The One Cent Difference: How Price Influences Purchasing Decisions
Have you ever wondered why many price tags end with 99 cents rather than a whole dollar? If so, you have personally experienced the power of psychological pricing strategies.
Generally, price influences purchase decisions. Expert marketers and businesses understand the power of these pricing concepts and develop their prices to directly motivate buyer behavior. We’re all more inclined to purchase something for 99 cents instead of a dollar. While many buyers take time to evaluate offerings and compare pricing among brands, in truth, customers lack the data (e.g., material cost, labor fees, and other details) to accurately price a product or service. In that sense, it is up to a sales and marketing team to decide on the pricing strategy they believe will generate the highest results.
Proven Methods of Consumer Psychology Pricing
Author Malcolm Gladwell shared the profound impact of snap judgments in his book “Blink.” These judgments refer to swift decisions made with a small amount of available information. Consumers make snap judgments all the time to effectively decide on the most suitable purchases without getting overwhelmed by an endless array of options. These second-nature behaviors shape the science and psychology of marketing.
The following techniques in pricing psychology can help buyers make a snap judgment about selecting your brand over the competition.
Charm Pricing Strategies
The ninety-nine-cent phenomenon referenced in the introduction of this article belongs to a category of pricing strategies known as charm pricing. Essentially, these methods “charm” your audience into thinking they have secured a better deal by triggering an automated assumption. For instance, pricing a product at $5.99 gives buyers the impression that an offering is closer to five dollars instead of six. Another charm pricing strategy involves the use of odd-numbered prices, which are widely perceived as lower in cost than rounded even numbers.
Limited-time pricing strategies create a sense of urgency that encourages buyers to take advantage of an exclusive offer. You can see these strategies in action throughout e-commerce websites. A prominent countdown timer is often used to indicate the remaining time before a deal expires. These timers usually reset after a short duration, sustaining the suspense for the next batch of leads.
High-Low Pricing And Other Comparisons
The high-low pricing method refers to the business strategy of brands generally selling their offerings at full price during the launch period and temporarily reducing their prices with the arrival of new items. These temporary discounts attract prospects through markdowns and other offers while drawing their attention toward undiscounted new arrivals. Through systematic planning and preparation, high-low pricing can boost overall business profitability through consistent revenue.
In addition to offering temporary discounts, several organizations have also started utilizing the manufacturer’s suggested retail price (MSRP) in comparison pricing strategies. There are a few ways to showcase the comparison, such as slashing the original value and placing a discounted amount next to it or displaying them side by side for a clear comparison. Doing so gives your customers a sense of a win by acquiring a purchase at a fraction of the usual cost.
Optimized Price Appearance
How you present your pricing may also affect customer sentiment. For example, research by Cornell University discovered that customers tend to spend more in cafes that leave out the dollar sign in their menu presentation. Similarly, you should remove redundant decimal points in your pricing (e.g., $5 instead of $5.00). Every displayed symbol and number could indirectly influence customer perception and increase resistance toward purchasing. Limiting the pricing information enables customers to pay more attention to the quality of your offerings and become more confident in their purchases.
Innumeracy Pricing Strategies
Innumeracy strategies make prices clear and interpretable to every customer without using the concept of mathematics. For instance, rather than framing a sale as “50% off of two items”, your company should list it as “Buy one, get one free.” While both advertisements essentially promise the same offer, the latter presentation focuses on providing customers with an outright benefit without involving any mathematical formulations.
Positioning Prices For Long-Term Success
While the pricing of your offerings is not the end-all and be-all of successful conversions, it does leave a mighty first impression on your prospective buyer. It is important for your brand to constantly test and combine several pricing strategies to diversify your campaigns for the best results. With a systematic approach, psychological pricing strategies can significantly bolster your long-term marketing plan, attracting a broader pool of customers and boosting the overall profitability of your campaigns.