Have you ever walked by your favorite store and noticed the "Buy One Get One Free!" signs all over the windows? Have you felt the pull, walked in, and bought things you didn't even need?
If you answered "yes,” then you're a victim of psychological pricing, my friend.
Businesses have been known to use pricing strategies that affect customers' emotions. Although it's an effective method for luring customers into making a quick purchase, the question is: does it work for every type of business?
Miami's best digital marketing agency will explain psychological pricing and give some benefits, drawbacks, and strategies. We’ll also share our thoughts on whether your business should use it.
Psychological pricing is a way to set prices that use psychology or the subconscious to get people to spend more. Different parts of a business work together to exploit market trends to make deals customers can't refuse.
Setting prices less than a whole number can also be called "psychological pricing." For example, $2.99 is seen as "cheaper" than $3. The idea is that people will see the slightly lower price as a good deal and be more likely to buy.
Retailers can also set the price of their products to make them more likely to sell by discounting them.
Psychological pricing has good and bad points. In many situations, it can be beneficial, but in others, it can do more harm than good.
Now, we'll discuss a few benefits and drawbacks of psychological pricing that you should consider when evaluating your pricing strategies.
If your product’s discount is being advertised, it will attract more attention. This is an obvious way to get customers to pay attention to what you have to offer.
Even if no one buys, at the very least, your company's name is getting out there.
Psychological pricing can give the impression that there is a limited amount of time to make a purchase, depending on your strategy.
Customers will want to take action as soon as possible to avoid missing out on the offer. This will also contribute to a rapid increase in the return on investments.
When appropriately used, psychological pricing discounts have the potential to yield a high return on investment for one-time sales. This is especially true during high-volume times of the year, such as the holidays.
When you run promotions that appeal to many people, you increase the likelihood of achieving a high return at the end of the day.
Some people may be able to see through psychological pricing strategies and view them as an attempt to take advantage of customers. However, some know the strategy and regard them as necessary for running a successful company.
There is always the possibility of an incorrect perception of value when using psychological pricing strategies.
If you artificially lower your prices to entice customers into making a purchase quickly, those customers may form a negative impression. They might think that the quality of the products you sell is subpar and anticipate that you will always offer them at a discount.
Pricing strategies based on consumer psychology are not a long-term solution. As a business owner, you should have a more robust and long-term strategy, even if it may bring you quick conversions for a short period.
Every discount, promotion, ad, or deal has a well-known strategy behind it. The following are the most popular.
We've all seen some variation of this promotion at some point in our lives. Some stores impose an arbitrary time limit on a sale to create a sense of customer urgency. Time limits are used in retail establishments to encourage customers to purchase as soon as possible.
As a result of the psychological strategy, customers are induced to feel fear. They run the risk of losing out if they don't act quickly. The truth, though, is that there will always be more sales.
Attractive pricing, also called "charm pricing," is when prices end in number nine. This is because of a phenomenon called "left-digit bias," in which the left-most digit of a price dramatically affects how people think about and judge a product.
According to research, ending prices in "99" (e.g., $699) can result in more sales and conversions than rounding up to the nearest round price point (e.g., $700). Even though it's unreasonable, the human mind subconsciously rounds that $699 to $600 rather than $700.
But charm pricing can also work the other way around. When a price ends in "9," it means it's a value price, which means it's a good deal. On the other hand, prices that end in "0" may mean that the price is more expensive, and the product is better.
So, charm pricing is not a good idea if you want to appeal to high-wealth individuals, or if you want to set a luxury price.
The way a price looks to the naked eye affects the mind. You’ve likely seen this in restaurants. The prices will be written in a smaller font on many restaurant menus and won't have any "0s" or dollar signs. If you leave out the dollar sign, the price looks shorter and doesn't remind people of the cash in their wallets.
Even if they are the same number, prices that are longer fell more expensive than shorter prices. Because longer prices take longer to read, people subconsciously link time with cost.
There is no definitive "yes" or "no" answer to this question.
Psychological pricing is preferable for retailers seeking short-term gains. Some retailers thrive on one-time sales and will go to any length to close a quick deal, making psychological pricing effective.
This may not be the best option for you if you own a brand that relies on a subscription model as its primary revenue stream. Customer relationships are at the heart of the recurring revenue model. Setting prices based on value is far more beneficial in the long run to retain customers.
And if you follow a B2B model, we at Digital Resource believe that adding value rather than discounting is the best way to go about things. Instead of lowering prices, how about increasing the amount you get for the same price?
In addition to preserving the prestige of your brand, this will increase value and trust. Contact us today if you want to learn more marketing strategies to grow your business.