The Psychology Behind Pricing in Business

Setting your prices for products or services you offer can be a daunting task. Companies such as tow truck annandale va have to undertake a lot of research, to settle on a pricing strategy that is best for customers. One of the most applied methods when it comes to pricing is psychological pricing. It involves a collection of methods that are structured around how consumers mentally perceive price points and values. It is a process that takes those trends and tendencies into account and poses a creative way to the playoff and exploits what is on the table.

Psychological Pricing

Psychological pricing is a method that rests on the idea that different kinds of prices prompt different psychological responses. You can see items offered at $1.99 instead of $2.00 because people perceive odd prices being slightly less than round numbers. However, it has to be noted that psychological pricing strategies are essentially complex. When you see a burger retailing at $0.99 at your local store, it triggers an instant psychological response. The same is the case when you see at your favorite cloth store, an offer that buys one and gets one free. There is a diverse array of psychological pricing strategies and here are some of them.

Bracketing

Bracketing is a psychological pricing strategy that is meant to sway buyers into choosing an option at a specific price. With this strategy, you normally have multiple products with different attributes that are available at varying price points. However, with all of these options, there is a single product you want most buyers to choose. To lead buyers into your preferred product, you offer three choices. A lower-quality option, your preferred median option, and a premium option. The key here is to offer your lower option at a bargain and a premium option at a higher price point. The logic is based on extreme aversion, which is the human tendency of avoiding extreme options in favor of intermediate ones.

Decoy Pricing

Decoy pricing is based on the fact that consumers will generally change their preferences between two options when given a third option that asymmetrically supports one of the initial two. Let’s dissect this together. Let’s assume there are two size options for buckets of popcorns. A small option goes for $3 while a large one goes for $7. This means a disappropriate amount of consumers will favor the small option because it appears to be the better deal. However, if you were to introduce a medium price for $6.5, then the $7 suddenly becomes the most favorable. Consumers will eventually choose the larger bucket because they think they are getting a substantial upgrade for just $0.50. In this case, the medium option will be considered a decoy.

Innumeracy

The innumeracy strategy is often applied in retail. Let’s assume you are offered two deals. With one deal, it’s a buy one get one free, and another deal which has “two items 50 % off”. Which of these two deals sounds like a more viable option? If you are like most consumers, you would most probably choose the first, even if the two pose the same value. This trend forms the basis of psychological pricing strategy known as innumeracy. It is based on consumers’ lack of motivation, inclination, and ability to apply fundamental maths principles every day. 

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