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Have you ever observed how brands like bata and liberty have a shoe price tag saying, ‘Rs 999 only’ and ‘Rs 1499 only’? And also, the grocery stores with namkeen packets printed with ‘3 for Rs99’. Therefore, pricing can be used as a marketing strategy like other strategies. Psychological pricing is done mainly for consumer goods, and the concept is to lower the total price to showcase that the product is economical for them.
According to psychology, people are in a natural habit of processing a price from the extreme left-most digit to the extreme right and will eventually ignore the last few numbers of that price. Psychological pricing is today being used by numerous businesses, and it gives us a fair idea of it being a tool for increasing the company’s competitive advantage. Psychological pricing is to meet a customer’s psychological need and convince them that the deal is a ‘good deal.’
Here are some examples:
For example, a bottle of tomato ketchup may show the tag of 50% sale, and the other ketchup stands with a buy one, get one free offer.
In such a scene, the buy one, get one free option provides more sales; although the concept behind these two undergoes the exact maths, still, customers prefer the latter. That is how psychology rules.
Playing with the cents gives people a view that they are buying cheaper. Indeed, $15 appears more reasonable than $15.00 because the number is relatively short when visually viewed.
An artificial time clock- Just one day only, hurry!
Only a few hours were left to end!
An early bird sale!
Businesses use these kinds of artificial time boundaries to create a sense of restlessness and make the purchase faster. A beneficial sales campaign that ends within a few hours encourage customers to make purchase comparatively quicker.
Sometimes Rs 100 becomes Rs 99.99, and thus people get influenced by the offer.
Pros of Psychological pricing
This technique allows a high-priced good to enter a lower price band. For example, a pearl set costing 40,000 bucks can get into the 30,000 price band by listing the price at 39,999.
ROI measures the profits a company earns in proportion to the invested capital.
The foremost reason to do psychological pricing is to increase sales. Using several tactics or implementing a particular tactic that gives more revenue- is how the chain works. One that has been proven to consistently work increases profits for the company’s services and products.
Another available route is the pricing transparency option, where you list exactly what each element of your product costs (raw materials, labour, shipping), how much you mark up those products, and why. This is an excellent approach if your marketing strategy is to sell designer-quality items for more affordable prices.
Simplified Decision Making
How can psychological pricing ease decision-making? The middle-class customer has to be and is cost-conscious. They aim to purchase products that give good quality at a substantial price. The central angle of selling this way is that customers can be shown that the same quality product is now offered at a lower price. With this kind of satisfaction, the customer makes the deal, finding it economical.
Boosts Customer Engagement
Food chains sometimes use psychological pricing to get a better response rate on any given product. There are multiple methods of psychological pricing that can be adopted for the same. In short, any pricing strategy that adds value to the product or service would, in turn, contribute to customer engagement.
Customers admire the idea of obtaining a bargain or great value on a particular service. By creating a content response in a sale, customers will return to that business for more. Psychological pricing can be used to excite customers by offering discounts and prices that are affordable. It is often viewed that customers get tied to a brand and then wait for the sale to buy the product.
Cons of Psychological pricing
Create Long term Pricing Expectations
Using psychological pricing all the time to boost sales may result in a brand image of ‘lower quality goods as well. Also, the customers may perceive that cheap goods will always be delivered. Well, this can raise the customers’ expectations, and once the brand launches a product or service without a ‘pricing tactic,’ that may fail.
May Drive Customers Away
Every business is conducting psychological pricing one way or the other. That makes people more conscious. To use pricing psychology, a brand should consider originality and actual price. Holding a sales campaign at times is good, but regular use of the pricing techniques could drive customers away. They may feel manipulated and have an image of the company hiding the actual price. For instance, if a customer’s budget is Rs 200, and the cost of shipping comes to be Rs 80 more, this sudden unexpected amount can be a discouraging factor for the customer.
Sales are not guaranteed
It should be noted that a mere price change cannot promise that new customers will come. Sales may come, but having a realistic aspect is important too. The success of such strategies is, at times, situational only.
These psychological pricing advantages and disadvantages offer ideas that can help businesses create greater attention for their goods or services. This tactic could help in creating more revenue in the long run.