Tuesday, April 13, 2010

Psychology of pricing

Heading home on the bus today, I was thinking about whether I would be more likely to buy something priced $9.99 over something priced $10.00. And even though I KNOW in my mind that this is a trick (that before I left the store I would be paying far more than $10.00 after tax), somehow the penny difference means I would be more likely to buy it. I even remember times when I was pleased with myself about buying something and telling Smart Guy that it was "just a little over $9," as if he would have cared. I was just kidding myself.

Once I got home I hit the Internet, looking for the reason behind this phenomenon, and it was of course easy to find. But I discovered some things I never knew before. First of all, I learned that there are established rules for pricing, one being that you never price something ending in 0 or 1. End your price with a 5, 7, 8 or 9. I also found this humorous picture of a "markdown" price by sylvar on Flickr. You know, if I wasn't paying strict attention, I might have fallen for this one myself!

I also learned about "decoy" marketing. On a website called "Neuromarketing: Where Brain Science and Marketing Meet," I discovered an interesting experiment using magazine subscription offers:
Two groups of subjects saw one or the other of these offers to subscribe to The Economist.
Offer A:
$59 – Internet Only Subscription (68 chose)
$125 – Internet and Print Subscription (32 chose)
Predicted Revenue – $8,012
Offer B:
$59 – Internet Only Subscription (16 chose)
$125 – Print Only Subscription (0 chose)
$125 – Internet and Print Subscription (84 chose)
Predicted Revenue – $11,444
Take a moment to look at this rather startling result. Both offers are the same, with the exception of including the “print only” subscription in Offer A. Despite the fact that not a single person chose that unattractive offer, its impact was dramatic – 62% more subjects chose the combined print and Internet offer, and predicted revenue jumped 43%. The print-only offer was the decoy, and served to make the combined offer look like a better value. While it’s true that Ariely’s test had the subjects make the choice without actually consummating the deal with a credit card, it’s clear that introducing the decoy made the combined offer look more attractive.
I don't know about you, but it irks me that I would have actually fallen for this ploy. Psychology is used to tempt us to buy things we really don't need or want all the time. I see it on TV and in print, and I am just as susceptible as the next person. This gives me even more incentive to be vigilant about only purchasing what I really need.

What does this mean for those of us who really hate to get pennies in change? For one thing, it means that the penny will be with us (here in the United States at least) for a long, long time. Now the trick is to find out what to do with all those extraneous pennies. Hmmm. Maybe I'll do something like this:



  1. Very interesting post. Thanks for doing that research.

  2. it's one of the things I like about shopping in Europe, I know exactly how much I'm paying! the VAT is already included in the price, so there's no 9.99 plus tax math to do in my head!

  3. When we lived in Colorado the sales tax was already included on the marked price, so it cost exactly what the tag said.
    I run up on marketing ploys everyday, especially in the leasing business, to be truthful, I do not like it.
    It's going to make me think twice at a good deal the next time I go to buy something.
    Thank you for reminding me !

  4. If we all donated those pennies to the cause in Haiti, it would help, wouldn't it! Shall we start something big??
    Blessings, Star

  5. There are a few other factors in my decision to buy something -- besides price, I look at return policy (do they give full refund or charge a restocking fee), convenience of location, do I really need the item.

  6. Yes, we are all susceptible to the ploys of greater minds, but if I'm coming home with something, I can't justify the 10.00 item over the 9.99 one in my own mind! (Call me silly..) I don't know, ten bucks is a whole lot more money then 9.99! (Shoot! I'll think about this for days now!)

  7. DJ, it's the same thing here, every item for sale is priced with either .99 or .75 cents and what's annoying sometimes is, they don't have any 1 cent or .25 cents for change instead they will give a piece of candy for their negligence. BS! (Oops sorry for that word!) it's just annoying.


  8. Good post DJan.

    A lot of study and research has gone into the psychology of the sale to learn how consumers will react to different strategies.

    When I go into a grocery store and start looking at prices I first look at the package price but then I look at the shelf tag for the unit price. The unit price is the cost per ounce or similar. That's the factor that determines what I buy.

  9. Interesting..I like to think I am not swayed..but perhaps I am..I look for sales. Walmart is big on the 88 figure..it must make them feel much cheaper than the 99 people..LOL:)

  10. What I find is that I am tempted to buy things that are on sale, even when the sale price isn't great. I feel like I am getting such a deal just because I'm not paying the full price!

    I have been saving all those pennies and intend to deposit them in the kids' savings accounts. It will all add up...


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