Psychological pricing

How do people decide if the price is OK for something they wish to buy? Do they check how much it costs you to make the product or is there something else which pushes them to the decision of buying? Ideally, you wish to find something which you could tweak to improve your sales. Psychological pricing is one of those things which you can tweak to improve your sales. There are a couple of things which you can do with prices.


When you offer a discount the very first thing you should do is tell your customer the reason why you offer this discount. This way the customer will know that you offer a discount because of a special occasion and the discount will not last for long. By doing so you’ll reinforce the scarcity and make the customer act fast.

Decide if you should display a discount as a percentage or as a fixed price. The rule of thumb is to display whichever is bigger. For example, if the original price for the product was $50 and now you’re selling it for $30 it’s better to advertise it as 40% discount than a $20 discount and if the original price was $200 better advertise it as an $80 discount instead of 40% discount.

You should also keep attention on how you display your discount. Price before the discount should be in a bigger font and discounted price in a smaller font. Customers perceive discount price to be a better value when the price is written in a small font rather than a large, bold typeface.

Charm prices

The charm prices are the prices which end in 9 or 5. For example $5.99 $40.95 etc.

Charm prices work because we read numbers from left to right and we encode prices like $5.99 as a $5. Especially if we read too quickly. It’s called “left-digit effect”. This effect reflects how the left-most digit disproportionately affects our perception of price.

The psychological difference between a $5.99 priced item and a $6.00 priced item is bigger than the difference between $6.79 and $6.80 because the left-most digit matters the most.

You should also keep in mind that this effect applies to many things and not just prices. The difference between 2.99 and 3.00 will always feel a lot bigger than the difference between 3.12 and 3.13

In case you’re selling luxurious items, you would want to avoid charming pricing because your product may end up being perceived as cheep and not a high end enough.

Price anchoring

As the saying goes, the best way to sell a $2,000 watch is to put it right next to a $10,000 watch. The reason why this works is cognitive bias called anchoring. Anchoring is a cognitive bias where an individual relies too heavily on an initial piece of information offered.

Your anchor doesn’t even need to be a price tag, either! Any big number which the customer sees before the actual price will affect him. So if you can show your customer facts with big numbers before he sees the actual price, do it.

When you have a list of products, it’s in your best interest to show the most expensive one first because after that every other product will seam more affordable and the customer will be more likely to buy. With high end products high price may even help you to increase your products perceived value in customer head.

Decoy pricing

Dan Ariely did an experiment where he asked 100 MIT students to choose one of the Economist subscription option. The results were that 16% choose Web subscription for $59, 0% chose print subscription for $125 and 84% chose a web & print subscription for $125.

No one wanted the print only subscription. So it’s a useless option which should be removed, but the interesting thing happens once it was removed.

Again, 100 MIT students were asked to choose the subscription. Now 68% chose web subscription and 32% chose print & web subscription.

As we can see, by removing the useless option we reduce our revenue. This shows that even the useless products can have their own use and you just need to find it.

Good to know

To make your product look not as expensive you could reframe the product’s value. It’s easier to evaluate how much you’re getting out of an $84/month subscription than a $1,000/year subscription, even though the cost is almost the same.

In one research paper researchers published that, removing dollar ($) sign from price can increase sales in some cases. Research was done with the restaurant menu prices. This may also apply in some other cases.

Bundle things. It’s easier to sell one big package than many different items. Bundling helps to reduce your customers analysis paralysis moments.

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