Understanding Price Strategies

Are you more likely to buy a sweater that costs $40 or $39.99? Right off the bat, $39.99 sounds like a better deal. Sure, that’s just one penny less, but there’s a psychology behind pricing that motivates customers to buy.

On the flip side, items can be strategically priced at a higher cost to create a sense of greater value.

Pricing strategies are effective across a wide spectrum of products, from toys to cars. Even real estate agents recommend specific pricing strategies designed to help homes show up in more online searches. Homes selling for $299,000 tend to sell faster than those priced at $300,000 because they’re included in the pool of homes buyers seek in the $250,000 to $299,999 price range.

Retailers have long engaged in the psychology of pricing, designed to get customers to buy more, to buy things they aren’t even shopping for or to buy one brand over another. The following are some of the pricing strategies that have proven effective at increasing sales.

The Power of “9”

Apparently, “9” is the magic number among retailers. First there’s the 99-cent strategy, which tends to lead to more sales than products rounded up to an even dollar. What’s more surprising is the number nine outsells other numbers as well.

One study found that discounting a price that ended in nine actually performed better than a less expensive price, as in this example:1

  • Was $60, now only $45!
  • Was $60, now only $49!

The Volume Trick

Grocery stores love to run sales where you get “10 for $10” — basically reducing the price to a simple, well-rounded $1 for each item. The objective is to encourage shoppers to buy large quantities of items that are easy to stock up, such as canned soup or cat food. What some shoppers don’t realize is that many retailers honor the reduced price even if you don’t buy the advertised quantity. Even if you buy only two cans of soup, they’re still just a dollar each. Ask first, to be sure, but most retailers who honor the sale price on fewer items do so as a regular business practice.

Adjective Power

When used in the right context, a simple adjective can be a powerful influencer. For example, one study found that changing the pitch for a DVD subscription from “a $5 fee” to “a small $5 fee” increased sales by 20 percent.2

Syllabic Power

Another pricing tactic is to reduce the number of syllables in a price — even though most price tags are written in numerical form. For example, one study found that customers perceived $1,499.00 to be more expensive than $1,499, while the price of $1499 performed best of all.

Supply and Demand

Economic theory maintains that products in short supply can be sold for higher prices. To capitalize on this theory, many retailers set a per-customer limit of a particular item, which conveys the idea that the product is in great demand. Even if the item is offered at a sale price, the retailer makes more money because customers often buy more than one since they believe it may not be readily available.

The Magic of “Free”

Everybody likes getting something for free. Retailers promote sales by throwing an additional product in with the sale, such as a free tote bag or free shipping with a minimum purchase. Amazon is a cut-and-dried example of how well free shipping offers work. In France, all orders must include a 20-cent shipping charge, and as a result, Amazon’s sales in France are significantly lower than in all other European countries.3

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1 Gregory Ciotti. Help Scout. Sept. 15, 2015. "Pricing Psychology: 10 Timeless Strategies to Increase Sales." Accessed Dec. 16, 2015.
2 Ibid
3 Ibid

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