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Psychological Pricing: Strategies for Retailers

A fine-tuned pricing strategy involves not only your competitions’ prices and your costs, but also your target audience’s motivations. Online consumers have an irresistible inclination to respond to certain types of online prices and this is what it is called psychological pricing. It is a strategic and tricky way to price your products to guide potential consumers when finalizing their purchasing decisions. That’s why online retailers are continuously trying to understand potential buyers’ motives to create pricing that encourages purchasing.

So a better understanding of psychological pricing and how our minds perceive prices become key points when determining strategies. Let’s dive into the psychological pricing strategies that are used in e-commerce to trigger consumers’ purchasing intentions to show you how you can apply them to your own products.

Charm Pricing

Have you ever heard about the power of 9s? That is the strategy, where you end a price with a “9” instead of a “0” on the price tag. This is a very common tactic especially in physical stores, but you may also come across it in online stores as well.

Here’s why!Our brain perceives $50.00 and $49.99 as different values. According to consumer perception, $49.99 seems closer to $40.00, which is cheaper than $50.00 and product prices ending with a “9” are considered “the” deal to not miss.

How to make charm pricing more effective?

This is not the end!There are additional ways to enhance the effect of charm pricing. In the research of Thomas and Morwitz “the left-digit effect in price cognition.”, it is proved that if the left-most digit changes to a lower level, the conversion rates will be higher. For example, a 1 cent difference on the prices $44.99 and $45.00 won’t matter a lot. On the other hand, if the left digits are changed, you will see that the conversion rates will be boosted.

That’s what Apple did on its online store. The electronics giant did not leave the usage of psychological pricing by just applying the number 9 at the end of price, they all changed the left digits.

Check out the example below;

Prestige Pricing

We’ve highlighted the positive effect of charm pricing and magic 9 above for multiple times, but what you are selling should also be a decisive factor in how you tag your products, visually.

Psychological pricing and purchasing decisions can be divided as easily as:

  • Purchases made according to rational decisions.
  • Purchases made according to emotional satisfaction.

Depending on where your products fall within these two paths, your strategies should differ and this is where prestige pricing and charm pricing separate from each other.

Prestige pricing is suitable for high-end, luxury, emotion-triggering products, where you should apply round prices such as $500, $750, opposite of charm pricing. Setting round prices on products which evokes emotions converts better.

I can hear the sounds WHY.

A study by Kuangjie Zhang and Monica Wadhwa, claims that “A rounded price ($100.00) encourages consumers to rely on feelings when evaluating products, while a non-rounded price ($98.76) encourages consumers to rely on reason. When a purchase is driven by feelings, rounded prices lead to a subjective experience of feeling right,”

Products that have emotional reasons like this beautiful wooden decoration, or a bag of a luxury fashion company, could benefit from rounded prices. Meanwhile, functional products or products that trigger consumer logic could benefit from using non-rounded prices.

Below is a perfect example of prestige pricing. Fashion company Micheal Kors applies round prices to its lovely, sparkling, emotion-evoker handbag. An online shopper doesn’t care about its dimensions, weight, height or other functional features. She is in love with its design, colors and the emotions that she feels when she sees it.In short, consumers don’t really need much of a calculation to buy those products. Actually, showing too much detail might kill the simplicity of the process and may even lower the conversion rate.

Using Bundle

Remember! Online consumers spend their hard earned money for your products and it is painful to even spend a small amount. Just assume, you’ve bought the last edition, expensive laptop and dreaming of creating great pieces of art. Even though you need that laptop, when that purchasing moment comes, you immediately start feeling guilty because of the amount of money that you have to pay for it and that’s the very basic behavior of consumer psychology.

This guilty psychology makes online shoppers search for getting an extra item with the purchased product at the same price. That presents a golden opportunity for the wise e-commerce seller. To reduce this pain and encourage online shoppers to buy your products, use bundling, set your prices accordingly and get these customers to reach deeper into their pockets.

For example, Amazon has an advanced bundling strategy; it always suggests two or three related items that you may want to purchase at the same time. Most of the online shoppers jump onto these types of offers because they’re amazed by the simplicity of purchasing them all at the same time. Bundle two or three items together with a single price, set an adequate discount, and you can start selling less-popular items.

As seen in the example below, Amazon is offering several related products for sale as one purchase, typically at a discounted price.

Now let’s give some bundling tips which will support psychological pricing effect.

The pricing expert Nick Kolenda recommended that adding an emotion-evoker product to your bundles would perform better than adding a rational and a functional product since purchasing emotional products make you feel more guilty. You know that you’ll increase your chances of selling your bundled product if you discount your emotion-evoker because this type of product reduces the feeling of guilt. Khan and Dhar explain this fact; “Discount provides a justification that increases the likelihood of hedonic purchases but has little impact on utilitarian consumption”.

So, if you bundle one hedonic (H) and one utilitarian (U) product on the same deal, you should say “Save $50 on H” rather than “Save $50 on H+U”. The first option will perform better.

If the only chance is adding a functional product to your bundle, you should be adding some emotion-driven descriptions to that product. For example, if you bundled a laptop with a hedonic product, you should add an emotional description for the Laptop such as “Create seamless designs” instead of “Long Battery Life”.

Odd Pricing

This psychological pricing strategy converts well for technical products and rationally driven purchases ending with 5, 7, 8 or 9. (For example $268.96)

Odd pricing makes it seem that the e-commerce retailer carefully calculated the costs of all the components of the product and set a price depending on these variants. Using odd pricing makes customers think that the price was a planned strategy to offer a fair price for the them.

For example, the Asus laptop like the one below is mainly one of the products that buyers consider technical details, specifications and all similar data points related to the product before purchasing. Once a customer takes a look at all of these details, this becomes purely a rational decision-making process and he/she is expecting a logically calculated price.

Price Anchoring

Price anchoring is referring to the tendency of an online consumer to rely heavily on the first piece of the price offered and subsequently basing their purchasing decision on the initial information. Consumers constantly comparie prices as %46 of online shoppers appreciate e-commerce stores that recreate price comparisons.

That’s why price anchoring helps a lot to increase the conversion rates. The logic here is, you’ll increase the chances of selling a targeted product if you place another related, but more expensive product first. Placing higher value on the initial product will make the cheaper options look like an even better deal.

The best example of price anchoring is covered in a study published in The Wall Street Journal. Williams-Sonoma – kitchenwares and home furnishings retailer – had a $275 bread maker in their store and was not performing well. When a new similar bread maker for $415 was launched, it was placed next to the $275 one.

Are you curious about the results?

Sales for the $275 bread maker almost doubled.

So, try to place your targeted product next to the expensive one, or just mention the retail price as seen below.


Published in the Journal of Consumer Psychology, researchers said that the number of syllables while pronouncing has a significant correlation with the decision-making process of an online buyer.

The results showed that the prices that have more syllables are perceived drastically higher by the consumers. The one which is easier to pronounce converts better than the longer syllable pricing.

For example; $27.82, or “twenty-seven-eighty-two” vs. $28.16 “twenty-eight-sixteen” will convert better every time.

Offer something for free

It is no secret that as online consumers, we all love free goods or discounts.

So, the psychological strategy at work here is pretty straightforward. Once an online consumer comes across the offer that provides free stuff, consumer behavior pushes the logic to purchase the free item.

The crucial point here is that you should select a related product to be given for free. If you offer something for free, but if it is unrelated to the purchased product, it will harm your brand identity.

If you can’t find a related “free stuff” , you may offer more incentives or use your creativity instead such as;

  • Offer free shipping.
  • Buy one and get 50 percent off your next purchase.
  • Purchase one and get four bonuses valued at $50, for free.
  • Buy one, get three for free.

All of these strategies above are academically and actually proven psychological pricing tips. Take time to think about your own pricing strategy and the ways you can influence people into making a purchase. When you’ve successfully implemented a psychological pricing strategy, you’ll address your customer’s emotions rather than their logic. As a result, you will increase the chances of a customer making a purchase and boost your conversion rates, sales, and revenue.


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