Psychology and pricing. The best relationship!

For years I've been analysing the trends in pricing and various types of prices communicated in market.

It's truly shocking to know that psychology is a vast area and it also impacts pricing. 

For those who don't know psychology, it's a study of how the humans react, process information, understand things and understand why and how people do things. 

Psychology impacts business decision making a lot. 

Retail, FMCG, Ecommerce, Pharmaceutical, service industries are the big industries which I believe have got their major breakthrough with pricing and psychology. 

It's very easy to corrupt human mind, it's very easy communicate in a way it's understandable to the conscious mind differently and subconscious mind differently.

As economics and statistics are important, psychology has also been secretly contributing towards businesses and in pricing especially.  Psychologists study pricing at a greater depth with a deepr analysis. 

Let's start !

9 price ending 

I came across this case study on Coursera which would explain the 9 ending the best way. 

In a catalogue setting, where different consumers are sent the same dress but it was priced differently depending on who received the catalog. 

In one case, the catalog was priced at $34, other case  $39 and in third case at $44. 

Normally in anyone would suggest that the lowest pricing of $34 would be resulting in highest sale. But surprisingly the product priced at $39 sold the most when compared to $34 or $44. 

There's a'int any strong explanation towards on this part. The magic of the 9 no. is such that it triggers the brain receptors to buy the $39 item as its sending a signal that it's less the maximum price and yet available at the re. 1 low price. 

There are also studies which have found there is no impact of such a 9 no. pricing but many companies actually use it to price their products. 

9 ending price triggers the sub conscious mind that the product is still in the 30's range and not crossing the next greater range which is not impacting at lower price end as it's already priced lower and both conscious and subconscious mind knows that its lower which is a easy fact, and thus $39 dollar pricing is creating a fear of urgency that the price didn't touch the next higher range of price line. 

Weber Fencher Law 

Two researchers Weber and Fechner found that consumers tend to react to pricing more in percentage terms than absolutes. 

In simple terms, it says that, a customer decides to calculate prices on the basis of percentage terms than absolute terms.

Take this example, a customer is willing to save Rs 5 on a Rs 10 product but the same customer will not be willing to drive a long way to save Rs 5 on a Rs 1000 product. 

Because the savings he'll make after on a Rs 10 product is  by 50% whereas on Rs 1000 product it's just 5%. Any normal customer would always want to seek higher level of savings by putting a one time effort because the effort is worth it.

Endowment Effect. 

This means make the customer feel the owner even before they buy it. 

Let's take an example, car companies do this alot. Capital intensive industry like cars where experience matters alot. For a test drive some car companies in countries give a test drive to the customer having no salesperson with them. Although basic documentation happens and for identification driver's license copy is taken but this experience of giving a test drive with no company representative would give the potential buyer a sense of ownership and a builds a high level of trust for the company and its car. Which would have more sales coming in and the company saves the time and effort of the salespeople eventually maintaining fewer staff.

There are different versions of it in different ways and different industries - online products provide free trials, education institutions provide free demos, new FMCG products provide free samples, and many more.

Good, Better Best Strategy

This strategy works in the form of promoting and depreciation own product's prices. 

In a given study, where there a 2 product pages where one product page has 2 listings and the other one has listings.

In 2 product listings page, the no. of paying customers is less than compared to the paying customers of 3 products listing page.

 Because in the 3 products page the pricerange is classified on the basis of good price of Rs 100, better price of Rs 160 and the best price of Rs 260

In this context the customer proceeds with the information that just for 60 rs extra he'll have additional features and a better product and the best products with high price and high features doesn't align with his budget.

So marketers willing communicate the price of products in such a way which needs to be sold. 

Take example if of Starbucks, the last time I visited The store, it had 3 coffee variants priced at Rs 189, 209 and 229, as a coffee lover I'd prefer the highest variants as the price is just a bit high and  and get more coffee. 

That's the Good, Better, Best Strategy where companies discriminate the prices based on the product priority.

Comparable pricing

Companies like METRO, Target, Walmart and others have for years built their systems to yields better sales every year. What one factor that contributes to their sales is they apply psychology to the customer experience at the store. 

Whenever you go to a retail store, you'll notice that the pricing is never independent but it's always next to the competitors pricing. 

So it's obvious that a customer compares the pricing before a purchase and the psychologists have made it easier for you to compare the price ad buy the product. They intentionally showcase the price next to a product of high price which the customer wouldn't buy and customer thinking of it a better deal grabs it thinking it's the good product at low price. 

Hence, the pricing is same and the sales is increased. 

Look at gold, at some shops the pricing of yesterday and today's are both reflected to show the difference of price and that's what affects psychologically and the brain does tht purchase work.

All these tactics are very well executed in the market and the responsibility of the customers/purchaser is to reflect and understand how the pricing is being communicated. 

As of now these are the different pricing strategies I've worked on as well as experienced. But I'm researching and will update if I come across any other psychological strategies which are levied on customers.