7 Psychological Pricing Strategies for e-Commerce Retailers
A well-structured pricing strategy involves your competitions’ prices and your costs as well as your target audience’s motivations. Online shoppers have an irresistible tendency to respond to certain types of online prices and this is the so called psychological pricing. It is defined as a strategic and tricky way to price your products to guide potential customers when they are about to finalize their decision.
Let’s define Psychological Pricing in more detail.
What is Psychological Pricing?
Psychological pricing is a pricing and marketing strategy based on the theory that certain prices have a psychological impact. This pricing method is often expressed as just-below numbers, i.e 19.99 euro. The logic behind this method is that consumers tend to perceive just-below prices as being lower than they actually are, thus generating bigger demand, due to consumers not being 100% rational .
Pricing strategy options vary, according to business types and needs.
This is the reason behind the continuous effort of online retailers to try and understand potential buyer’s motives and therefore, create pricing policies that will encourage purchases.
While determining such strategies it is wise to first understand psychological pricing and how our minds perceive prices. Now, let’s go through all the psychological pricing strategies that are used in e-commerce to trigger consumers’ purchase intentions and we will show you how you may apply them to your own products.
1) Charm Pricing
Have you ever heard about the power of 9? That is the strategy, where you decide to end a price with a “9” instead of a “0” on a product’s price tag. This is found to be a very common tactic in physical stores but in online stores as well.
Let’s see why!
Our brain perceives $40.00 and $39.99 as two different values. According to consumer perception, $39.99 seems close to $30.00 which is cheaper than $40.00. Prices that end with a “9” are considered “the” deal to not miss.
How to make charm pricing effective?
There are several other ways to enhance the effect of charm pricing. According to 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 one, the conversion rates will be higher.
2) Prestige Pricing
Psychological pricing and purchasing decisions can be portrayed as:
- Purchases made according to rational decisions.
- Purchases made according to emotional satisfaction.
Depending on the spot where your products fall within these 2 paths, your strategies should differ, and this is where prestige pricing and charm pricing separate from each other.
In more detail, prestige pricing is suitable for high-end, luxury, emotion-triggering products, where you should apply round prices such as $600, opposite of charm pricing. Setting round prices on products which evokes emotions, converts better.
Are you wondering WHY?
A study by Kuangjie Zhang and Monica Wadhwa, indicates 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”.
Product that trigger emotions could benefit from rounded prices. On the other hand, functional products or products that trigger consumer logic could benefit from using non-rounded prices.
3) Using Bundle
Online shoppers spend their hard-earned money for products. Let’s assume, you have bought an expensive smartphone and dreaming of taking great and in high resolution photos. Even though you needed that smartphone, when that purchasing moment comes, you immediately start feeling guilty or have second thoughts.
This guilty psychology forces online shoppers to search between different companies in order to get an extra item with the purchased product at the same price. This can be seen as a golden opportunity for the e-commerce seller. By using bundling and by setting your price accordingly you may reduce consumer’s pain and encourage them not only to buy your products but also to reach deeper into their pockets.
For example, Amazon has an advanced bundling strategy. It always suggests 2 or 3 related products that you may want to purchase at the same time. Most of online shoppers seem to fall for these types of offers because they are amazed by the simplicity of purchasing them all at the same time.
The trick here is to bundle 2 or 3 items together with a single price, set an adequate discount and you can start selling less-popular products.
Nick Kolenda, a pricing expert, advised 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 guiltier. Therefore, you will increase your chances of selling your bundled product if you discount your emotion-evoker as this type of product reduces the feeling of guilt. According to Khan and Dhar, “discount provides a justification that increases the likelihood of hedonic purchases but has little impact on utilitarian consumption”.
4) Odd Pricing
This psychological pricing tactic fits best on technical products and rationally driven purchases ending with 5,7,8, or 9, i.e. $286.96.
Odd pricing creates to consumers the inception that the e-commerce retailer carefully calculated the costs of all the components of the product and set a price depending on these specific variants. While using the odd pricing tactic customers usually think that the price was a planned strategy to offer a fair price for them.
5) Price Anchoring
Price anchoring is defined as the tendency of online shoppers to rely heavily on the first piece of the price offered and as a result, depend their purchasing decision on the initial information. As 46% of online shoppers appreciate e-commerce stores that recreate price comparison, it is evident that consumers constantly compare prices while searching for a product to buy.
For that reason, price anchoring helps to increase conversion rates. The logic behind price anchoring is based on the notion that you will 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 eventually make the cheaper options look like an even better deal.
Research shows that the number of syllables while pronouncing has a significant correlation with the decision-making process of an online buyer (Journal of Consumer Psychology). It has been proven that prices with more syllables are perceived drastically higher by consumers. The one which is easier to pronounce converts better than the longer syllable pricing.
7) Offer something for free
As online consumers, we all love free goods or discounts. Oh, come on, admit it!
Therefore, the psychological strategy at work here is straightforward. Once an online consumer comes across an offer with free goods, consumer behavior encourages the logic to purchase the free item.
The most important thing at this point is that you should select a related product to be given for free. If you offer something for free, but it is unrelated to the purchased product, it will most probably harm your brand identity. If it is difficult to find related “free stuff”, you may offer incentives such as: free shipping, buy one get three for free, buy one and get 50% off your next purchase etc.
All of the above strategies are academically and proven psychological pricing tips. Take a step back and think about your own pricing strategy and the ways you may influence consumers behavior towards making a purchase.
While successfully implementing a psychological pricing strategy, you will then address your customer’s emotions rather than their logic. Consequently, you will increase the chances of a customer making a purchase and boost your conversion rates, sales and revenue.
The above articles uses information from Prisync!