Pricing Psychology: What Do the Studies Show?

Are you overlooking an essential factor with your pricing? Whether you’re selling a product or service, there’s more to it than the price tag.

You need to look at pricing psychology. You see, it’s not just deciding how to price your product: It’s how you present your pricing.

When you apply price psychology, it doesn’t matter if you’re the cheapest. Instead, what’s most important is that potential buyers perceive they’re getting value or quality.

Pricing psychology comes in many formats, and in this article, I’ll explain how you can use it in different ways to attract buyers.

Let’s get started with a popular approach to the psychology of pricing.

1. Comparative Pricing: Not Always Optimal

One of the first techniques many marketers use is directly comparing their prices with competitors.

“Hey, my software is 30 percent less than this popular option; why not buy mine?”

The problem is that comparative pricing isn’t always as reliable as marketers think and can affect customers’ perceptions of the product differently.

Consider this scenario: buying aspirin.

You walk into a drugstore and see the familiar sign inviting you to compare the price of the store’s aspirin brand to a national brand.

What do you do? The answer is more complicated than you think. Many consumers feel they’ll get what they pay for. Therefore, they’ll often choose the major brand because they perceive it as less risky.

One survey showed that 58 percent of consumers have a greater affinity for branded products when compared to generic items. In addition, the survey found that 86 percent would only buy the name-brand product.

Another reason consumers are willing to pay more is brand equity.

At its core, brand equity represents the value a brand brings to customers beyond just the products or services they sell. It’s about consumers’ emotional connection with a brand and their trust in it. That brings us back to pricing psychology.

If customers perceive a brand as more valuable, the company can sell its product for more.

Think about that the next time you directly compare your offering to your competitors.

For example, you might benefit more from highlighting unique strengths, consumer recognition, and quality than competing on price.

2. Selling Time Over Money

“It’s Miller Time.” Who remembers that slogan?

This might not seem like the ideal slogan for a company selling beer. However, research shows “selling time” over money may be a perfect choice.

Past research demonstrates that “referring to time typically leads to more favorable attitudes—and to more purchases.”

That’s according to Jennifer Aaker, the General Atlantic Professor of Marketing at Stanford Graduate School of Business.

Why would selling experience (or time spent) with a product work so much better in some instances than discussing the product’s favorable price?

Aaker noted that approximately 48 percent of advertisements analyzed included a reference to time, emphasizing that many marketers seem to innately understand the importance of time to a consumer.

A later survey supports these findings. When asked if consumers would rather have more time than money, 31 percent of those interviewed opted for time.

Finally, a more recent survey by CivicScience showed that 38 percent of consumers 18 and older valued their time over money. Additionally, when global events impact their finances, 27 percent of those surveyed said they value time even more.

What does all this research mean for your advertising campaigns?

When you sell a product or service that saves someone time, you’re tapping into one of the most powerful motivators there is: convenience.

By positioning your offerings as a way to streamline someone’s life and give them back precious hours, you’re appealing to their desire for ease and simplicity. Another key advantage of selling time over money is that people are willing to pay a premium for it.

Simply put, time is our most valuable asset. It’s something we can never get back once it’s gone. Advertisers who understand this can cleverly market their products in a way that resonates with consumers on a deeper level.

Furthermore, selling time over money considers the emotional aspect of purchasing decisions. Consumers are not always rational beings and often choose to buy based on their feelings about a product or service rather than just its price tag.

3. Effect of “Useless” Price Points

As consumers, we’ve all come across price points that seem to make no sense. Whether it’s a product priced at $9.99 instead of $10 or an item marked down to 50 percent off its original price when it was never sold at that higher price, these “useless” price points are everywhere.

However, what effect do they have on us as shoppers?

First and foremost, useless (or decoy) price points are sometimes deceiving. According to the Decision Lab:

“The decoy effect describes how, when we are choosing between two alternatives, the addition of a third, less attractive option (the decoy) can influence our perception of the original two choices.”

Retailers use these tactics to make products seem more affordable than they actually are. Ultimately, this can lead consumers to believe they’re getting a better deal.

In addition to the above, you will find that the differences between your pricing points can significantly affect your customer’s perceived value of your product (and how they convince themselves of what to buy).

In the video below, Dan Ariely describes the pricing situation encountered on The Economist.

Dan realized there were three very peculiar price points:

1. A web-only subscription for $59
2. A print-only subscription for $125
3. A web + print subscription for $125

Daniel notes that this doesn’t make sense, as option 2 seems “useless” in that you’d be better off getting the print + web for the same price.

He follows up with an interesting study that examines what would happen if he took out the middle price:

His findings?

The price in the middle, while seemingly “useless” in that it didn’t provide any value (since the print + web was the same price), was actually useful in that it helped get customers to turn from “bargain hunters” to “value seekers.”

What happened was that customers began to compare the middle option to the latter option (since their prices were similar), and this comparison made option 3 look like an excellent deal.

Without the middle option, we can see that the price points set by The Economist had too much contrast: By removing the middle option, people looked at the two prices and tried to convince themselves that they didn’t need the “upgrade.”

Essentially, they became “bargain hunters” rather than “value seekers,” the kind of customers you really want.

With appropriate pricing in place, you can offer customers options that fit their budget while at the same time influencing “on-the-fence” customers that your more premium offerings give enough benefit that their extra price is justified.

4. The Power of Number 9

One of the most powerful pricing techniques is using the number nine. It started with the publisher of the Chicago Daily News, Melvin E. Stone. He reduced the price of his product from $1 to 99 cents, which augmented sales by 60 percent.

It’s a tactic you still see today. Head to practically any store (online or brick-and-mortar) and you’ll see prices ending in nine everywhere.

This pricing psychology strategy is often called charm pricing.

Why do retailers use charm pricing?

The answer lies in how our brains process numbers. For example, research shows that our brains perceive prices ending in nine as being significantly lower. This phenomenon is called the left-digit effect, which compels us to focus on the first digit of a price and disregard everything after it.

We’ve all heard of the reasons why sellers use it (to make the price look lower), but does it really work? Are people genuinely influenced by a $99 price point versus paying $100?

As it turns out, yes, they are.

In his book Priceless, William Poundstone dissects eight different studies on the use of charm prices and finds that, on average, they increased sales by 24% versus their nearby, “rounded” price points.

In fact, in an MIT and The University of Chicago experiment, a standard women’s clothing item was tested at prices of $34, $39, and $44.

To the researchers’ surprise, the item sold best at $39—even more than the lower $34 price.

One has to wonder, is there anything that can outsell number nine?

Researchers have found that sale prices that emphasize the original price seem to beat out number nine when split-tested.

For example, the left price point won in the image below, so defeating number nine with a sale price is possible.

Not so fast!

The number nine still comes out on top when used in concert with a sales price.

In another split test, the researchers used sale prices ending in nine, and these items performed the best of all:

There you have it.

Given similar circumstances and even a less expensive option, the power of nine still wins the day.

However, it’s not just pricing ending in nine that can have a positive effect; other odd numbers like five and seven can work, too.

5. The Price Perception: Context Matters

Have you ever wondered why some people are willing to pay top dollar for a product while others refuse to spend even a penny more than the bare minimum?

The answer lies in pricing psychology, specifically concerning price perception. This refers to how consumers perceive and evaluate the price of a product or service, and it plays a crucial role in their purchasing decisions.

Pricing perception is increasingly important today. Consider that 96 percent of consumers surveyed for PwC’s 2023 Global Consumer Insights Pulse Survey intend to adopt price-saving behaviors.

Here’s another study that might capture your imagination.

In a pricing experiment conducted by Richard Thaler, the researcher tested two scenarios for a relatively mundane exercise: buying a friend a beer on the beach.

In one scenario, a friend asked the participant if he wanted a beer, which they would buy from the local rundown grocery store.

In another scenario, the friend buys the beer at the nearby posh hotel.

Remember, the hotel’s interior had nothing to do with the results. The beer was to drink at the beach.

Thaler concluded that it simply strikes people as unfair that they should pay the same for both places, even though the beer is the same.

One might also recall the case study from Robert Cialdini’s Influence: The Psychology of Persuasion. It discusses how a local jeweler sold out of turquoise jewelry because they accidentally priced it at double its initial value.

The inflated price then made the jewelry irresistible to buyers, who had before ignored the color over all others.

With a higher price, turquoise jewelry is perceived as “high value” in the buyer’s mind, even without an explanation!

Regarding price, priming is also heavily influential: A $60 dinner doesn’t sound so bad when anchored next to a $300 dinner.

Similarly, the best way to sell a $3,000 suite is to put it next to a $10,000 suite!

Even if you don’t intend to make a large sales volume from premium items, their presence alone can help the anchoring effect take hold and increase conversions on the product you are really aiming to sell en masse.

6. Divide Large Fees Into Smaller Monthly Payments

Like the previous pricing psychology method, this one has you divide a one-time monthly or annual fee into its price per day or month. Then, instead of messaging the dollar value, you equate it to “spending” that dollar on something tangible your audience would likely feel they’re wasting money on.

These days, it doesn’t matter if the price tag is tiny or runs into four figures; it’s all available in monthly payments. For instance, even Uber lets consumers buy in installments, and you can also pay for iPhones by the month.

Do installments make consumers buy more? According to the many companies facilitating monthly payments, the answer is a resounding “Yes.”

Afterpay says consumers that use its service spend 40 percent more.

Why? Because it sounds more affordable—$25 a month will always seem cheaper than a one-off $100 payment, right?

Be sure to compare the price of your excellent, high-value product or service with the price of something most people would consider a waste of money or an irritating cost. In other words, something frivolous or unnecessary. Don’t compare it to the price of a necessity or something with lasting value.

If your audience is small businesses, the prices for things like printer toner and water for the cooler can be irritating costs that lack the value your offering has. On the other hand, if your audience is university students, things like a box of cereal or getting a manicure may register as non-essential.

7. Create a Perception of Value Through Your Product

There’s a copywriting technique called the “value prism.” The idea is to shine a light (not literally) through your product to dazzle people with everything that went into creating it. Make them see the previously unseen value at its core so that your product seems much more valuable—and your price much more reasonable.

For instance, software isn’t merely a box with a disc and booklet or a product page with a “Buy Now” CTA. Instead, frame it through the value prism. Like this:

• It’s the product of a team of 11 Stanford PhD.s, 21 engineers, four tech writers, and seven designers from the Rhode Island School of Design.
• It’s the culmination of 370 years of education, all completed in the last two decades at impossible-to-get-into schools.
• It’s 14 months of 20-hour workdays for a team of 40 experts.
• It’s 29 independent user studies, with improvements made after each study. It’s three utility patents and five design patents.
• It’s over $7 million of pure innovation.

If you’re failing to tell your prospects about all the value within the box, then, as far as your prospect can tell, it’s just plain old software, and $490 may seem a lot to pay for that. But $490 is a steal to get the product of the most outstanding engineering and design minds of our time.

Dyson has over 20 percent market share in the U.S. vacuum cleaner space thanks in part to its story of the years of thinking and experimentation that went into redesigning vacuums and the obtained patents.

The brand details its origin story in great detail on the Dyson website, focusing heavily on how founder James Dyson turned an idea into a groundbreaking invention—and iconic global brand. That story includes:

• Five years of prototyping
• 5,127 prototypes
• How James Dyson came up with his vacuum’s signature cyclonic design
• Dyson’s team of engineers and scientists in Britain, Singapore, and Malaysia
• How that team has also created breakthrough technology in the fields of material science, solid-state batteries, air purification, and even digital motors

Additionally, its product sales pages spotlight Dyson’s world-class technology:

Once you know what’s really inside a Dyson, that $399.99-and-up price tag seems like a bargain.

Salesforce does a great job of this with one of its lower-priced offerings, Chatter, where a prospect can see that, for just $15, they get a lot:

8. Let Your Customer Find Value Through a Calculator

What’s the simplest way to show customers the value you offer? An online calculator.

Using a calculator on your website allows customers to enter their specific needs and receive an accurate price quote. This saves time for both parties, but it also gives customers a clear understanding of what they’re paying for.

By allowing them to see the cost broken down into individual components, they can better understand the value of each aspect of your product or service.

For example, if the winning treatment I created brings in an additional $25,000 in sales every month for my client, then my $10,000/month fee looks extremely reasonable, especially if my next test brings in another $25,000 per month.

However, if I fail to explicitly tell my client how much I earned for them, then the only number they see is -$10,000 in their bank account.

Now, what if you’re selling expensive B2B software?

Here, the goal is to make an annual fee look lower by calculating the dollar value of the time and money users save with this particular B2B software:

An actual on-page calculator that visitors fill out makes the story, and, more importantly, the money they’ll save, tangible for your visitor.

9. Normalize Your Pricing Through Social Proof

As a business owner or marketer, you know that pricing psychology is essential in converting your leads to customers. However, what if I told you there’s a way to normalize your pricing and make it more attractive to potential buyers? Well, there is. Enter social proof.

Whether people are writing positive reviews, posting about you on social media, or you’re gaining testimonials, it’s all social proof. It doesn’t just give you credibility and increase customer trust. It also plays a role in pricing psychology.

When satisfied customers sing your praises online, you can leverage it to justify your higher price point. I mean, you’re offering a high-quality product/service that your customers are happy to shout about. That shows your product’s got to be good, doesn’t it?

Further, you can highlight social proof and include it in your pricing strategy by showcasing customer reviews and testimonials on your website or product pages.

It’s a straightforward pricing psychology trick: When visitors see positive feedback from others who have purchased from you at a similar price point, they’re more inclined to buy from you too.

10. Finding the Right Pricing Psychology Tactics for You to Implement

It’s important to understand that every business and item is unique. There’s no one-size-fits-all solution for figuring out how to price your product.

That said, some popular pricing psychology strategies discussed in this article may work for everyone. You can also try different approaches that we didn’t have time for today, like anchoring (where you establish a price point for customers to refer back to).

Then there’s the ever-popular bundle pricing (offering discounted prices for buying multiple products).

By learning about these techniques and their advantages and disadvantages, you can determine which ones align with your goals.

Now, you understand much more about the psychology of pricing.

When customers perceive they’re “buying” or saving time, getting value, or seeing social proof, they’re more likely to part with their money.

It’s the same with installment payments. Making an item available in exchange for monthly payments or comparing the price to everyday products makes it appear affordable.

However, how do you know which price psychology tactics are right for you? It depends on several factors, including:

• The type of business you run
• Who are your competitors?
• What value do you offer?

Additionally, think about your target audience and their buying behavior. For example, are they price-sensitive, or do they prioritize quality over cost? Understanding your customer’s spending habits gives you a better idea of what pricing strategies resonate with them.

You’ll also want to assess your competitors’ pricing strategies and see what works best within your industry.

Finally, another important factor is testing different pricing tactics and analyzing their impact on sales volume and revenue.

FAQs

Conclusion

Pricing psychology is essential to understanding how people make purchase decisions. You can use this knowledge to influence buyers in a positive way by helping them make better-informed decisions that are beneficial for both the buyer and seller.

As consumers become increasingly savvy and price-conscious in today’s economy, it’s crucial for businesses to understand pricing psychology to stay ahead of the competition.

If you sell expensive, quality products, you can use these strategies to make your items look like an absolute steal. The result? Happy sellers and even happier buyers!

You can include these tactics I’ve discussed as part of your regular online marketing and copywriting projects. However, if you still need assistance with your marketing strategy, my agency can help.

About the Co-authors

Gregory Ciotti is the founder of Sparring Mind, the blog that takes psychology + content marketing and makes them play nice together. Download his free eBook on conversion psychology if you’d like more information!

Joanna Wiebe is a conversion copywriter and the founder of Copy Hackers, where startups learn to convert like mofos. You should follow her on Twitter here.