Retail Strategy Secret #14: Psychological Pricing

psychological_pricing

Welcome to the fourteenth post in our series of “Retail Strategy Secrets”!  Here you will learn the angles, approaches, and tactics retailers are using every day to try and separate you from your hard-earned cash.  Understanding these unlocks the door to spotting great deals, and you never want to pass up a Dealicacy…

Psychological Pricing

Just as it sounds, psychological pricing is a strategy employed by retailers to sway you into believing you are getting a fair, low, or best possible price.

Do you recall the famous study where the dog salivates at the sound of a bell, even when there is no food presented (“Pavlov’s Dogs”)?  Classical conditioning 101.  With only a slight twist of this concept… the likes of WalMart and your everyday discount retailers are using this to gain your comfort in making purchases.  In other words, retailers are planning around the tendency of the masses to be sensitive to different digits in similar ways.

In a world of $3.99 combo meals, .99 cent candy, and $1.29 soda, something ending in a “7” is going to grab your attention.  You are conditioned to expect “.99” pricing, so naturally “.86” must mean something special. A discount. Clearance. Closeout. Or in the case of WalMart, simply living up to the brand promise by shaving every possible cent out of the cost.

The problem is, quite the opposite may be going on.  As we discussed in a prior post on EDLP, not everything sold at a discount retailer is listed at the lowest price available.  The “deal” you just spotted on a 12-pack of Coke Zero can actually be *marked up* from the current suggested promotional price. 

Whereas the grocery store down the street is selling the exact same thing for $2.99, an extra .57 cents has been added to acheive your “Roll Back” price of $3.46 .  Nice.  Whatever you do, don’t buy 2!

Further, how psychological pricing (also known as “Odd Even” pricing) is implemented varies by retailer.  It could be as much a signal for to you to buy as a signal to the cashier that special rules apply.  A price ending in “.57” might just as easily be a notice that no further markdowns are to be taken (coupons or otherwise) as it is an item that is a special one-time purchase.

Ok, so back on track… Why are so many things priced according to “.99” anyway?  Great question! 

Despite what you are taught about rounding in grade school math class, studies show that people tend to round prices *down* (i.e. truncate) to the nearest whole number.  For example, that pair of shoes your wife just lucked out on for only $25.  They were more likely $25.99 (plus tax).

You and I both guilty this as well: what was the price of gas today?  Chances are you forgot to mention the 9/10ths of a cent off to the side… 🙂

From a Dealicacy standpoint, this pricing strategy isn’t one that can really be “beaten” so much as understood.  Don’t let it be used against you.  Watch for patterns at your favorite retailers, ask questions of the managers and cashiers at check out, and sign up for the Newsletter – I’m watching this stuff like a hawk and will pass it along when I see it.

Yours for great deals,

– Nathan

PS – Wow, we’re all the way up to Retail Strategy Secret #15 already!  Keystone Pricing is next – with even more to come thereafter!

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3 Responses to “Retail Strategy Secret #14: Psychological Pricing”

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