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The Psychology of Pricing and Discounting: 6 Tips and Tricks

Lindsay Duggan Martinez

Principal Partner Marketing Manager @ AdRoll

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Scouring the web for the best deals and prices is less an afterthought and more a science. From strategically using certain credit cards for purchases (to earn the most points!) to downloading cash-back browser apps, most shoppers will do everything in their power to pay the least amount for a product or service. 

As an ecommerce merchant, here’s where it gets tricky: Though you want to use pricing to entice shoppers to visit your store, you also want to maintain healthy profit margins. After all, it’s a slippery slope — host too many flash sales or promotional events, and shoppers won’t want to pay full price ever again. 

Consider pricing strategy as a balancing act involving equal parts consumer psychology and marketing skill. Trust us: There’s much more that factors into it than simply crunching numbers to determine how to make a profit. 

That’s why we’re here with an introduction on what to know about psychological pricing, plus six tricks and tactics to start using ASAP. 

What Is Psychological Pricing?

Psychological pricing is a strategy where retailers use product prices to influence how much a shopper will spend with the goal of increasing order value. It’s rooted in the idea that most shoppers don’t typically know how much a product should cost — how much does it take to produce a can of tomatoes? A new pair of sneakers? An eyeshadow palette? (You have no idea, do you?) 

As consumers, we usually determine whether an item is a good deal by comparing it to similar options or seeing if it’s cheaper than usual. That said, the goal of psychological pricing is to simply fulfill a shopper’s psychological need — finding a good deal, purchasing a high-quality item destined to last, or saving money — while playing with the idea that the amount a shopper is willing to pay is variable. 

Psychological Pricing Tactics

Human brains aren’t always logical, and that’s why psychological pricing tactics are highly effective. Walk into any retail store, and you’ll see these strategies in action:

Charm pricing

You’re probably familiar with this one: Rather than listing an item as $13, knock off one cent to make it $12.99. Despite both prices being essentially the same value, our tricked brains now interpret the product as $12 rather than $13. 

Charm pricing is everywhere you look. 

Odd-even pricing

Another tactic similar to charm pricing is odd-even pricing. Researchers have found shoppers are more likely to purchase products that end in an odd number when compared to counterparts ending in an even number. Perhaps that’s why 70% of all products on Amazon Fresh end with the number 9? 

Goodbye, decimals

What feels more expensive: $12 or $12.00? If you’re like, “Um, they’re both twelve dollars,” here’s where you’re wrong — the way a price looks can change how shoppers feel. When you ditch the decimal point and the “00” cents, shoppers feel like they’re spending less money

It gets even wackier: Even the appearance of a dollar sign can cause shoppers to experience “the pain of paying.” While there’s no harm in experimenting with a storefront that drops the dollar sign, don’t try this if you have shoppers located around the world who deal with different currencies.

Strategically phrase deals 

“Buy one, get one free” versus “50% when you buy two” — it’s the same deal, yet studies have repeatedly found the former does a much better job of converting shoppers. One thing should be clear to you by now: Our brains love latching onto words like “free.”

Use time constraints

If you feel stressed out when seeing a site banner sale countdown timer or a ticking clock next to your cart (looking at you, Ticketmaster), it shows the retailer is doing something right. 

Time constraint widgets, coupled with FOMO-inducing copy like “One Day Only!” or “Last Chance to Shop!” can go a long way into pressuring shoppers to purchase quickly. 

It’s stressful for shoppers, but it works!

Bundle products

Flat rates and bundled products can dramatically simplify the shopping process — how many of us have purchased a vacation package in an effort to save time instead of figuring out flights, transportation, and lodging ourselves? 

Though you may get a better deal by individually purchasing items, it feels good to sit back, relax, and let the retailer do the work for you. 

The Price Is Right

Armed with these tactics — as well as this handy pricing model worksheet — you’re one step closer to telling shoppers, “Come on down!”

Once you’ve nailed your pricing strategy, the next step is encouraging shoppers to visit your ecommerce site. For that, you’ll need the AdRoll app for Shopify merchants — no matter who your target audience is, our AI-powered solution will help you reach them where and when they’re most likely to purchase. Check it out now. 

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