Psychological Pricing Examples—A Careful Ethical Consideration
Updated · Jun 07, 2022
Selling is a competitive business, and competition has only increased thanks to the rise of ecommerce.
Therefore, marketers are always looking for a way to get an edge over the competition and entice customers to buy.
One way in which they’ve been doing this is through the use of psychological pricing strategies. While they can be powerful tools, they can often verge into unethical territory.
Let’s explore this topic by looking at some psychological pricing examples, but first…
What Is Psychological Pricing?
The basic psychological pricing definition is pricing and marketing based on the idea that numbers and prices have a psychological impact.
The goal of psychological pricing is to influence customers' perceptions of value and increase the likelihood that they will make a purchase.
This is done mostly through the way prices are “framed”, meaning sellers will adjust the way prices look, or put prices in a specific order, to make them more attractive.
While psychological pricing can be an effective way to increase sales, it is important to use it sparingly and avoid using it to mislead customers about the true cost of a product. It’s also important to remember it’s only one part of pricing implementation.
Psychological Pricing Techniques
The first five examples we’ll look at can be used to “nudge” sales, and optimize conversion, but they must be used responsibly.
We’ll end off with a further two examples that should be avoided because while they aren’t illegal, they’re unethical and can harm your customers, and by extension, your business.
This marketing technique involves pricing goods and services at just below a round number.
For example, rather than pricing a product at $100, a company might instead price it at $99.
The theory behind charm pricing is that consumers will perceive the product as being cheaper than it actually is, increasing the likelihood of a sale.
If you look around, you’ll see that virtually every seller uses this trick, from top ecommerce sellers to grocery stores.
This strategy is similar to the previous one but goes a bit broader.
Studies have shown that odd prices (99c, $99) appear “cheaper, while even prices ($1, $100) appear more “premium”.
As such, sellers will use odd numbers to emphasize “deals”, and even numbers to make products appear more prestigious.
By implementing dynamic pricing, it’s possible to experiment with this tactic to see what works.
Center Stage Pricing
Center stage pricing sees sellers arranging a set of prices in order to emphasize the offer they want people to buy the most.
In other words, they put their main price “center stage.”
The reasoning is that people will be more likely to take the most visible offer if they aren’t taking the time to research all of them.
This strategy is usually used in conjunction with the overall design, and some of the pricing strategies, especially this next one.
With this strategy, sellers put a “decoy” price next to the offer they really want to sell, to make the main offer appear better by comparison. It’s a common tactic in upselling.
An example everyone can relate to is the pricing of small, medium, and large portions at fast food places, coffee shops, or snack counters. A small might be $2, while a medium is $4.50, and a large is $5. There’s only a 50c difference between large and medium, which funnels buyers to take the highest price.
It can happen with retail products too, where an item on its own can be marginally cheaper than a bundle deal. This is a useful tactic for optimizing sales funnels.
Here, sellers set a “base price”, which is the anchor, and then advertise the new lower price right next to it.
By showing the markdown in comparison to the original price, it emphasizes the savings buyers would be making.
This is best done with an actual markdown, but some sellers set a fake original price, while the “discount” has been the real one all along. Sellers that do this can face backlash when they’re found out.
An honest way of doing it would be to display a recommended retail price, next to a lower selling price, but be mindful of profit margins.
Dubious Psychological Pricing Examples
That last one was on the border, as it can be used unethically, and so next we’ll look at two strategies that are dishonest.
Artificial Time Constraints
Sellers often use artificial constraints to create a sense of urgency that encourages customers to make a purchase before it's “too late.”
Now some offers are time-sensitive, and in those cases time constraints are fine, but the key word here is “artificial.”
At times, we’ve seen “limited time offers” that have been available for months. Granted, the companies haven’t stipulated how long the limited time is, but most people have an internal clock that would indicate it ends soon.
This strategy can backfire because it can become obvious to customers that it’s untrue, or at least purposefully exaggerated. This will erode trust in your brand, and make buyers suspicious of other tactics being used.
Innumeracy is the inability to understand and work with numbers.
While most people have a basic grasp, they can still be tricky. That’s the reason why many of these strategies work.
Usually, when used in marketing, this strategy prays on the inability, in an attempt to confuse consumers into taking the most expensive offer in the hope of it being the most comprehensive.
The biggest example of this is companies that have overly complex pricing schemes made up of massive tables, with some features in this plan, and some in this one, while there are 500 add-ons.
While there is nothing wrong with broad pricing schemes, this tactic goes a little beyond the regular psychological pricing definition.
Outright confusing consumers means they can’t make informed decisions. Not only is this wholly unethical, but customers are also likely to become frustrated and ignore your offerings.
To conclude, the takeaway from these psychological pricing examples is that while they can be a useful tool for nudging sales, that’s all they should be.
The bottom line is that if you don’t have appealing offers from the start, using psychology will at best be a minor benefit, and at worse be an unethical way to goad customers into taking offers they won’t like. This is not a sustainable way to do business, as the backlash will stack up.
Garan is a writer interested in how tech reshapes the environment, and how the environment reshapes tech. You'll usually find him inoculating against future shock and arguing with bots.