Exposing Marketers' Tricks (1): The Psychology of Pricing

P.S: This is a very biased post. Don't be afraid, I checked myself ;)

Does anyone else get annoyed when they see products priced “#4999” or in a similar format?

I used to have a friend who ran an online store. His unique value proposition was that all the items on sale were under 5000 naira (#). I remember going through his posts, and seeing a lot of “Price: #5999”. Sigh. I was taken aback, like, “bredda man, yuh tek mi fi ah ful?”

A lot of marketers say that this price display tactic tricks the customer’s brain into believing it’s #5000, or even #5900 instead of #6000. I wonder who they performed the survey on. Does anyone truly think that way? (bias check)

On the other hand, before being introduced to Marketing, I always wondered why I was more open to purchasing products that were priced like “#389”, as opposed to “#400”. While prices like “#599” used to annoy me, I was more open to this type. In fact, I didn’t mind taking the trip to Shoprite because of these seemingly insignificant price differences.

A few weeks ago at AltSchool Africa, we learned of the various (psychological) pricing tactics used by brands to get customers to purchase. I didn’t intend to make a post on this, but I had a conversation with Isaac Moses in his comments section, and decided to take the time to discuss pricing tactics; their various types and examples.

1. Charm Pricing: Let’s get it out of the way. Here’s the one I like the least. According to marketers, it is a pricing strategy that tricks consumers into thinking they are getting a good deal. For example, a charger that costs #8,999 tricks the customers brain into believing that it’s #8000, not 9000. Maybe this just doesn’t work for me because we don’t spend kobo in Nigeria. Maybe it would’ve worked better if products were priced at #79.99. I genuinely don’t think so, though. (bias check)
2. Price Anchoring: This basically means that the seller provides a price anchor for whatever product they’re trying to sell. It works with the psychological theory that the brain forms an anchor with whatever option it’s initially presented with. It’ll make more sense with an example. If a customer walks into your store to buy a moderately priced car, and you show her one that costs 8.5 million naira, and then show her another that costs 5 million naira. She will most likely go for the one that costs 5 million (except she has a specific taste), because her brain tells her it’s a more reasonable price. Most times brands run sales, they use this tactic. If you're familiar with Instagram vendors, you should be very familiar with this tactic. They show you the original price with a red line slashing it, and then the sales price. So the sales price is anchored to the original price, and you feel like you’re getting a deal. So, you buy.
3. Decoy Pricing: This is when a brand or business presents the customer with several product prices in a bid to steer them to a particular product, called a target. Individuals tend to have a change in preference when also presented with a third option that is superior in most ways to the first two options. The third option makes the first two less attractive. iPhones apply this strategy. For each series, they have one “cheap option” with basic functionalities, a middle option with advanced functionalities, and a high-priced option with the most value. Here's another clear example: Product A costs #2500 for 3 features. Product B costs #4000 for 4 features. Product C costs #4500 for 7 features. Product B is the decoy, and is only there to give Product C more perceived value. Understood?
4. Odd-even Pricing: Here is my absolute favorite. I’m a happy mumu for this one, and I own it with my full chest. (bias check) This is a strategy where the price ends in an even or an odd number, not zero. I think everyone who uses charm pricing should cross over to this good side of life. (yet another bias check) Pricing an item at just under a a whole number (e.g. #345, instead of #350) makes the price seem like a bargain. It’s a strategy a lot of retail stores use, and it works for me. Does it work for you?
5. Centre-Stage Tactic: This strategy uses the “centre stage effect” which dictates that out of a range of products placed side-by-side, people tend to be drawn to the one in the middle. If you have a choice to pick between a low, middle or high price, you would most likely be drawn to the middle price. It's different from the decoy pricing tactic because the middle option has a fair number of features for a fair price. It also works well, as far as I can tell. Except it’s a freemium product (in which case, I might choose the free version), I will most likely go for middle prices too.

Please ignore my bias.

In all of these, what really matters is the behavior of your target customer. Take the time to do this research, and gain insights into your market. You can also analyze your customer's response to competitor's prices and strategies.

We're getting closer to Christmas (yay), and this means customers are ripe for plucking. Utilizing one or more of these tactics is sure to attract new customers and increase your profit.

Pricing tactics work to perfection when applied correctly because customers always want to get the best deals when purchasing an item. Run an analysis, and know which one(s) work(s) best for your brand.

P.S: If you're not a marketer and you read this, pretend you don't know, okay? Don't let the association chase me out for divulging their secrets. Haha. I also would really love to know if, like me, you're susceptible to a specific type of marketing. Please leave a comment after reading.

P.S.S: If you're a marketer, I would love to know your biases as well. Is there a pricing tactic you favor over the rest? And is there one that gets you all the time? Please leave a comment.