Have you ever wondered why prices often end in those numbers? Do you think it’s the only strategy out there?
Welcome to our tutorial on psychological pricing. It’s about how just changing a number can lead to increased sales.
Don’t you believe us?
Well, read the post and think about what you do when you’re shopping. Surely you’ve been the victim of one of these strategies. ;)
What is psychological pricing?
Let’s start with the definition:
Psychological pricing determines strategic rates to conjure up an emotional element in the purchase decision based on the client’s perception of the product’s value.
Have your ever gone grocery shopping right before dinner when you’re feeling quite hungry?
You most likely ended up buying more things than you planned on when you went in. The same situation applies to online shopping.
While we all like to think we are rational and logical when making purchases, the truth is that most purchase decision processes are determined by our emotions and mood.
And that’s exactly why understanding psychological pricing strategies will help you sell more.
Aren’t prices ending in ‘9’ enough?
You’ve probably set prices ending in 7s or 9s (actually, we already talked about it in our post on pricing).
That’s a good strategy (we’ll see why later), but psychological pricing goes a step further. We don’t only want them to buy; we want them to pay the highest price they are willing to pay for a product.
Let’s see how to make it happen.
Types of strategies (and examples) of psychological pricing to help your e-commerce sell more
As a consumer yourself, you may think “you know all the tricks” and that your customers won’t buy more just because you use some strategy with the prices.
The truth is that they work (they’ve always worked – offline shops have used them for decades).
So don’t underestimate these tools and be sure to take notes.
1. The classic digit dance
We’ll start with the most common and most well-known strategy, but remember that this is just the beginning.
A. Reducing the left digit by one
A classic in terms of psychological pricing.
It’s about reducing the price by juts 1 cent so that the leftmost digit (the whole number) is reduced by one.
So we can understand it better, it’s changing the €30.00 price to €29.99.
The reason why it works and increases sales is that, subconsciously, we code the number before we read it completely.
Your customer’s mind will think “twenty-something euros”, and they will get the perception that the product is cheaper than it really is.
We aren’t making this up. There are studies that confirm that prices ending in 9 are more attractive to consumers (source).
Check out the website of our client ITS where they apply it in all its glory.
B. Use “the Rule of 100” to set discounts
When you offer a discount in your e-commerce, clients have to get the impression that it’s the biggest amount that you can apply to the product.
But what works best?
- A percentage off?
- A nice round number that you can save?
In order to make this decision and avoid making mistakes, you can use the Rule of 100. According to this rule and regardless of the currency you are using:
- When the price is under 100, it’s better to offer percentage discounts (25% discount, for example).
- When the price is over 100, it’s better to offer an absolute discount (€25 off).
The idea is to establish a discount with the highest numeral (either % or whole number) so that customers feel it’s the “biggest savings”.
Have a look at the offers at Hewlett Packard in the United Kingdom.
2. Set easy-to-process prices
You need to make it easy for your customers – they shouldn’t have to think much to process the price. If they are already having doubts and you force them make an effort… bye-bye sales!
These techniques will help you choose simple and easy-to-understand prices for your customers.
A. Prices with few syllables
What have syllables and numbers got in common?
According to another American study from 2011, it’s essential that you minimize the number of syllables needed to pronounce the figure.
Even if clients don’t say the price out loud, their brains will subconsciously create an auditory version of it. This means that the more resources the brain has to use to create that version, the less attractive the price will be for the potential buyer.
It’s much easier to think about:
€79 (se-ven-ty-nine – 4 syllables) than €78.99 (se-ven-ty-eight-nine-ty-nine – 7 syllables). According to the study, a potential customer will choose the one that seems shorter (because it sounds smaller), despite it being more expensive, because the lower number of syllables makes it “sound” cheaper.
B. Get rid of decimals according to your product catalog
Here you have another study about pricing psychology and it’s focused on the type of products you sell.
According to the researches:
When sales are based on emotion, a rounded price (€100, for example), is easier to process mentally, which leads to clients having the subjective image that it’s the right price because it “doesn’t have loose ends”.
But if yours are products that are bought repeatedly, it’s better to use prices with decimals so that the prices appear to have been reduced as much as possible.
In addition, by getting rid of decimals, you are reducing the number of syllables.
Perfumes are often given as gifts, so they have a high emotional factor. Our client Ricaud uses the rounded price technique to facilitate purchases.
3. Try to make the prices look smaller than they are
It’s not only important what you say, but how you say it.
So, on top of choosing the best price, it should be shown in a way that makes it irresistible to customers’ eyes.
Here you have some ideas.
A. Play with the typography and font size in your e-commerce
In order to intensify the feeling that the price is cheaper, you need to reduce the size of the decimals so that they look way smaller than the whole number.
This is the strategy employed by Hawkers, among others.
As you can see, they combine it with the reduction of the left digit – and they are doing just fine as a company.
2. Very specific prices
This is the strategy used by our client Makari, which sells cosmetics.
What do they get out of using such non-uniform numbers?
The client thinks that the price can’t be any lower and, therefore, that it’s the appropriate price for the product.
An example that combines this strategy with the smaller font one is our Italian client PrezzoForte.
What’s the best psychological pricing strategy for e-commerce?
It’s impossible to define a formula that will work 100% of the time for every online shop, but we can provide some criteria to assess each of them to help you decide which one is the best for you and your shop.
Have a look at:
- The target audience (your buyer persona).
- The category of products that you sell.
- Your sales goals.
- The Customer Lifetime Value phase that you clients are in.
After that, test which strategy (or strategies) work best for your business and your target audience.
Important: give it some time and measure it
Remember that once you establish a pricing policy, you need to let it “work” before making any drastic changes.
This is the only way you can actually verify if the applied prices are the right ones and if the pricing strategy is truly working. And, of course, measure your results.
Metrics should be your key tool behind making efficient decisions.
If you don’t know which metrics you should be measuring, we’ve explained them in this post.
Ready to adjust your prices and increase your profits?
As we said before, psychological pricing isn’t anything new – offline shops have been using it perfectly for ages.
Now that you know what it is and how it works, you can combine it with other strategies that we’ve mentioned in the past:
- Notifying customers about promotions with email marketing
- Exploiting social selling (social networks)
- Promoting your online shop with strategies less known by your competition
There are no magic formulas – test, compare, and repeat until you start seeing results. The key is not how you start, but how you finish.
And we are sure that you’ll end up making loads of sales. ;)