What Is Psychological Pricing?

by Shelley Frost

Psychological pricing uses the customer's emotional response to encourage sales. By pricing products strategically, a company may increase sales without significantly reducing prices. In some cases, a higher price is actually more likely to increase sales. Consider several factors in crafting a psychological pricing strategy to get the best results.


The customer's perception of you products' prices is the basis of psychological pricing. Instead of appealing to the rational side of the consumer, this strategy appeals to their emotional side. The pricing may aim to strike a thrifty note with a bargain or stir up feelings of prestige with a high-end item. Use psychological pricing to choose an appealing price based on the needs and wants of your target audience.


Because product positioning influences the perception of your item, positioning the product at the low end speaks to those looking for a value; the higher end of the product's pricing spectrum is associated with higher quality. The odd pricing strategy prices products just below the whole dollar amount. For example, instead of charge $5 for a product you might charge $4.99. Buyers associate the price closer to $4 than $5 even though it is only one cent less. Similar strategies are used for larger dollar amounts. For example, a home might be priced at $199,500 instead of $200,000. You might also aim to stay underneath a particular price point such as under $100. The discounting strategy attracts customers who feel they are getting a deal with a temporary price reduction. Price lining involves distinct lines of products, each in a distinct price range, such as budget, mid-range and high-end. Additional features on the upgraded lines don't typically cost much but allow you to increase the price significantly.


The psychological pricing method helps you build an impression of your brand without making significant changes to the product. Simply revising your pricing structure can make your product suddenly seem like the best bargain on the market or elevate your luxury product to the top of the available options. Experiment with one or more psychological pricing methods to help find a price point that increases your sales.


When using psychological pricing, the target audience for the product determines the way you price your products or services. Determine who you are trying to reach and what your target audience would respond to when setting the prices. The specific product or service you are selling is another factor. A high-end product may not sell well using the odd pricing strategy, which aims to make the product seem more affordable. Don't forget to consider your competitors when choosing a psychological pricing method and setting your prices. Straying too far from similar products can make you less competitive.

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