A perfectly carved out ecommerce pricing strategy is crucial for converting browsers into buyers.
But there's so much more to it than simply being the cheapest around.
It's imperative to take note of how your target customers react to certain products, deals and sales. And then use this vital information to determine a solid psychological pricing strategy.
Psychological pricing allows you to price products in a smart way that attracts a customer to buy while they're finalising the purchasing decision.
Making it essential for us to understand the perception of prices and pricing psychology.
So in this post we go through seven of the most effective psychological pricing strategies to help convince your website browsers to click that coveted “Buy" button.
- Charm pricing
The number nine is extremely powerful when it comes to your pricing strategy. All because of the way our brains perceive certain things.
$29.99 is less than $30. But our brains will see this and perceive that $29.99 is nearer to $20 than $30 - just because $29.99 starts with two, not three.
You'll see this strategy is not only in shops but also across online and ecommerce stores. And there's a reason - it works.
Increasing the effect of charm pricing
But it's not just the psychological effects - the actual prices have an effect as well.
A famous piece of research by Morwitz and Thomas called "The left-digit effect in price cognition" explains that conversion rates are also affected when the left-most digit is lowered down.
The same technique is used by Apple whenever they launch a new product:
- Prestige pricing
Charm pricing isn't the only factor that will convince your customer to go for the buy. There's a decisive role played by the product as well.
And this means potentially being able to set higher, 'prestige' style pricing.
Two portions can be made from purchasing decisions and psychological pricing.
- Purchases based on rational decisions.
- Purchases based on emotional satisfaction.
These two categories should be considered before placing your product in either the 'prestige' or the 'charm' price department. Prestige pricing comes out to be best for luxurious, high-end products and other products purchased on emotion. These can be priced with a round figure - for example, $300 or $750.
Monica Wadhwa and Kuangjie Zhang claim in their study that:
“A rounded price ($100.00) encourages consumers to rely on feelings when evaluating products, while a non-rounded price ($98.76) encourages consumers to rely on reason. When a purchase is driven by feelings, rounded prices lead to a subjective experience of feeling right.”
Products that fit well with words like luxury, beautiful, special, vintage, etc. will be having a better chance at selling with a rounded price. Non-rounded prices work well for products where the consumer is in a more 'logical' mindset.
A lady visits an online store and she falls in love with a handbag. She would not care if the price is rounded or non-rounded. She will not even care for other qualities like weight and size, etc. She would simply buy it because she loves it:
- Bundle pricing
Sometimes customers can be on the fence about handing over their hard-earned money on a single item - especially when it comes to larger purchases. Even if they really want it.
But if you bundle in one or more other related products this could make them go for the purchase with more confidence.
Take Amazon, for example. It provides its consumer with bundling options so closely related to their search that buying in bundles seems to be a better option:
Bundle pricing and psychological pricing strategy
According to pricing expert Nick Kolenda, it's best to add a product to your bundle that will garner an emotional response in the buyer.
The chances of selling the bundle will also increase if this emotionally evoking product is at a discounted price.
Dhar and Khan put it this way: “A discount provides a justification that increases the likelihood of hedonic purchases but has little impact on utilitarian consumption”.
So if a product of a hedonic, emotional nature combines with a utilitarian, practical one in a bundle, it would be helpful in selling the bundle if you mention the discount on the hedonic only and not on both.
If you do need to add a utilitarian product to the bundle, then use a description that would give an emotional feeling to the product. For a laptop, you could mention “bring your dreams to the screen” and not “buy this laptop with longer battery”.
See how Veeqo makes it easy to create product bundles while still keeping inventory perfectly balanced here.
- Odd pricing
Product prices that steer away from the typical round numbers or $1.99 can also have a positive effect - so charging $397.67, as opposed to $399.99 or $400.
This psychological pricing strategy tends to work best for technical products such as laptops and mobile phones.
Products with such odd prices gives a look of complete calculation. Meaning the customer believes that the price is fully researched and then properly decided - and closer to actual cost.
A customer will look into the specifications, details and every other related feature and aspect of the laptop before considering it for buying. Once they're done with this part of the rational selection, matching them with a rational price of such an odd number will do the trick.
Take a look at this psychological pricing strategy in action here:
- Price anchoring
Another important psychological pricing strategy to mention is price anchoring.
It refers to the phenomenon of observing the buying mood of the customer based on the first price offered and then offering products that will nudge them to the first or next offer automatically.
Let's explain further. The technique in price anchoring is to:
- Place another product of the same category in the comparison window.
- But with a higher price.
This technique actually highlights the fact that the first choice is cheaper and they go for the purchase.
A study by the Wall Street Journal covered a real-life example when a kitchenware store had a bread maker worth $275 that wasn't selling well. A price anchoring technique was applied by placing another bread maker worth $415 alongside it and the original $275 one went on to almost double in sales.
Here's an example of the anchoring psychological pricing strategy in action, pitting the current price of a golf bag against its retail price:
- Simplistic pricing
Keeping pricing as simple as possible may not seem much of a psychological pricing strategy. But it can have a big effect.
The Journal of Consumer Psychology published research claiming that easier to pronounce prices with fewer syllables will have a higher rate of acceptance than those with more syllables.
This suggests that prices with more syllables and that take longer to pronounce (even in the customer's head) are considered higher than those with fewer syllables.
$37.81 or “thirty-seven-eighty-one” vs. $38.15 “thirty-eight-fifteen” will give a better result every time.
- Offer a freebie
Who doesn't love a good freebie or discount? This strategy is pretty simple and upfront - offer a freebie or discount to entice your buyer to come back and buy again.
But it's important to be careful when selecting a free item or discount.
The item offered for free should be related to the bought product. Else it could damage the image of your brand and might make the consumer choose another store next time.
If it's hard to give away a gift that seems to be in relation to what the consumer just bought, you can bring your creativity into action and offer something else that might tempt them. Such as:
- Buy one, get one free.
- Get four discounts of $50 free.
- Get 50% discount on the next purchase.
- Free shipping.
We hope these psychological pricing strategies will help you concentrate your focus. All the strategies are not only academically proven but practical implementations of the strategies are also in action and are yielding big profits for retailers.
All in all, it's important to remember that engaging your web browsers emotionally is a key part of successfully convincing them to make the purchase.
Use these strategies wisely and increase the sales, conversion rates and revenues for your online store. To make it even more efficient, you can also take reference from your competitors and how they approach their own online prices.
For the smartest and most sustainable way to gather price information from your competitors and understand their strategies, consider competitor price tracking software.
Are you using a psychological pricing strategy in your ecommerce business? Let us know how it's working out in the comments below.