Psychological Pricing – The Psychological Effects of Numbers in Prices

Have you often wondered why a lot of shopkeepers tend to keep prices ending in 99 cents ? Or why would a shopkeeper rather not price the item for sale at a round figure in dollar than keep it priced at one cent short of a round figure?

It’s nothing but psychological pricing. Psychological pricing or ‘price ending’ as it is more commonly referred to is nothing but a marketing theory based on the assumption that certain numbers in prices have a psychological effect on the consumer or buyer. This theory rests on the principle that the use of price endings drives demand for the product much higher than what it would be with perfectly rounded prices. For example if the price of a product is mentioned at $299.95 instead of $300, the consumer would ‘perceive’ much higher value of the product and chances of purchase increase.

The theory of psychological pricing is based on one or more of the few hypotheses discussed here. One of the hypothesis states that consumers often tend to ignore the lesser significant digits – in this case the cents. Rather than doing proper rounding of the price, the consumer tends to overlook the value of the cents and compares the dollar value to dollar value. This may also be the reason why sometimes the cents are printed in superscript font – to make them appear even smaller and insignificant.

Another hypothesis is that fractional prices tend to make the consumer believe that the products are being sold at the least possible price – that the seller has made every possible deduction to make the price appear as it does – in decimals and fractions.

Another hypothesis points to the correlation between the price and perceived quality of a product. This correlation states that customers may perceive products with a higher price to be of better quality. So in effect this hypothesis implies that some premium products are better priced as round figures rather than fractions – for example a $10 product would be perceived as superior to one priced at $9.99.

Psychological pricing is so common today that some brands are known for using the fraction pricing in setting the price of their products.

That said, the theory of psychological pricing is controversial. Some studies challenge the psychological pricing theory stating that buyers as young as children are well aware of the relative and ‘true’ pricing of the product; and psychological pricing does not do much to influence them. Pricing remains as one of the most important and complex part of the marketing mix, and one needs to research well in order to arrive at the right solution which means that without testing different prices the real effect on demand will remain a theory.

What Does AIDA Stand For

What Does AIDA Stand For

In today’s competitive market, it is a tough fight to grab the attention of your prospective buyers – be it coming out with newer advertisement concepts, sharing company results with shareholders, emails sent out, pamphlets distributed – everything needs to be an attention grabber. However, even though the advertising world may become competitive and advertisements become sophisticated, the basic principle behind the advertising remains the same – to grab attention and play upon the moment of attention to close the sale. It is here that the marketing tool AIDA helps us to understand the simple yet effective process for achieving the aforementioned goal.

AIDA is a famous acronym used in the Sales & Marketing world – used to describe a model for effective selling. The acronym stands for a four stage effective selling process which comprises of four steps namely Attention, Interest, Desire and Action.

As per the AIDA model, to achieve most effective response or outcome from a sales pitch, a salesman needs to follow this four step process from attracting Attention to generating Interest to kindling Desire and finally taking the selling Action. Each of the four steps in AIDA can be understood as below :

A – Attention – This step talks about the need to be quick and agile to grab the prospective buyer’s attention. This may be done by using strong and direct advertising, powerful words, eye-catchy pictures – anything that will hold the onlooker’s attention. In this step the only objective is to convince the prospective buyer to hear you out and to let you continue the meeting / communication.

I – Interest – This step is about the salesperson engaging the customer enough to want them to know more about the product / service in question. This is a very challenging task; you’ve managed to grab the attention of the customer but will you be able to arouse interest in the product? Even though the prospective customer may not be thinking of buying the product, the salesperson needs him to want to seek more information about the product.

D – Desire – This step is all about kindling a desire in the prospective customer for the product / service being sold. This is done in conjunction with generating interest. The salesman needs to link the features of the product or service with the needs and wants of the customer so that it’s easier for the customer to see the benefits accruing out of the purchase.

A – Action – This step is about cajoling the customer into taking the final plunge (of purchasing) – the action that you have been waiting for him / her to take. This step should not be taken lightly, as many times a lot of customers back out at this last stage. So care should be taken to not assume that kindling a desire would automatically mean that the customer will make the purchase (action).

The above four steps of AIDA would always ensure a higher success rate with the prospective customer than a random approach.