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5 Strategies of ‘Psychological Pricing’ | Entrepreneur

We are all in business to solve problems, add value and make a profit — tasks which involve pricing your product or service. But how do you effectively price your product or service to increase sales and make more money with little or no effort?

Related: Mastering the Art of Pricing: What the Textbooks Don’t Teach You

It’s simple; use psychological pricing.

Psychological pricing is a pricing/marketing strategy based on the theory that certain prices have a bigger psychological impact on consumers than others. Below are five pricing strategies entrepreneurs can adopt:

1. ‘Charm pricing’: Reduce the left digits by one.
This strategy, often called “charm pricing,” involves using pricing that ends in “9” and “99.”

With charm pricing, the left digit is reduced from a round number by one cent. We come across this technique every time we make purchases but don’t pay attention. For example, your brain processes $3.00 and $2.99 as different values: To your brain $2.99 is $2.00, which is cheaper than $3.00.

How is this technique effective? It all boils down to how a brand converts numerical values. In 2005, Thomas and Morwitz conducted research they called “the left-digit effect in price cognition.” They explained that, “Nine-ending prices will be perceived to be smaller than a price one cent higher if the left-most digit changes to a lower level (e.g., $3.00 to $2.99), but not if the left-most digit remains unchanged (e.g., $3.60 to $3.59).”

In an experiment conducted by the University of Chicago and MIT, women’s clothing was used to test the left-digit effect. First, prices were set for $34, $39 and $44. To the amazement of the researchers, the items sold best at $39 even though that price was more expensive than other options.

So, the message here is, if you want to increase purchases of your products and services, convert zero ending numbers to nines. A perfect example of this strategy can be found on Apple’s website, where each product price ends with a 9.

A postscript: Keith Coulter, associate professor of marketing at the Graduate School of Management, Clark University, has suggested that this effect may be enhanced when the cents are printed in a smaller font.

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5 Strategies of ‘Psychological Pricing’.

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