The Psychology of Pricing

Marketing, on the Internet or otherwise, is a psychological business. In the retail marketing sector, there are companies that study what colors consumers respond to and which music consumers will most likely positively respond to. They study everything about us and turn it into profits when we respond to their advertisements and buy their products. Companies that make television commercials employ a good bit of psychology in order to produce commercials that we will respond to.

Should You Charge $9.99 or $10?

Price, too, is often psychologically motivated. Even though there is only a one cent difference between $9.99 and $10, most Internet marketers and brick and mortar retailers will opt for the $9.99 price every time. Why is that? Simply put, because it looks more attractive and sounds cheaper to consumers. Many of us will see a $9.99 price tag and immediately fix $9.00 in our minds while some of us will immediately jump to the $10 price tag. Case in point: My favorite pizzeria has a special every Monday night. They offer a large, one-topping pizza for just $7. At least, that’s what I’ve been telling myself for months, even though I knew the real price. After going for several weeks without ordering the Monday night special, when I called to place my order last week, I asked if they still have their Monday night $7 special. The employee on the other end of the phone assured me that they did, only the price was $7.99.

As I said, I knew months ago, the price of the pizza was really $7.99 but that didn’t stop me from thinking Hey, it’s Monday night, think I’ll have the $7 pizza for supper. I’m embarrassed to admit I am a classic example of why marketers lose a penny a sale in order to gain more sales, and thus increase their profits substantially. Realize the power of smart pricing when you set your own prices and watch your profits grow!

Is it on Sale?

When Circuit City went out of business in February 2009, I didn’t want to miss the opportunity to buy something on sale so I visited the location in my city. To my dismay, the first round of price cuts, 25% off, didn’t seem to reflect a sale at all. Even with a 25% reduction in price, I could tell many of the items were still cheaper at other stores. Still, items flew off the shelves and continued to do so until the shelves were empty. A couple of days after my first visit to the now defunct retailer, I happened to catch a news broadcast where Circuit City executives admitted they had hiked their prices to MSRP (Manufacturer Suggested Retail Price) and then shaved off the sales percentage.

Call it a sale and some people will buy anything, regardless of the price. Be careful, though, because if you don’t really shave your prices and say you’re having a sale, it may backfire when savvy consumers catch on.