Q&A - Why might a business use psychological pricing?

Psychological pricing is a pricing tactic that is designed to appeal to customers who use emotional rather than rational responses to pricing messages.

Sometimes prices are set at what seem to be unusual price points. For example, why are DVD’s priced at £12.99 or £14.99? The answer is the perceived price barriers that customers may have. They will buy something for £9.99, but think that £10 is a little too much. So a price that is one pence lower can make the difference between closing the sale, or not!

The aim of psychological pricing is to make the customer believe the product is cheaper than it really is. Pricing in this way is intended to attract customers who are looking for “value”.

For example, a new car might be priced at £12,995 rather than at £13,000. A rational customer would know that the price difference of £5 is tiny for such a high value item as a new car. However, customers don’t necessarily behave rationally. Some may look at that price and “round it down” to £12,000, making the perceived difference more significant!

The main advantage of psychological pricing is that it allows a business to influence the way that customers view a product without the need to actually change the product.