Setting Price

Psychological Pricing

For many years researchers have investigated customers’ response to product pricing.  Some of the results point to several interesting psychological effects price may have on customers’ buying behavior and on their perception of individual products.  We stress that certain pricing tactics “may” have a psychological effect since the results of some studies have suggested otherwise.  But enough studies have shown an effect that this topic is worthy of discussion.

• Odd-Even Pricing - One effect dubbed “odd-even” pricing relates to whole number pricing where customers may perceive a significant difference in product price when pricing is slightly below a whole number value.  For example, a product priced at (US) $299.95 may be perceived as offering more value than a product priced at $300.00.  This effect can also be used to influence potential customers who receive product information from others.  Many times a buyer will pass along the price as being lower than it is either because they recall it being lower than the even number or they want to impress others with their success in obtaining a good value.  For instance, in our example a buyer who pays $299.95 may tell a friend they paid “a little more than $200” for the product when in fact it was much closer to $300.
• Prestige Pricing - Another psychological effect, called prestige pricing, points to a strong correlation between perceived product quality and price.  The higher the price the more likely customers are to perceive it has being higher quality compared to a lower priced product.  (Although there is point at which customers will begin to question the value of the product if the price is too high.)  In fact, the less a customer knows about a product the more likely they are to judge the product as being of higher quality based on only knowing the price.  Prestige pricing can also work with odd-even pricing as marketers, looking to present an image of high quality, may choose to price products at even levels (e.g., $10 rather than $9.99).