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Introduction
Notably, 90% of buyers consider prices, and the pricing factor majorly influences their decisions. Businesses often use one trick or another to attract customers, and one such aspect that plays a major role in this regard is psychological pricing strategies.
Therefore, it is important to understand how these pricing strategies influence customers’ decisions and help your business flourish.
What is a Psychological Pricing Strategy?
A psychological pricing strategy is atactic used to set prices that influence the customer's decision and behaviour. It is merely based on how human minds understand the pricing of the product and how it influences their purchasing perception. The strategy catches the customer’s attention as these prices are offered, keeping in mind the psychological tricks that appeal to the customer’s eyes as well as emotions.
Not only does it ensure the increased growth rate of the business, but it also paves the way for the product’s market success, driving great sales.
Terminologies Associated with Psychological Pricing
- Psychological Cost
Psychological cost is nothing different from psychological price. The cost of the product is set by taking into account the psychological approach of the people, leading the customers to purchase, which can boost customer loyalty, personal convenience, and sales.
- Price Action Psychology
Price action psychology is often understood as the study of market trends, customers’ purchasing patterns, as well as emotions, so that the sentiments behind price fluctuations can be analysed. It can help businesses with sentiment analysis, leading them to make informed decisions concerning the prices.
How does Psychological Pricing Work?
The pricing of the product is decided by keeping in view the psychological perception of the buyer by understanding their emotions and affordability. This can be done successfully by utilising the price monitoring tool, which allows businesses to track the competitor prices across several channels and platforms.
In Addition, several strategies or techniques are followed, such as the charm pricing strategy, where the prices are set in a way that looks enticing to the customers.
The example includes the price where itends with 9 (such as $0.99, which is $10), however, it looks appealing to thebuyers and it gets them to purchase the product.
It gets the buyer to focus most on the ending numbers, which fuels quicker decisions, leading to successful conversion.
This is how psychological pricing works, where customers' minds are influenced, giving them a more affordable view of the product, leading to business growth.
Types of Psychological Pricing
Several types of psychological costs capably influence the consumer's purchasing approach in distinctive ways. Let us look into the most common types of psychological pricing in detail:
1. Charm Pricing
This is one of the most used pricing strategies due to the fruitful outcomes that it delivers. The pricing of the products is set in a way that is a bit lower than the rounded-off even number.
You might have observed that most commonly the prices are listed in a way that ends with 9, which creates a sense of affordability or lower pricing in the mind of the customer, leading them to purchase the products or services quickly. It is highly driven by a psychological approach and not rational feelings.
2. Anchored Pricing
Price anchoring works on the idea of influencing customers' perception of value by making the discounted price following an initial one seem more attractive to buyers. The anchor price is used as a reference point for consumers, which shapes their understanding of what is area sonable price to pay.
The customers use the higher prices as a reference point, which makes them feel the lower prices are more reasonable and affordable, leading them to make a decision, leading to conversion.
3. Odd-Even Pricing
This odd-even pricing is the most commonly seen psychological pricing strategy because of the outcomes it gives. There are odd numbers that are most commonly used everywhere because customers view the mas the most authentic in comparison to the round numbers.
It creates an impact that the prices are some what reasonable or at a discount, whereas even numbers are also used in this psychological approach. The odd-even pricing is used very mindfully and can be set according to the audience you are targeting by using competitive price tracking tools, which can help you understand what is better that you can provide.
4. Decoy Pricing
Decoy pricing is a strategy that leads customers to purchase a more expensive product by providing another option alternatively which is less attractive. It makes them think that the expensive product is value for money and often leads to purchasing it.
By offering a substitute option, pricing tricks are a tactic used to persuade prospective clients to choose a particular good or service. Decoys are generally lower-priced but significantly lower-quality products.
5. Urgent Deals Pricing
All of you might have encountered deals with banners like “Hey! It’s your last chance to grab the deal at this price” and “This offer will expire in 3 Hours”. It might have at one point caught your attention as well, leading you to purchase impulsively, right? This is what this strategy is about, which is infused with dynamic pricing.
It increases the traffic and leads the buyer to purchase due to thoughts coming into their minds concerning the end of such offers, often leading to even purchasing the customers to buy which they might not want or need.
6. Price Design
The design most prominently influences the human mind, as differently designed products allow the buyers to perceive the prices differently. Certain things are done to influence customers’ minds, such as removing the $ sign before the price and eliminating any extra digits to keep it shorter.
Also, the colours can be used differently, leaving a mark of slashed prices or new prices, such as marking the old ones with red and using green for the updated ones. It collectively evokes visual attraction, and the prices seem to be lower, encouraging more customers to buy from you.
7. Bundle Pricing
It is one of the most effective strategies which is used by retailers or e-commerce stores. Buy one, get one off is also categorised under bundle pricing only.
For example, someone has gone to purchase a phone online; however, when he scrolls down, he will get an option that says “often bought together with”, and then there will be a related or compatible accessory with the phone. The customers often end up buying those which are there as a suggestion, but then it is bundled with the related things, which are bound to be purchased by the user primarily.
What are the Benefits of Psychological Pricing Strategy?
Below are the benefits of the psychological pricing strategy:
1. Quick Purchases by Adjusting the Price Sensitivity
The key to selling is keeping things simple and minimizing obstacles. Some tactics, including offering free shipping after a specific spending limit or package pricing, can reduce buyers' sensitivity to the true cost of individual items. Customers find it easier to make a purchase when psychological pricing lowers their price sensitivity.
2. Attract New Customers
Another benefit of psychological pricing is its capacity to attract new customers. Customers may be more inclined to buy an item based on its price than if it were priced differently, depending on the pricing strategy employed. This attracts plenty of potential customers and may result in higher sales, which is an essential objective for every company as the number of rivals rises.
3. Higher Return on Investment(ROI)
When the prices appeal to the customers visually and psychologically, it is bound to yield greater output and revenue. Incorporating psychological pricing strategies, such as enticing sales offers or lowering a product's price by even a few dollars, can generate greater profits than the loss incurred during the sale.
Elements Involved in Psychological Pricing
There are several elements, or let’s say several considerations, involved when setting the psychological pricing. Let’s see what these are:
1. Know Your Target Audience
You must know your target audience because it helps you to evaluate their purchasing behaviour, their demands and what kind of price range they are most comfortable with. You can then very strategically use the psychological pricing methods and list the prices accordingly.
2. Experiment and Learn
You cannot decide in a single go which pricing technique would work best for you. Therefore, it is always better to use a few psychological pricing strategies, such as anchoring, charm pricing, odd-even or more, which most likely resonate with your business and then implement the one accordingly.
3. Through Competitor Check
You can compare the prices by keeping track of the competitor's pricing, as it will help you make informed decisions concerning the prices that you shall offer to your customers or target audiences. It allows you to stay ahead of the market competition and stand out from your competitors.
4. Customer Feedback and Responses
Keep a thorough check and analyse your customers ' interest, behaviour, and their responses to the strategies. You are using it so that you can refine your pricing approach to their interests. It can be done easily using the data analysis tools or through customer feedback.
5. Integrate Tools and Technologies
By using price monitoring tools and technologies, you can analyse the prices and adjust your listings accordingly. Our price monitoring tools can help you have a thorough analysis of your competitors' prices as well as get to know the customer behaviour patterns to distinguish yourself from others in the industry.
You might now need to know how you can deliver what you want to, and how you can list the prices accordingly for a successful business.
How can PriceIntelGuru help you enhance your Psychological Pricing Strategy?
Here is how you can elevate your psychological pricing game for better customer retention and increased sales using PriceIntelGuru pricing tools.
PriceIntelGuru's price intelligence tool allows businesses to keep track of prices and customer behaviour patterns by deeply analysing how dynamic pricing works in the market. We help you decide the psychological pricing strategies that perfectly align with your business goals, which helps you succeed in the industry and distinguish your offerings from your competitors' prices.
With our AI-powered price monitoring tools, you save the hassle of manual changes as well as save time and additional labour costs, leaving no room for even manual errors.
You also get access to the historical prices, which can help you gain insights into the old pricing strategies utilised over time, which can effectively help you position your prices to resonate with the one that suits you best.
Conclusion
A proper competitor pricing analysis, as well as analysing customer behaviours, can help you make informed decisions concerning the strategies you can incorporate depending upon the nature and requirements of your business. As important as it is to understand the psychological pricing strategy, it is also crucial to choose reliable price monitoring tools, which is the most important step businesses take.
We at PriceIntelGuru offer a price intelligence service that adheres to all price-related queries. Therefore, book a demo with us today to start your business journey to understand how our pricing tool benefits you.