182 Reading: The Psychology of Pricing
You will notice that when we discussed the value equation in the previous reading, we referred to perceived benefits and perceived costs, rather than absolute/actual benefits and costs. Every customer perceives benefits and costs differently, and many of these perceptions aren’t even conscious. There are very few buying decisions in which a customer meticulously lists and weighs the benefits and costs in order to determine value. More often than not, the buying process involves snap judgments and decisions, and psychological factors likely come into play.
Despite tremendous advances in brain research, the factors involved in perception and decision-making are still not well understood. We do know that perception is highly individual and complex. If you, as a marketer, are trying to understand how consumers perceive something abstract like the “value” or “benefit” of a product, it’s important to know that there is certainly a psychological dimension to that perception, but there isn’t a scientific formula that can give you all the answers or accurately predict whether someone will buy. Still, you can avail yourself of the interesting work that has been done in this field and be aware of some of the factors that might affect buying decisions.
Studies of Psychology in Pricing
Most of our understanding of the psychology of pricing comes from research studies that explore buyer behavior.
The Case for the Number Nine
Many studies show that customers are more likely to buy products whose price points end in the number nine. That is, they prefer products that cost $99 over identical items priced at $100. Somehow the brain perceives greater value from a small price change that ends in nine.
A study in the journal Quantitative Marketing and Economics validates the benefit of using nines in pricing—with a few important qualifiers, noted below. The study compared purchases of women’s clothing discounted to $35 and the same clothing discounted to $39. The study found that 24 percent more consumers purchased when the clothing was priced at $39, even though the price was higher.
The study found that if a product has been available at a different price for a long time, then changing the price to end in nine will have a smaller effect than if it’s a new product that starts out with a price that ends in nine. It also found that if a product is marked “on sale,” the nine will have a small impact.
The researchers conclude that the nine has more power in situations where the buyer has limited information. If there is enough information for the customer to suspect that the nine is being used to manipulate the sales decisions, the customer is less likely to buy.[1]
Providing Pricing Options
Anchoring is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions. During decision making, anchoring occurs when individuals use an initial