The psychology behind pricing

Hi everyone! Welcome back to my blog. Unfortunately, I wasn't able to write an entry last week as I was very busy with exams and deadlines but luckily now it's half term, so I have a small break. I am currently partaking in a Marketing and HR internship at HIRA Industries this week, and

may write a small entry about my experience! But for now, let's focus on this week's entry topic; The psychology behind pricing.

As you may know by now, I aim to study behavioral economics at university and the crossover between Psychology and Economics, which I am currently studying for my A levels. Upon further research when looking at what I should talk about for my blogs I found that many economic techniques use psychology to maximize profits, engagement, and more. Psychology is used by companies to determine which price is the most attractive to customers, while still ensuring it is high enough to generate profit. Many concepts are used in the psychology of pricing. I'll briefly mention four; Anchor pricing, Decoy price effect, Quality perception, and Sense of bargaining or discount.

Anchor pricing: this is the initial price that a consumer sees. It is used as a comparison to all future prices. Due to this, if a product is originally priced high, slightly reduced pricing may seem more reasonable in comparison. Therefore a business may establish a visible starting price for a product but will then emphasize its current discounted price, making the consumer think they are getting a good deal or saving a large sum of money.

Decoy price effect: this is where a third product or option that is inferior in value is introduced. this can make the desired option seem more attractive and influence the consumer's choice.

For example, as on the left, the $30 drink seemed expensive until the $50 item was introduced and suddenly it seemed reasonable.

Quality perception: Even I will admit that I do this sometimes, but it's where consumers associate a higher price with a higher quality product, therefore a higher-priced product may be perceived as superior, even if the differences in quality are minimal.

Sense of bargaining or discount: Consumers are typically attracted to discounts and offers. A reduced price or special promotion can stimulate purchase, as the consumers feel like they are getting a good deal and don't want to miss out, especially if it's for a limited period.

But how does pricing impact consumer perception?

Brand prestige can affect consumer behaviour. As I mentioned earlier, a high price can be a prestige statement for consumers. Luxury brands often use high prices to create an image of superior quality and exclusivity. They may feel like they are buying a higher-status product when they opt for higher-priced products, which is the technique designer/luxury brands use.

Rational vs. emotional decisions. Price can influence the type of decision a consumer makes. If the price of a good or service is lower, it will appeal to logic and rationality, while higher prices can trigger emotional responses. Companies and producers use these dynamics to tailor their strategy to fit their product and target audience.

Actual changes that are made to the prices to influence consumers.

One common technique that came to mind when I decided on the topic of this entry, before even doing any research, was psychological pricing. This is where companies make their goods or services end in numbers such as 9 or 99, for example, $999 instead of $1000, which makes products seem more affordable and attract buyers who are often impulsive with their purchasing choices. I feel like I am a possible victim of this because even though the difference is $1, $999 sounds much cheaper than $1000, simply because it's fewer digits and is still technically 'less than $1000'.

Value packages are also a technique used by producers to incentivize consumers to purchase goods. By creating bundles of products or services it can influence purchasing decisions. Consumers may perceive that they are getting a better value for money by purchasing a bundle instead of the individual item, even though it is likely more expensive than the singular item within the bundle they actually need.

That's all for today's entry! I hope you learned something new about how producers use different techniques with pricing for their goods and services to incentivize consumers and drive up business. Feel free to check out some of my other blogs! Until next time :).