According to the Insights Association, pricing is one of the most critical elements of brand communication.

Why? Pricing is often the main determinant of whether or not a customer buys a product. A marketer can put their absolute all into making a product seem desirable to consumers, but if the price isn’t right, consumers simply won’t buy. This makes pricing one of the most important p’s in the four p’s of marketing.

The truth is that pricing is so much more than just the sum of cost and profit. It’s also a numbers game that hinges on the psychology of a consumer. 

Think about it — as a consumer, haven’t you ever wondered why R8.99 seems like such a better price than R9.00? Or why that R100.00 burger special at your local fast-food restaurant seems so much more appealing than others?

media update’s Lara Smit is lifting the veil on the phenomenon of perfect pricing and how consumers process it. 

Curious to learn more about the different approaches to psychological pricing? Let’s chisel away at this facade together:

1. Charm pricing

Entrepreneur describes psychological pricing as a marketing strategy formulated through the notion that some prices affect consumers more on a psychological level than others. Essentially, it’s the idea that consumers have a subconscious favourability towards certain formats of pricing. 

Charm pricing is an example of psychological pricing at work. It is also known as left digit bias and refers to pricing that reduces a number by one cent — therefore allowing it to end in a decimal of “99”. This plays on how consumers read numbers as they tend to read from left to right.

Therefore, when they read a price like “R8.99”, they notice the number “8” first and automatically round the price off to “R8.00” instead of “R9.00” (despite the fact that the price is actually closer to R9.00). Interesting, right?

2. Price anchoring

Price anchoring is another type of psychological pricing. It is when a consumer is shown the most expensive version of a product first. By doing this, consumers use the more expensive product as a price reference for the product that they would like to buy — anchoring that price in their minds. Therefore, when they are shown a less expensive version of a product, it seems like it is well-priced in comparison to the first offer. This, in turn, makes it more likely for the customer to buy the theoretically “well-priced” option. 

We usually see price anchoring represented through tiered pricing models. You may have seen this type of model before when subscribing to an online platform. When you initially subscribe, there are usually a few options that pop up. They generically read ‘basic’, ‘standard’ and ‘premium / pro’. 
Although these options usually indicate a price change depending on the benefits of each option, the less expensive options seem like good deals in comparison to the more expensive ones. And so, you don’t really consider the price of the cheaper option in relation to its functions but instead formulate a decision just based on the fact that it simply costs less

It has, ironically, been found that people generally choose the intermediate option of a tiered pricing model. This is because it is comparatively well-priced in relation to the premium options and is also seemingly of higher quality in comparison to the basic options that are available. The approach is also known as decoy pricing.

This, however, introduces another irony — price anchoring can also persuade individuals to buy the more expensive product. Why? Well, when a consumer is purchasing luxury items, they associate the price of goods with their quality. Therefore, in their minds, they see the more expensive item as the better item to purchase because, to them, it is theoretically of better quality. 

This technique is definitely better for businesses because they end up making more money by placing a price markup on a few of the items.

3. Even pricing

Even pricing differs from charm pricing in that it plays on the belief that buyers prefer whole or even numbers. This means that they enjoy prices like R12.00 or even R12.50. Why? Well, Entrepreneur says it’s because even numbers are processed faster in the minds of the consumer. And, it’s true! Without decimals like “99”, a customer's mind doesn’t have to do the extra work of rounding off a number. Frankly, it’s just less complicated.

Another thought is that currency is generally produced in round or even numbers. So, what does this have to do with pricing?

Well, if you have R100.00 then you are more inclined to buy something for exactly that price. Why? It takes out the guesswork of whether or not you have enough money to buy the item. But it also simplifies the process of buying, doesn’t it?

If a product costs R100.65, you have to rummage for the extra 65 cents. And you may be annoyed by the fact that you have to wait longer to receive a small amount of change that is only valuable when added to a collection of other small change. 

In fact, in this circumstance, customers would probably tell the cashier that they don’t want the change and end up paying a full R101.00 anyway. 

How else do you think that pricing can influence your buying habits? Let us know in the comments section below.

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Want to know more about the mind of a consumer? Then make sure you read The psychology behind consumer behaviour.
*Image courtesy of Canva