The Psychology of Pricing

“All our knowledge has its origin in our perceptions – Leonardo da vinci”

Price is merely a perception. Our brain remembers prices as either being high or low, rather than recalling specific numbers. It is therefore beneficial to your brand for people to perceive your price as low.
How can you create this perception?


You can influence people’s perception of your price so that when they are comparing prices they remember yours to be lower. Here are a few ways:

  1. When having a sale, always reduce the leftmost (first) digit.

Example: Change prices from $39.00 to $29.99 or $50 to $49.99
Make the second half 99 to reinforce the smaller magnitude of the price

  1. People perceive prices as lower when they have fewer syllables.

$27.82 (7 syllables twenty-seven eighty-two) versus $28.16 (5 syllables twenty-eight sixteen)

  1. Display prices in a small font size to reinforce the low magnitude.

Discounts, however, should be displayed in large font sizes to emphasize how big the discounts are

  1. Remove the comma from your prices to reduce the phonetic length of the price.

Remember point 2… 1,499 vs 1499. One thousand four hundred and ninety nine (10 syllables) vs fourteen ninety nine (5 syllables)

  1. If you charge shipping, be sure to separate your shipping price from your list price.

This one is iffy and only works sometimes so you might want to test it to see if it works for your brand, but $18 + free shipping is bigger than $15 + $2.99 shipping. This is because people anchor the price at 15 so it seems smaller.

  1. Reframe prices into their daily equivalence.

This makes it seem smaller. Rather than say $14 a week say $0.49 a day or for as little as the price of a cup of coffee.

  1. Be precise with large prices.

People perceive precise numbers to have more value than smaller numbers.


Fluency is what makes it faster for people to process your price. When we process information fast, it makes us feel good and our brain associates that feeling with the context, which in this case would be your price.
Here are some ways to increase fluency:

  1. Position low prices towards the left.

Directional cues are associated with certain concepts. Up is associated with good, down with bad. Good people go up to heaven… sinners go down to hell. Movie critics give a thumbs up to good movies and thumbs down to bad movies.
People recognize positive words faster when they are towards the top and negative words faster when they are near the bottom of the page. This is the same way people look at numbers on a horizontal scale from smaller to largest (left to right). People are likely to respond faster to smaller numbers when they are placed on the left.
Positioning price on the left reduces magnitude but only if the price is indeed low. High prices should be on the right.

  1. When setting your pricing, expose your customers to 2 multiples of your price
  • 4 small pizzas up to 6 toppings only $24
  • 4×6 = 24
  • 3 medium pizzas up to 8 toppings only $24
  • 3×8=24

When you provide multiples of numbers, people are able to process it faster and experience higher fluency.

  • $120 – get 4 weekly 30-minute calls
  • $500 – get 5 bonus DVDs for free ($100 value)

Make sure to only include 2 multiples

  1. Remove cents for emotional purchases ($19). Add cents for rational purchases. ($19.50)


  1. For custom quotes, tailor your prices towards names and birthdays.

Example: Putting the price fifty-five for someone called Fred or Frank or $49.15 for someone born April 15.
This uses the principle of egotism and is for prices you can tailor to individuals.

  1. When to show price

If you show the product first, people base their decision to purchase on the product’s qualities. However, if you show the product’s price first, they base their decisions on the economic value of the price.
If you have a luxury product (e.g. jewelry), show the product first then the price. If you have a utilitarian product like batteries, show the price first so people can appreciate the economic value

  1. Show prices in red to men

Men base heuristic decisions on color when they see ads. Showing them the price in red diminishes their ability to process other attributes of your product. Also because men associate red with savings it will seem like a better deal.



  1. Expose people to a higher incidental price to increase their anchor

Show them a product you sell that is more expensive so that they anchor the price at a higher price point. Alternatively, show them a higher number.
An example of this implementation:
To set a higher price anchor, show the number of customers near your price, e.g.
“$49 – Join 2387 happy customers”

  1. When introducing new products, raise the price of old products to increase the reference point for new product pricing


  1. Sort your prices from high to low.

This anchors reference point high. If I think a beer is $10 as opposed to $4, I’m willing to pay more for it because my reference is higher
Using this method, customers see each lower price as a loss in quality and so will buy the higher priced goods.
Low to high – price loss
High to low – quality loss



  1. Every time we pay for something we feel pain.

There are 2 types of pain:

  1. Saliency – of payment ( we feel pain when we see money leave our hands)
  2. Timing – of payment ( we feel pain when we pay after we consume)

How do we use this to our advantage?

  1. Charge customers before they consume


  1. Shift the focus to related aspects of time rather than the payment.

Emphasize the enjoyable time people will have with your product.

  1. Avoid terms relating to money

Call it balance or credits, or make up a name for it.

  1. Emphasize the value of your product through numbers

“Our coffee beans are delicious” is less appealing than “Our coffee beans are 100% organic”. People respond better to cost-based pricing rather than market-based pricing.

  1. Add slight price differences to products so people don’t scrutinize and look for differences.

When price is the same people examine product closely to find the differences. Adding a slight difference lets them think the products are similar



  1. Give percentage discounts when price is under 100 and numerical when it’s over 100


  1. Provide a reason for the discount.

Providing a reason–for example, a holiday or clearance–prevents people from using the discounted price as a reference point in future.

  1. Offer discounts that are easy to compute.

2%, 5%, 10%, and 20% are easier to compute than 27% or 13%, so they have a bigger impact.

  1. Offer discounts at end of the month.

People’s budgets are lower at the end of the month–this is called the bottom dollar effect. People’s perception of paying pain is in line with the depletion of their funds, making discounts more effective at the end of the month.

  1. Offer free trials during the beginning of the month when budgets are high.


  1. Position sales numbers to the right

It’s easier for us to subtract when the sale price is to the right than on the left. When the sale price is to the right, customers can calculate the discount more easily, increasing its magnitude.
If however, if your discount is not very substantial, place it on the left.

  1. Only give discounts on low priced products, not high-end premiums


  1. Phase out discounts.

If it’s $999 and you reduce to $799, add one more discount level at $899 before raising your price back to $999 again. This leads to higher revenue and a higher willingness to pay by customers.

  1. Offer discounts with low right digits.

Low right digits are numbers below 5. 23 to 22 is seen as having a higher value than 19 to 18.

About the Author

Reginald Addae is the Director of Marketing & Special Programs for Jumpstart Media with over 10 years of experience in Digital Marketing. 


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