engine