Psychology of pricing: The art of setting prices
The cost of a product or service is relative to what the buyer thinks that cost should be. Based on his or her previous experiences, the customer will have an idea of prices that are too high, too low or on target.
Through personal experiences, advertising and knowledge of typical prices for products or services, your customers will have a good idea of where your prices should fall in relation to the market and your competitors.
By using psychology, you can present a perception of value or discount that will help you sell your products. For example, the common use of $9.99 over $10.00 has long been a matter of pricing psychology that says: Although there is only a 1 cent difference, something in the $9 range is a bigger bargain than something in the $10 range. In fact, studies show that odd numbers are more commonly associated with lower prices than even numbers.
Getting something free by purchasing more is primarily a perception of savings. While a buy-one-get-one-free offer represents a small savings to the customer, it draws more business because of the idea that the consumer is getting something for free. Using that philosophy, you can ask the consumer to buy two and get a third for free, thereby doubling your initial sale. They get something for free, and you sell two instead of one.
As long as you have a firm grasp on your costs and know that you will not lose money, you can present products and services in a manner that indicates to the customer that they are “walking out with a savings.” In many cases, its primarily a matter of presentation.
Other factors that play into the perception of pricing would include availability. If, for example, you indicate a one-day sale, the idea that availability is limited will encourage the customer to act quickly rather than mull over the purchase. Likewise, if you know that supply and demand are in your favour, you can stand by a higher price and let it be known that only a few of this item are available. Limited items always appear as more valuable.
Of course, you need to remain honest in pricing, marketing and advertising. However, as long as you are neither price gauging nor making fraudulent claims, you can use the power of perception — or the psychology of pricing — to your advantage.