While many of us may have not considered this, money and psychology are very closely related. Pricing, specifically, is one of the most common psychological activities that we engage in nearly everyday. The price of an item or experience can be viewed and considered by a potential buyer in many ways. Additionally, each person may have different thoughts towards the price point depending on their income, background, etc. They may also feel persuaded or justified in making a purchase due to the psychological tactics used when marketing a sale.
For example, you may have told yourself you wouldn’t make any unnecessary purchases this month. But the sweater you just fell in love with at the mall is 20% off. Are you willing to bend your rules now?
Another example may be a vacation. You may have been struggling to justify an expensive trip with your partner but you just saw an advertisement for an all inclusive cruise where food, drinks, and activities are included. Without looking at the specifics and what each category costs, you book the trip. In your mind, surely this must be a deal and you will be saving money.
As you may be able to tell by now, pricing is extremely reliant on psychology. Let’s dig deeper on this. Here are 10 things to know about the psychology of pricing…
We may react to a price differently based on our background.
How we were raised and the culture we grew up in says a lot about who we are today. This, combined with our age, gender, occupation, lifestyle, and social and economic status says a lot about us a consumer. In terms of money and pricing, our varying backgrounds and characteristics can cause us all to react differently. For example, if you were raised in an extremely frugal family you may only shop at budget grocery and department stores. Regardless of what you are making now and the budget you have, you may always need to find the best deal for your dollar. You are not easily fooled by psychological pricing tactics.
Price anchoring is a common tactic.
Pricing anchoring is one of the most commonly used pricing tactics used by sellers. The method is rooted in psychology and highly successful. According to a blog on psychological pricing tactics published by NetSuite, “Price anchoring recognizes that consumers tend to depend too heavily on an initial piece of information (the anchor) when decision-making. For instance, a jeweler might first present an engagement ring worth $18,000 as the price anchor. It then presents a ring worth $15,000, which to the customer seems much more reasonable and a “good deal” in comparison to the anchor. Thus, the customer is more likely to purchase the second ring than if they hadn’t seen the anchor.”
There is a reason why prices often end in the number 9.
Did you know that there is actually a psychological reason as to why whether you’re buying groceries, a massage, a latte, or a new tire, the price pretty much always ends in the number 9? This method is called “charm pricing” and relies heavily on the “left-digit bias.” For example, you are buying a mattress and it costs $699.99. Experts believe that consumers are more likely to round a price down to the furthest number which alters their perception to believe the price they are paying is actually closer to $600 rather than $700. This psychological method influences consumers every single day.
More sales may be made if there are at least three different price options.
We all know that options are great. Having options makes us feel less limited. It feels like we are choosing something because we can, not because it is the only viable option. However, this is actually more often than that a psychological pricing tactic used on consumers. NetSuite, a website for all things business, refers to the tactic of having at least 3 options with varying prices as “decoy pricing.” According to their blog on pricing tactics, “individuals tend to have a specific change in preference between two options when also presented with a third option that is inferior in every way except one. The presence of the “inferior” third option makes the first two seem more attractive.”
Showing what other people commonly spend provides comfort.
There is safety in numbers. This is a commonly used phrase that can be used for practically anything. It’s especially true for consumers. Sellers tend to use this psychological method when selling a product or service often referred to as “center stage.” This method includes giving consumers a few different options to choose from and clearly stating which is the most popularly bought option. They may use words such as “standard” or “most popular” to entice a consumer.
The right wording can make all of the difference.
If you know anything about marketing, you know it’s all in the lingo. Well guess what? The same goes for pricing. Businesses use specific terminology to both entice and deter their consumers.
For example, think about the pricing options last time you booked a flight with a major airline. Were there at least 5 different options and packages for just one flight?
- basic economy
- economy plus
- first class
The list goes on and on. At the end of the day, there is a standard price and then add-ons for a more luxurious experience. Wording is everything when it comes to pricing. It pretty much determines who is buying and why they are buying.
Some people are more likely to make a purchase if we feel like we are getting a deal.
There are many things that the standard consumer considers before making a purchase. However, the cost is pretty much always at the top of the list. This is why we are so much more likely to make a purchase if we feel like we are getting a deal. This is used as a psychological tactic for selling:
- a product
- a service
- an experience
It can look like:
- a sales tag
- an outlet store
- a temporarily discounted rate
- a lower price for those who are members
It can also look like directing an offer to someone for a lesser price.
Some people may think that a discounted price means less value.
As we mentioned above, the standard consumers love a good deal. However, this is not true for every consumer. There are also individuals who want to feel special and good about their purchase. However, a discounted rate is not what makes them feel this way. These individuals may not want something that everyone else can have and is “on sale” or “discounted.” Some individuals in a higher economic class who have more elite taste may actually be more likely to purchase a product, service, or experience because of the extremely high price point.
Building hype promotes sales.
Have you ever really wanted a product and joined a waiting list for it? Did this make you realize that you don’t even care about the price anymore? You just really want to own something that is hard to get. Or have you ever entered into a pre-sale for concert tickets and waited for hours to make your purchase because they are 10% cheaper? The truth of the matter is that building hype promotes sales. You may be building hype by making your product hard to get. You may be building hype by offering a discounted rate for a short amount of time. It works and it is all rooted in psychology.
Online shopping makes it easier to spend money.
Generally speaking, we are more likely to care less about the amount of money we are spending when buying online. Many studies and reports over the years have shown that online shopping tempts us to overspend and you guessed it–it’s all strategic. According to an article published by Diamond Valley Federal Credit Union, online shopping retailers influence us and our wallets with some very strategic tactics. Some of these include:
- Pushing products strategically
- Offering free shipping
- Super easy check out
- Offering spending based discounts
- Changing prices without rhyme or reason
- Using anchor pricing
- Using ads that stalk us
- Having lenient return policies
- Having a virtual checkout aisle or add-ons
- They stay in touch
(Sourced from Diamond Valley Federal Credit Union website.)