How psychological pricing influences consumer buying behaviour

Discover how psychological pricing strategies can change how your customers think and shop. In this article, we will break down key effective tactics, like charm pricing and anchoring, and get actionable tips to help you apply these strategies in your own business. 

In recent years, consumers in the UK have been changing their buying behaviour. According to KPMG UK Consumer Pulse Survey (Q1 2024), 52% of consumers have cut their non-essential spending and are switching to own-brand products. Statista (2024) found that only 4% of consumers are not influenced by offers. This shift in consumer buying behaviour makes the use of psychological pricing even more impactful, since consumers are more focused on value and savings. [1] [2] 

What is psychological pricing? 

Psychological pricing uses human cognitive biases and emotional responses to influence how consumers understand value and make buying decisions. This tactic makes products more appealing, affordable or valuable than they are.

Psychological pricing is essential to businesses looking to set prices that resonate with their customers and increase their profitability. 

Psychological pricing takes advantage of the fact that most consumers don’t know how much something could cost. To determine if something is a good deal or not, most customers take a split decision on the information they see in front of them. From comparing brands to seeing a before-and-after price or noticing a “sale” tag, customers tend to believe that an offer is a true offer. 

Top 6 psychological pricing strategies

1 and 2 – Charm Pricing and Odd-Even Pricing 

Charm pricing takes 0.1 cent off the full price. So, for example, something that costs £10 becomes £9.99. Odd-even pricing works on a similar premise, that consumers are more prone to buying something that costs £9.49 than something that costs £9. This is based on the idea that prices are path-dependent and familiar price formats can make the customer experience smoother. Unfamiliar price formats could trigger consumers’ suspicion and create a “friction” in the customer shopping experience. That is why brands such as Amazon Fresh have 70.6% of their prices ending in the digit 9. [3] 

But not all studies agree that the ending in digit 9 works for every brand. Mindlab International say context is very important. If the product is supposed to be considered premium or luxury, price is considered less important, so round prices tend to convey the image of high quality. That’s what’s called “exclusivity pricing”. [4] 

Price Anchoring 

Price Anchoring is when you show the previous price and the current discount price. The difference doesn’t even need to be that representative. If you say something “Was 9.99”, and “Now 9.89”, that’s already value for customers. 

Bundle Pricing 

Bundle Pricing is when a group of products is offered together with a discount. For example, a cosmetics brand that offers a bundle of skin care products with 4 different products might make a customer who planned to buy two products buy even more because they think they are getting a better deal. Bundle pricing 

makes customers feel they are getting a smart deal.

Fremium Pricing 

Freemium Pricing offers a basic version for free, while tempting desired features are only offered in a paid premium version. This technique is commonly used on subscription services that expect customers to upgrade to the paid product. TV streaming services such as Netflix and Nowtv have used a similar technique called “ad-supported subscription”, but in a different direction. They started offering a lower price if you watch ads between or during your streaming experience. 

There are several other psychological pricing strategies available. Whether they work for your business or not will depend on your audience and your goals.