Psychological Pricing Principles to Guide your VAR Business

Reading Time: 4 minutes
Reading Time: 4 minutes


“90% of selling is conviction and 10% is persuasion.” – Shiv Khera

Have you ever wondered why most of the price tags around are somewhat odd? Or why most of the products offline and online are tagged with prices that end with 9?
Well, that discount or odd price plays a key role in marketing. Those oddly priced tags actually help create the illusion that you are paying significantly less than you actually are. Thus, to the conventional human mind, $29 seems closer to $20 than to $30, as it begins with “2”. This strategy of pricing is known as psychological pricing.

What is psychological pricing?

Psychological pricing is a pricing tactic, which is based on the idea that certain prices have a psychological impact on the consumer. It uses the consumer’s emotional response in order to encourage sales. Psychological pricing strategies make products or services appear attractive and significantly cheaper than they actually are. Customers have an innate inclination to respond to certain types of pricing. Instead of appealing to the rational side of consumers, the psychological pricing appeals to their emotional side.

Benefits of using psychological pricing strategies

  • High returns on investments

When a product is newly launched and its demand is high, psychological pricing asks you to increase the product’s price. As you increase the price, you can earn higher returns on investment and cover the extra cost that you would have incurred when you brought the new product to market. Psychological pricing plays with the minds of customers and creates an illusion that the price is much lower than what it actually is. Without actually decreasing the price, marketers can increase sales with psychological pricing.

  • Simplifies the decision-making process for consumers

“Cost of the product” is one of the most important criteria that is considered by any customer before making a purchase. In anchor pricing techniques, you make the customers believe that they are getting a steal by using relative items. When you introduce a premium option to a standard product, customers will feel that the standard has much more value in comparison to the premium which has certain additional features. Tech companies use this technique all the time. Your customers will buy the standard product with huge satisfaction in such a scenario.

  • Offers multiple ways to encourage customer attention

Psychological pricing has a wide range of ideas and tools to pull customer attention. Although the most famous and highly used tool is charm pricing, there are other tools as well which have proved to be effective. These pricing strategies encourage customers to see more value in a product. If you know your customer’s preference you can plan your strategies according to their psychology.

Psychological Pricing Strategies

  • Reduce the Left Digit by One

Marketers have been using charm price for a long time now. Changing price a little from $400 to $399 makes a huge difference in how customers perceive and respond to it. Customers calculate the magnitude of price from the left digit itself so when you charge $399, they perceive it to be closer to $300 and not $400.

  • Display Prices in a Small Font Size

Size of the products makes a certain impact on human minds, no matter what the product is. Similarly, humans judge different contents on the basis of its font size as well. You may find it difficult to believe but if you display the same price in 2 different font sizes, the smaller one creates an illusion of being less than the bigger one. The smaller your font is, the less it will appear to your customers.

  • Remove the Comma

Remove the comma from your price. When you do this, customers will identify price as lower than what it actually is. When you display $2800 instead of $2,800, they read it as Twenty-eight hundred rather than Two thousand and eight hundred. Here the former has a lower number of syllables than the later.

  • Separate the Shipping and Handling

If you sell online, mention shipping and handling chargers separately instead of adding it to the base price. When a customer compares your price to your competitor’s, he mostly picks base prices of both. If your base price is an addition of various expenses, customers are likely to assume your profit margin is high.

  • Bundling

When you make bundles of similar products and offer it for sale at a discounted rate, your inventory is likely to move faster. For example- if you offer a discount of 10% on an item of 500 i.e. a discount of 50, it won’t be enticing for buyers. But, if you bundle your products into 5, and offer products worth 2500 with 15% discount i.e. 375, customers will be much more attracted towards buying your products.

  • Flash Sale

Flash sale is one of the most effective psychological tools to make inventory move faster. A flash sale has two constraints, number of products and time period. Usually, products go out of stock much before the allotted time period ends. People buy rigorously during the flash sale as it brings them exclusivity with urgency. Some marketers offer personalized time-sensitive coupons to their loyal customers. Flash sale is a win-win situation for both, buyers and sellers.

The right pricing psychology for you will depend on the preference of your customers. Studying it is very crucial. Experiment with different strategies and see which fetches you the best revenue.

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