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Pricing Strategies

Psychological pricing is a marketing strategy that focuses on a customer's mindset to attract them to products. It involves techniques like charm pricing where items are priced at $9.99 instead of $10 to make customers feel they are getting a good deal. While psychological pricing can boost attention and sales, it also carries disadvantages like customers feeling manipulated and developing long-term pricing expectations if used consistently.

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67 views

Pricing Strategies

Psychological pricing is a marketing strategy that focuses on a customer's mindset to attract them to products. It involves techniques like charm pricing where items are priced at $9.99 instead of $10 to make customers feel they are getting a good deal. While psychological pricing can boost attention and sales, it also carries disadvantages like customers feeling manipulated and developing long-term pricing expectations if used consistently.

Uploaded by

leighann
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Taahirah Ali

MANAGEMENT OF BUSINESS
PRICING STRATEGIES:
 Psychological pricing

 What is psychological pricing?


- Psychological pricing is a marketing strategy used by business to attract
customers to their products by focusing on their mindset.
- Firms utilises this method of pricing for customers who seek for value.

 Types of psychological pricing strategies:


- Artificial time constraints: - this strategy involves firms placing
restrictions on sales. For example; stores like Payless and Francis
Fashion, may have a “Buy ONE, get ONE FREE!” for one day only.
This encourages customers to not miss out on such offer immediately, as
they believe to enjoy the benefit off saving money.

- Charm pricing: - This is where business choose to attract customers by


using the “fancy 9”. For example; groceries and supermarkets tend to use
the methods, as goods are usually offered at not a whole dollar, but
rather at values such $9.99, or $11.99 etc.
This convinces consumers that they are being offered a great deal, and
thus encourages them to purchase the product.

- Innumeracy: - This occurs when firms appeal to customers by provding


discounts. For example; stores may offer “Buy one get one free” or a
“50% of two items”. However, individuals would tend to gravitate to
Taahirah Ali

selecting “Buy one get one free” offer, as they believe they are saving
cost, whereas in reality, both promotions are identical.

- Price appearance: - The way businesses design their prices, influences


how customers perceive the value of the product. For example; in a
restaurant, prices on the menu are smaller, without the additional zeros
at the end. This is because, longer prices, tend to be more expensive, as
compared to shorter prices even though they represent the same value.

 Advantages of psychological pricing

- It can offer a business a high return on their investments: - psychological


pricing increases the price of an item that is sold. This happens when the
product is initially launched. By charging a higher price when demand
levels are also high, then it becomes possible to generate a higher return
on the initial investments made to bring the item to the market.

- It offers multiple ways to encourage customer attention: - psychological


pricing encourages customers to see more value in the product or added
value when purchasing multiple items.

- It boosts attention to a specific product through its actual cost: - Up to


70% of the products that are sold in stores are influenced by charm
pricing. Sometimes called “.99 pricing,” it markets products with an odd
number that is just below the full price of what a business wants to
receive. Although it is so overused today that it may not be as effective as
it once was, small changes to it can make a big difference.
Taahirah Ali

- It simplifies the decision-making process for consumers: - Many consumers


are cost-conscious, so one of their primary screening points is cost. With
anchor pricing techniques, you can encourage customers to look at a
cheaper item when it is priced better than something comparable. This
gives you the opportunity to increase sales for specific products while
consumers feel like they were able to get a pretty good deal.

 Disadvantages of psychological pricing

- It requires consistent demand levels to be effective: - Psychological pricing


is only effective when demand levels for products or services are kept
consistent. If you start lowering prices over time, for example, then you
may find that consumers wait for the lower prices before upgrading to
the next item. Many psychological pricing strategies cannot be
implemented over a long-term period because consumers eventually
grow wise to the fact that the perceived deals are not that strong.

- It can create long-term pricing expectations: - If you use psychological


pricing all the time to encourage sales, then consumers will expect to see
the lowest price possible, whenever possible. When they see a price that
they feel is unfair, and then they’ll go to a competitor’s product without a
single thought. Customers who are always looking for the cheapest price
are loyal to the price, not the company. Even worse, a business that
appears to cater to cheap pricing will generate questions about the
quality of the brand that may stop new customers from coming around.
Taahirah Ali

- It could cause customers to feel like they’re being manipulated: - Many


psychological pricing strategies are based on the idea that customers are
purchasing off of impulsive moments instead of well-researched
thoughts. If firms are pricing items in a way to manipulate how
customers trend through your business, in person or online, then they
are creating the risk of having unhappy people talking about what you’ve
done. People who stop to think about a purchase will spot manipulative
pricing schemes and either try to beat them or leave your business to
shop with someone else.

- It doesn’t let you stand out from the competition: - Every business is
conducting psychological pricing on some level today. Firms do not stand
out in their industry if everyone is doing it. Furthermore, some
consumers might feel that a brand is more honest and transparent if they
charge an actual price and run periodic sales instead of employing one of
the various psychological pricing strategies that are available.

- It does not come with a sales guarantee: - No pricing strategy is 100%


successful. Some customers will pay higher prices for items because they
prefer a different brand. Your goal here is to get attention. Sales might
come too, but it is important to maintain a realistic approach. Just
because you change your pricing does not mean you’ll get new
customers.

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