Psychological Pricing

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What is Psychological Pricing? Meaning.

Psychological Pricing is a marketing approach to pricing wherein prices are set to a level that is perceived as attractive by consumers by appealing to their emotions or feelings. This method is designed to encourage purchases that are based on emotional rather than rational responses. Prices can be set to a relative high level to promote the idea of value and status for consumers that believe price is an indicator of quality. Or just below a round figure (popular price points) to for example $19.99 to suggest the price is in a lower range than the consumer expected. Also special promotions can be used such as 3 for the price of 2 to attract consumers looking for a bargain.

Examples of Psychological Pricing Techniques

  1. PERCEIVED VALUE AND ANCHORING: Discount pricing leverages the psychology of perceived value and the anchoring effect. Consumers anchor their perception of a product's worth to its original price. When presented with a discounted price, they perceive a greater value and are more likely to make a purchase based on the perceived savings.
  2. URGENCY AND SCARCITY: Creating a sense of urgency and scarcity through limited-time offers or "while supplies last" messages taps into consumers' fear of missing out. This psychological tactic triggers quick decision-making as customers seek to capitalise on the perceived rare opportunity.
  3. ENDOWMENT EFFECT AND LOSS AVERSION: The endowment effect makes consumers assign more value to an item they own. When a discount is offered, customers feel they are losing out on potential value if they don't purchase. This taps into loss aversion, where people prefer avoiding losses over acquiring gains, compelling them to take advantage of discounted prices.
  4. BUNDLING AND DECOY EFFECT: Offering bundle pricing, where multiple products are packaged at a discounted price, capitalises on the decoy effect. A strategically placed "decoy" item makes the bundled offer seem more appealing, influencing consumers to opt for the bundle over individual items.
  5. IMPULSE BUYING AND SOCIAL PROOF: Discount pricing exploits cognitive biases like the availability heuristic and social proof. The perceived deal triggers a positive emotional response, leading to impulsive buying driven by the desire to secure the discounted offer, even if the actual need is not immediate.
  6. THRESHOLD EFFECTS AND PERCEIVED SAVINGS: Businesses often use threshold effects to enhance the perception of savings. For instance, consumers may feel more compelled to buy when a discount pushes the price just below a round number (e.g., $99.99 instead of $100). This slight reduction creates the illusion of a significant price drop and encourages purchases.
  7. RECIPROCITY AND CUSTOMER ENGAGEMENT: Offering exclusive discounts to loyal customers taps into the principle of reciprocity. When customers feel valued and receive special treatment, they're more likely to reciprocate by remaining loyal and making repeat purchases. This approach not only boosts sales but also fosters a positive brand-consumer relationship.
  8. FRAMING AND COMPARATIVE EVALUATION: The way a discount is framed can significantly impact its effectiveness. Businesses can frame a discount as a percentage off, a fixed dollar amount, or as "buy one, get one free." Different frames trigger varied perceptions. For example, a percentage discount might appeal to those focused on savings, while a "buy one, get one free" offer might attract those seeking additional value.

Julia Gaj, (2023) "The Fascinating Psychology Behind Discounts and Promotions", voucherify, 2023, May, vol, pp. 1-7
Alina Gorbatch, (2019) "Awario: The psychology of pricing: discounts", 2019, pp. 1-10.

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🔥 The Decoy Effect: Pricing Using Alternatives
While lining up at a movie theatre to buy some popcorn you are feeling very hungry. So you intend to buy a medium-sized bag of popcorn. But when you get to the counter, you see a small one costs $4; t...
topic The Importance of Price Stereotypes for the Price Image in Consumer Products
Research by Hamilton and Chernev (2013) revealed that consumers persist to believe certain general stereotypes when it comes to pricing (whether true or not). Retailers need to understand and manage 3...
topic Pioneer Pricing vs. Psychological Pricing
What is the difference between psychological pricing and pioneer pricing?...
Comments3 comments
topic Is this Psychological Pricing?
Can you anser the following question. A shop is selling a product for 5.01. Is this psychological pricing or not?...
Comments4 comments

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Overview of Pricing and Pricing Strategies

This presentation contains an overview of various pricing strategies, including for example pricing based on competition...

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Compare with: Marketing Mix  |  Positioning  |  Perceived Value Pricing  |  Promotional Pricing  |  Cost-plus Pricing  |  Standard Cost Pricing  |  Marginal Cost Pricing  |  Target Pricing  |  Penetration Pricing  |  Price Skimming  |  Competitive Pricing  |  Discount Pricing

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