Psychological Pricing: A boilded-down guide to irresistible prices.

Beyond random pricing tactics and strategies: 5 fundamentals WHY customers behave the way they do and 15 actions WHAT you can do about to improve your odds making the sale.

last updated: August 23, 2019

Psychology of Pricing is the right starting point...
  • …if you wonder how to help your customers making a buying decision in your favor.

  • …if you look for general guidelines – not just random tactics – how to design your prices and offerings.
  • …if you welcome inspirations on immediate actions that you can take to make your prices and offers more enticing.

This book introduces you to the psychology of pricing. I found the best way to demonstrate the relevancy of psychological pricing is to bust commonly held myths about how customers think and behave.

The following chapters replace five myths with five principles how customers actually think about your prices, your products, and your services. All insights are backed by solid academic research.

Each chapter suggests concrete actions that are based on the respective principle. Research confirms that these actions work indeed, too.

If you caught fire with the psychology of pricing, this book concludes with a book recommendation that adds another one-hundred pricing tactics and insights to your quiver.

Wishing you sparks of inspirations

Myth 1

≪ Customers are accountable only for themselves. ≫

Principle 1

Customers feel the need to justify purchases to others.

What does this mean for you?
Provide reasons to buy your product

This sounds probably familiar to you – at least I certainly can relate: In some cases, when you buy a product or service you might recognize the need to justify this purchase. The person you feel accountable to can be yourself, a real or imaginary third party.

If you help your customers to justify the purchase more easily, you improve your odds of making the sale.

Science Background: How people make choices between alternatives?

When people are asked to make choices between two alternatives they look for pros and cons to make a decision between these two options. Choosing means both preferring one option over the other and rejecting the other option. Researchers conclude when asked which option people preferred they tend to choose the option that comes with clear pros and cons over a plain option without obvious pros and cons. Interestingly, people are also more likely to give up the enriched option with pros and cons than the impoverished, plain version when asked which option to reject.

In an experiment participants were asked:

“Imagine that you serve on the jury of an only-child sole-custody case following a relatively messy divorce. The facts of the case are complicated by ambiguous economic, social, and emotional considerations, and you decide to base your decision entirely on the following few observations.

[To which parent would you award sole custody of the child?/ Which parent would you deny sole custody of the child?]”

The majority awarded and denied the child Parent B when asked to do so. Pros outweigh cons when asked to choose an option, but also cons weigh heavier than pros in case of rejecting an option. Options without pros and cons do not provide sufficient reasons to choose or reject them.

Ergo – provide clear pros for your customers why they should buy your product so that they can easily justify the purchase.

Shafir, E., Simonson, I., & Tversky, A. (1993). Reason-based choice. Cognition, 49  (1-2), 11-36.

Action 1: Offer a Middle Option

This sounds probably familiar to you – at least I certainly can relate: In some cases, when you buy a product or service you might recognize the need to justify this purchase. The person you feel accountable to can be yourself, a real or imaginary third party.

If you help your customers to justify the purchase more easily, you improve your odds of making the sale.

Experiment: How people choose when you introduce a third high-end version?

Researchers demonstrate the effect of introducing a high-end version of a product. They offered two cameras to participants: a Minolta X-370 for $169.99 and the Minolta Maxxum 3000i for $239.99. Choice shares for both cameras were equal at 50%.

When the researchers introduced a third, upscale option – Minolta Maxxum 7000i for $469.99 – share for the low-scale option fell to 22% whereas the middle option increased to 57%. Researchers conducted similar experiments covering various product categories from mouthwash to television to apartments.

When a product became the Compromise Option, choice share increased average by

Simonson, I., & Tversky, A. (1992). Choice in context: Tradeoff contrast and extremeness aversion. Journal of Marketing Research, 29(3), 281.

Simonson, I. (1989). Choice based on reasons: The case of attraction and compromise effects. Journal of Consumer Research, 16(2), 158-174.

Action 2: Add a Decoy Product

Introduce a service or product that is very similar to your existing offerings, but slightly worse in one dimension – the Decoy.

For example, two products are at the same price, but one product is of  lower quality/less known brand/last year’s model.

Rationally this additional, slightly worse option does not make much sense and people would not consider buying it. But the product that is better in all regards is easier to justify so that customers are more likely to buy the “dominating” product option.

Experiment: How people choose when introducing a “non-sense” option?

The most prominent example of the decoy effect is probably the example presented by Dan Ariely. The researcher took the following advertisement from The Economist: Internet subscription to Economist.com for $59 and print-and-Internet subscription for $125. Which subscription would you prefer? How would your decision change if a third option was introduced: Internet subscription for $59, print-only subscription for $125 or print-and-Internet subscription for $125?

The researcher tested both versions in an experiment and found that more people would buy “Print and Internet subscription” instead of “Internet subscription”, because of the introduction of a third, clearly inferior option. This inferiority helps customers justify their purchase which breaks the tie in favor of the superior option.

Ariely, D. (2010). Predictably irrational. The hidden forces that shape our decisions. Harper Perennial.

Action 3: Add a self-indulging product – at a discount.

People like to buy products that are rather for fun or pleasure, so-called “hedonic products”, for example perfume. “Utilitarian products” are rather practical, functional products, like printers. Hedonic products are more difficult to justify. Offering a discount on hedonic products might help customers to justify buying this product. When you offer a product bundle consisting of a utilitarian and a hedonic product, offering a discount on the hedonic component helps customers to justify buying the whole bundle – including the fun product.

Experiment: You sell two products as a bundle and give a discount of $20. Does it make a different to which product this discount “belongs”?

Khan and Dhar (2010) asked participants to imagine they look up item X at an online retailer and found the company was offering a bundle deal to an equally priced, but unrelated item Y.

One half of the participants were told that the retailer offered a discount of $20 on X, the other half were informed about a discount of $20 on Y.

For X and Y, the researchers chose a combination of hedonic (H1: barbecue grill, H2: fondue set) and utilitarian products (U1: office chair, U2: printer). The research team found that participants were more likely to buy mixed bundles (i.e. utilitarian & hedonic product) when the discount was offered on the hedonic product.

Okada, E. M. (2005). Justification effects on consumer choice of hedonic and utilitarian goods. Journal of Marketing Research, 42(1), 43-53.

Khan, U., & Dhar, R. (2010). Price-framing effects on the purchase of hedonic and utilitarian bundles. Journal of Marketing Research, 47(6), 1090-1099.

Myth 2

Customers see numbers as a whole, like a picture.

Principle 2

Customers read prices from left to right.

What does this mean for you?
Keep left digits low and right digits high

You and your customers have learned to read numbers from left to right. This has two implications. First, you give less importance to digits that are further right. For prices, this means customers care more about the digits on the left hand side than on the right hand side. Second, the more digits a number carries the higher people perceive the magnitude of a number, a three-digit price is perceived as much higher than a two-digit price.

Science Background: Do people actually read numbers from left to right or do they see them as a whole, like a picture?

To figure out whether people actually recognize numbers from left to right and compare numbers digit by digit, researchers conducted the following experiment:

They placed participants in front of a computer screen.

On the screen a number between 11 and 99 appeared and customers were asked to press the left button if the number was lower than 55 (target number) and the right button if it was higher.

Then the researchers measured the reaction time.

If people compared numbers as a whole the reaction time should be the same for all numbers displayed.

However, if people evaluated numbers from left to right, participants would only compare the first digit for those numbers that do not share the same first digit with the target number.

Consequently, for numbers between 11 and 49 and between 60 and 99 people would stop further evaluating after looking at the first digit.

This was exactly confirmed by the experiment: The reaction time for numbers between 50 and 59 was significantly higher than for all other numbers suggesting that people mentally process numbers from left to right.

Dehaene, S., Dupoux, E. & Mehler, J. (1990). Is numerical comparison digital? Analogical and symbolic effects in two-digit number comparison. Journal of Experimental Psychology, 16(3), 626–641.

 

Action 4: Change leftmost digit in prices

When you set a lower sale price, ensure that the first digit is (much) lower than the regular price’s – for example, from $8.00 to a sale price $6.99 (instead of $7.00). Ideally, the number of digits also reduces – for example, from $129 to a sale price of $99 (instead of $100).

Experiment: When do nine-endings change price perception?

Researchers found that the first digit needs to change to let customers perceive a difference in magnitude.

In an experiment they showed participants pairs of ads for pens. They kept the price for one pen fixed at $4 (standard price) and changed the price for the other pen (target price).

The researchers found that participants evaluate a target price of $2.99 as significantly lower than a price of $3 whereas they do not rate a price of $2.79 vs. $2.80 or $3.19 vs. $3.20 being any different.

Thomas, M. & Morwitz, V. G. (2005). Penny wise and pound foolish: The left-digit effect in price cognition. Journal of Consumer Research, 32(1), 54–64.

 

Action 5: Raise rightmost digits to improve margins.

As customer pay little attention to the rightmost digits, you can round up your existing prices to 99 Cents and/or to 9s in the whole number – for example, from $5.79 to $5.99 or from $1,882 to $1,889.

Experiment: Do customers care about the smallest price change or difference?

The rationale behind price thresholds is largely based on the premise that the first digit and/or the number of digits in a price need to change so that customers notice a price change to the former price or a price difference between prices at all.

Hence, customers display a range of acceptable prices – also called the “latitude of price acceptance” which is marked by threshold prices.

Within this range customers are rather insensitive to price changes. Hermann Simon (2015, p. 40) – the grand seigneur of pricing consulting – concludes: “My own findings show that it makes no sense to set prices at $9.90 or $9.95. If you want to remain below a price threshold, then you should set your price as close to the threshold as possible, which means $9.99 in this case.”

Simon, H. (2015). Confessions of the pricing man: how price affects everything. Springer.

Monroe, K. B. (1971). Measuring price thresholds by psychophysics and latitudes of acceptance. Journal of Marketing Research, 8(4), 460-464.

Myth 3

Customers avoid pain as much as they pursue pleasure.

Principle 3

Customers prefer bundling pain and separating pleasure.

What does this mean for you?
Be aware of pain and pleasure.

Let me ask you a question – are $150 dollars worth $150 dollars?

While you shake your head about this question may I continue with another one:

Who do you think is more upset?

Mr. Smith received a letter from the (national tax authority) IRS saying that he made a minor arithmetical mistake on this tax return and owed $100. He received a similar letter the same day from his state income tax authority saying he owed $50. There were no other repercussions from either mistake.

Mr. Doe received a letter from the IRS saying the he made a minor arithmetical mistake on his tax return and owed $150. There were no other repercussions from this mistake.

Who was more upset? Experimental results indicate that Mr. Smith (76%) might be unhappier (Mr. Doe: 16%, ‘no difference’: 8%).

This question shows: People associate more pain with several smaller payments than with one lump-sum payment of the same total amount.

Thaler, R. H., & Johnson, E. J. (1990). Gambling with the house money and trying to break even: The effects of prior outcomes on risky choice. Management Science, 36(6), 643-660.

Science Background: How do people feel about monetary gains and losses?

Nobel prize laureate Daniel Kahneman and his long-time friend and colleague Amos Tversky discovered the value function. The value function describes how people evaluate positive and negative monetary outcomes and has three main characteristics:

  1. It is steep that the  beginning. This means paying twice the same amount hurts much more than paying the double amount once.
  2. It flattens out with magnitude of gains or losses. This means a salary increase of $5,000 feels much better if you earn $40,000 than if you earned $100,000.
  3. A loss feels more negative than the same amount gained feels positive. On average, when people bet $100 in a gamble with a 50% probability of losing people require a minimum winning amount of about $225 to accept the bet. Someone who is not risk averse would ask for a winning amount of slightly higher than $100.

Kahneman, D. & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica. 47(2), 263-291.

 

Action 6: Reduce pain of paying and bundle prices.

Because a larger one-time payment feels less painful than multiple payments equaling to the same total amount, you should always add up prices to a total sum instead of separating prices for each component in your offering.

Action 7: Give more pleasure and separate benefits.

The opposite holds for gains. If you offer a discount, itemize the discount for each component in your product bundle, and do not deduct your discount as a whole from the total price.

Experiment: How do customer react to bundled prices and bundled discounts?

The experiment took place in the automobile industry. The researchers presented an offer for a car: a base model with 12 optional extras. The price for this offer was presented in three different level of bundling:

  1. Bundled Price: a single price for the base model and all optional extras.
  2. Partially Bundled Price: a separate price for the base model and for optional extras grouped into packages (i.e. interior package, exterior package, and safety package).
  3. Fully Debundled Price: separate price for the base model and each of the optional extras.

Then, the participants were offered a price discount of 10%.

This discount was either offered as

  1. Single Bundled Discount on the total amount,
  2. Partially Debundled Discount on package level or
  3. Fully Debundled Discount on item level (base model and for each optional extra).

Comparing those 3 x 3 = 9 different price presentations, the researchers found

  • price bundling improves consumers’ perception* in general
  • discount debundling raises perception ratings in general
  • highest ratings receives “fully bundled price / fully debundled discount”
  • a bundled and a partially bundled discount have about the same effect on consumer ratings, only a fully debundled discount raises participants’ price perception

*) Perception was measured along (a) satisfaction with offer, (2) likelihood of recommending and (3) likelihood of repurchasing,

Johnson, M. D., Herrmann, A., & Bauer, H. H. (1999). The effects of price bundling on consumer evaluations of product offerings. International Journal of Research in Marketing, 16(2), 129-142.

Action 8: Give small gifts and create more pleasure.

Customers are very sensitive to small gains and losses (for example paying $1 versus not paying). In specific situations a small gain can give more pleasure than the same amount presented as price reduction. For example, if your product price is $127 you could think about giving customers a voucher or present a rebate of $5 instead of “just” lowering the price to $122. The pleasure from getting $5 might be higher than the reduced pain of a $5 lower price.

Experiment: Does a little pleasure make people happier than a little less of an already large pain (or price)?

Researchers conducted an experiment to test the hypothesis that people prefer segregated losses and gains, when the loss is large and the gain is small. In this experiment participants were presented two job offers, each job offer would mean the same number of lost vacation days.  For example…

Taking into account the individual preference for summer versus winter vacations, the researchers found that participants preferred on average an integrated presentation (i.e. “1 day lost” preferred to “4 days lost, 1 day gained”). However, if the overall loss in vacation days was large and the gain relatively small, people favored a segregated presentation – i.e. “7 days lost,  1 day gained” preferred to “1 day lost”).

In another experiment, the researchers replicated these findings when comparing price discounts (integrated presentation) to direct rebates (segregated presentation). When the price reduction IS small, customers prefer rebates to straight price discounts.

These graphs illustrate the constellation when keeping prices (loss) and rebates (gain) separately is more beneficial form a customer perspective than integrating both into a reduced total price.

 

This constellation is also called the Silverlining Effect.

Jarnebrant, P., Toubia, O., & Johnson, E. (2009). The silver lining effect: Formal analysis and experiments. Management Science, 55(11), 1832-1841.

Jarnebrant, P., Johnson, E., & Toubia, O. (2007). Small Gains or Smaller Losses: Optimal Price Promotions and the Silver Lining Effect. ACR North American Advances.

Myth 4

Customers recognize good prices when they see them.

Principle 4

Customers judge price relatively, not absolutely.

What does this mean for you?
Raise your customers’ internal “okayish” price.

People are not very good in evaluating prices in isolation. Is $200 for a kitchen table a good price? Maybe. Now you read it was $450 last week. Has this price become good now?

Customers consume different information to develop an Internal Reference Price. When evaluating a price customers compare the price in question to this reference point and conclude whether the price is  expensive, acceptable or even too cheap.

How to raise the internal reference price of your customers?
Anchors repeatedly influence judgments.

Anchoring seems to be among the most effective mechanisms to influence judgments in general. In practical terms, anchors are contextual information that people consciously or subconsciously recognize and to which they compare the price of a given product (e.g. prices of other products). If the anchor is relatively high, it might pull up the internal reference price and make the focal price look more favorably.

Thaler, R. H., & Johnson, E. J. (1990). Gambling with the house money and trying to break even: The effects of prior outcomes on risky choice. Management Science, 36(6), 643-660.

Science Background: Are people influenced by knowingly random numbers?

The most popular demonstration of the anchoring effect is the United Nations experiment conducted by Nobel prize laureate Daniel Kahneman and his long-time colleague Amos Tversky.

Participants were asked to estimate the percentage of African countries in the United Nations. Before they answered, a wheel of fortune was spun visible to the participants that gave a random number between 0 and 100. Participants should estimate whether the percentage asked for is higher or lower than this number. Finally, these participants were instructed to move upwards or downwards from this number to indicate the final answer.

Participants’ estimates were influenced by the arbitrary number shown. When the fortune wheel delivered a 10, the estimate was 25%, when the anchor was 65 the estimate raised to 45%. The accuracy did not improve, even when people were paid for a correct estimate or informed about anchoring effects.

Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124-1131.

Action 9: Display a reference price.

Display a reference price (for example, “regular price”, “recommended retail price”, “compare at…”) to raise the evaluation anchor and, thereby, the internal reference price.

Experiment: Do even exaggerated reference price impact price perception?

Researchers presented various advertisements to participants in an experiment and either presented no reference price, a realistic strike-through price of $419 and an exaggerated strike-through price of $799.

Interestingly, although participants acknowledged that the exaggerated reference price was hard to believe, it still raised the perceived value of the offer.

Urbany, J. E., Bearden, W. O., & Weilbaker, D. C. (1988). The effect of plausible and exaggerated reference   prices on consumer perceptions and price search. Journal of Consumer Research, 15(1), 95-110.

Action 10: Surround with high-priced alternatives.

Present products with higher price levels next to the focal product you are about to sell. These higher priced alternatives serve as anchor that favorably influence the price perception of the focal products.

Experiment: How do people react to higher prices presented next to the product they are looking at?

Researchers run an experiment on the online shop of a large apparel retailer. Customers visiting the online shop found detailed product information along with featured product recommendations. The researchers found when the product recommendations were from a higher, lower or the same price category compared to the product customers were looking at, customers were more likely to visit next a product of the price category that was presented as ancillary product recommendations (less than 8% of customers clicked directly on product recommendation).

Köcher, S., Jugovac, M., Jannach, D., & Holzmüller, H. H. (2019). New hidden persuaders: an investigation of attribute-  level anchoring effects of product recommendations. Journal of Retailing, 95(1), 24-41.

Action 11: Fully load your product.

When you offer a product with optional features, ask your customers to scale down a “fully loaded” product instead of upgrade the bare-bone basic version. Starting with a higher number of options serves as an anchor that raises your customers’ target number of options.

Experiment: How many features customers finally choose when starting with a fully-loaded product compared to stripped down, basic version?

In an experiment researchers asked each of two groups of participants either to scale down a fully loaded pizza with 12 toppings or to scale up a basic pizza. The price of the basic pizza was $5 with each ingredient costing 50 cents so that the starting price of the fully loaded pizza was $11. In the scaling up case, participants would have to pay 50 cents for each added topping whereas subjects assigned to the scaling down case would be credited with 50 cents for each ingredient they left off.

The researchers found that subjects in the fully loaded condition chose on average 96% more toppings compared to the scaling up scenario (5.3 vs. 2.7 toppings).

Levin, I. P., Schreiber, J., Lauriola, M., & Gaeth, G. J. (2002). A tale of two pizzas: Building up from a basic product versus scaling down from a fully-loaded product. Marketing Letters, 13(4), 335-344.

Myth 5

Customers are fully alert, conscious and
attentive
when judging prices.

Principle 5

Customers use mental shortcuts to conserve brain power.

What does this mean for you?
Help customers to find your attractive prices more easily.

When people are not particularly involved in buying decisions, they tend to minimize mental effort. They also become worse in math and appreciate any frame or layout that reduces cognitive work.

In addition, customers do not want to evaluate each and every offer and are glad for any nudge that points them to those products with an attractive price.

Science Background: How people make choices between alternatives?

People in general apply mental shortcuts to perform mental operations and decisions. For example, the task of estimating the likelihood of an event or the number of items in a group.

Kahneman & Tversky (1974, p.1127) found that

“(…) people assess the frequency of a class or the probability of an event by the ease with which instances or occurrences can be brought to mind.”

People choose a mental shortcut and rely on the learned conclusion that more frequent events are also more often experienced and, hence, more readily available (so-called availability heuristic).

Nevertheless, this heuristic is sometimes faulty.

In an experiment, the researchers presented participants with lists containing 19 names of very famous men (women) and 20 names less famous women (men). When asked to estimate which gender was more frequent, 80% were wrong and named the sex of the more famous (and more easily retrieved) personalities.

Similarly, the researchers asked whether each of the letters K, N, L, R and V is more likely to appear in the first or third position in a word in a usual text. Although all of these letters actually appear more often on the third position, 69% were misled and estimated otherwise. Those two-thirds also estimated that these letters appear in the first position about twice as often as in the third position. The reason for this misjudgment is that words that begin with the letter in question come more easily to mind than words with those letters in the third position.

The availability heuristic also explains why people are more cautious about jumping into the ocean after watching “Jaws” or overestimating  the probability of winning the jackpot after reading news articles about lottery winners.

Tversky, A., & Kahneman, D. (1973). Availability: A heuristic for judging frequency and probability. Cognitive Psychology, 5(2), 207-232.

Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124-1131.

Action 12: Use larger font size for reference prices.

Customers also apply heuristics when it comes to prices. Customers conclude from visual clues actual information. For example, use larger font size for larger strikethrough prices and smaller font size for current sale prices. This visual congruency between visuals and message enhances customers’ perception of perceived savings.

Experiment: How do visual cues impact customers’ perception of the same (objective) price?

In an experiment, Coulter and Coulter (2005) showed participants advertisements with a standard price and a reduced sale price. When the lower price was actually set in smaller font, participants perceived the sale price as significantly lower and were more willing to buy the product than in the incongruent condition – i.e. smaller sale price in larger font size.

Coulter, K. S., & Coulter, R. A. (2005). Size does matter: The effects of magnitude representation congruency on price perceptions and purchase likelihood. Journal of Consumer Psychology, 15(1), 64-76.

Action 13: Stack percentage discounts.

Customers do not invest the mental energy to perform complex arithmetic. When it comes to sequential (or stacked) discounts, people apply a rule of thumb and just add them up. Imagine you have to decide between two offers: “25% off list price plus a special bonus of 25%” or “40% off list price”. Which discount is more appealing?

Experiment: How do customers react to stacked discounts?

Chen and Rao (2007) looked into this question and found that consumers prefer multiple discounts (25% off plus additional 20%) compared with an economically identical but percentage-wise lower single discount (40%).

The researcher tested this discount presentation in a real-life setting and sold cutting boards for four weeks – switching the discount presentation from double discount to single discount after half of the time.

The double discount led to more purchasers, more sold units and overall more revenue compared to the single discount of identical economic value.

Chen, H., & Rao, A. R. (2007). When two plus two is not equal to four: Errors in processing multiple percentage changes. Journal of Consumer Research, 34(3), 327-340.

Action 14: Use sale signs… wisely.

Present sale signs to guide customers to the respective offerings, but do not overdo this. When the coverage of sale signs is too high, it becomes ineffective. But before saturation is reached, sale signs also work when the price was actually not reduced. This is explainable as customers in general do not memorize and remember prices to conserve mental energy.

Experiment: How do customers react to the mere presence of sale signs?

Researchers set up a promotion sign (4″ x 7“) in front of a brand display. When the price was indeed discounted (by 15%), the promotional sign would state the brand and the discounted price. When the price was actually not discounted, the usual price would appear on the sign next to the brand.

The shares of people buying the target brand in the real-promotion case and the signal-only case were indistinguishable.

This means the mere display of a promotion sign increases demand regardless of whether the price was actually discounted.

People use the promotion sign as heuristic to identify good prices.Anderson and Simester (2001) confirmed that more sale signs drive sales up to a point when about 25% of all products in a category carry a promotional cue.

Inman, J. J., McAlister, L., & Hoyer, W. D. (1990). Promotion signal: proxy for a price cut?.  Journal of Consumer Research, 17(1), 74-81.

Anderson, E. T., & Simester, D. I. (2001). Are sale signs less effective when more products have them?. Marketing Science, 20(2), 121-142.

Action 15: Write prices in red ink.

Similar to the sale sign effect, (male) customers conclude from prices written in red ink that these prices are particularly attractive and do not invest more cognitive effort to evaluate the offer in more detail (at least for low-involvement goods).

Experiment: How do customers react to the mere presence of sale signs?

To test the hypothesis that men would rather rely on heuristic cues when evaluating advertised offers, the research team presented retail ads with toasters and microwaves to participants in an experiment. As semantic cue, the prices were colored in red, while the rest of the writing was in black. In the no-cue condition, the prices were also in black. When prices were in red, men rated perceived savings as higher than with black prices.

Why men react more favorably to cues and heuristics? Research showed that men are less involved when processing advertisements so they rely rather on heuristic cues when judging advertised offers (Meyers-Levy and Maheswaran 1991).

Meyers-Levy, Joan and Durairaj Maheswaran (1991), “Exploring differences in males’ and females’ processing strategies,” Journal of Consumer Research, 18 (1), 63-70.

Puccinelli, N. M., Chandrashekaran, R., Grewal, D., & Suri, R. (2013). Are men seduced by red? The effect of red versus black prices on price perceptions. Journal of Retailing, 89(2), 115-125.

Conclusion

I truly hope you enjoyed this read on psychological pricing and got hit by at least one spark of inspiration. The purpose of this introduction is to immerse you into few, but general psychological processes on how customers perceive, process and act upon information presented to them. These core processes help you ideate own strategies and tactics for your pricing, selling and marketing. As a starting point, we derived 15 examplary actions from these principles that are proven effective in letting prices and offers shine a bit brighter.

Did you catch fire with psychological pricing? Are you looking for more sparks of inspiration? Here are my recommendations for you...

For free: Nick Kolenda assembled the probably most comprehensive, complimentary resource on psychological pricing – you find his list of 42 Psychological Pricing Tactics here.

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