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What is Psychological Pricing?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 18 November 2016
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Psychological pricing is a business concept supported by the idea that customers respond better to certain types of prices and will more likely to buy items with these prices. Most often, such prices have end digits of nine, 99 or 95, which it is believed make people more assured they are getting a savings on what they buy. For some companies, pricing something at $19.99 instead of at $20 US Dollars (USD) will result in consumers believing they’re getting a savings, and even if that savings is only one penny, customers may feel more confident about making a purchase.

There are plenty of historical examples of psychological pricing, dating back to the late 19th century where newspaper salesmen sometimes exploited this tactic. In the 20th century, it began to be used with more regularity, and now there are stores that seem always to use it. A walk into a Walmart® will reveal many examples of these psychological prices, where it appears that almost every price ends at .98, .99 or .49 USD.

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According to those who believe psychological pricing is effective, this lowered number may influence consumers in numerous ways. They might only look at dollar value and in the heat of the particular purchasing moment, they could fail to acknowledge that the cents portion might be only a penny or two off another dollar. A $9.99 price might be read as $9.00 instead of almost $10.00. This is sometimes called the left-digit effect. The lack of a round solid price also suggests the price is on sale or discounted, even when this isn’t the case.

The deliberate and somewhat blatant attempt at fixing prices is to make certain consumers are attracted by the prices and purchase whatever available goods there are attached to. Interestingly, some companies price differently to appeal to what they think might be the other needs of customers. Some companies set whole number prices to convey that they have dependable, unalterable attitudes toward customers, and this may be appealing to certain shoppers who aren’t really looking for a bargain.

For the person who feels influenced by psychological pricing, there are some good ways to get around this. First, people should shop with a calculator in hand so they can ring up purchases and see the real cost of things before they buy. This is especially important in regions where sales tax applies. Simply adding sales tax can be a wake up call.

The next thing that may be of use is to read prices backward. Always focus on the cents portion first, which is often printed smaller, and round it up to the nearest dollar. Then, add it to the listed dollar price to see a more real estimate of price. Consumers are fairly accustomed to psychological pricing, and with a few tricks they can easily minimize its power, especially when they’re aware this is the merchant’s attempt to influence them and usually not an attempt to save consumers money.

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Proxy414
Post 3

@BigBloom

I think the American economy is a great system, but it certainly has its flaws, as we have seen in the past five years. Economic mavericks are willing to take enormous risks with other people's money, people who are too naive to understand that their investments are risky and are persuaded by the flowery rhetoric of businesses. If we are not careful to emphasize personal savings in our economy, we may find capitalism becoming like betting on horse races: the betters are the economists and the horses are the less-educated masses who have little or no clue that they are being manipulated for cash.

BigBloom
Post 2

@Proxy414

Are you suggesting that the American economy is a bad system?

Proxy414
Post 1

I think that the use of Psychological factors in sales is even more immense than this, and business people are trained in various tactics of consumer-friendly manipulation. Most consumers aren't even aware of these various ploys which have been tested and proven to work so well. New methods and algorithms are constantly being invented to determine how to best access the wallet of the consumer. Perhaps this is why Americans have learned to throw savings to the wind and trust in the almighty power of the "invisible hand" of capitalism.

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