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What if I told you that you could use pricing psychology to increase revenue by simply charming your customers with your pricing? There is persuasive magic at play with retail pricing. This is one of the easiest and most cost-effective ways to secure revenue and satisfy your customers.
In the book How Customers Think, Harvard professor Gerald Zaltman estimates that 95% of purchasing decisions are made with your subconscious mind. Tapping into these subconscious behaviors, patterns and biases can be an effective way for retailers to attract and retain customers.1
Retail pricing such as charming pricing and marketing go hand in hand. For example, people used to download music for free and then Apple's Steve Jobs convinced them to pay. How? By charging 99 cents for each download.2
Charm Pricing - Master of Illusion
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Charm pricing is defined as prices that end in the number nine based on the human mind's "left-digit effect." This subconscious bias is based on the fact that we mostly read from left to right, which in our minds emphasizes the first digit we read.
Our minds are trained to simplify numbers, which in turn anchors our minds to the first digit we see. If a price is marked $399 our minds will interpret it as $300 rather than $400.
Research shows ending prices with 99 (e.g. $599) can result in more sales than rounding up to the nearest round price point (e.g. $600). In his book Priceless, William Poundstone examines eight different studies on the use of charm pricing and found that on average ending a price with 99 increased sales by 24% versus an even price point.3
In an experiment conducted by the University of Chicago and MIT, women's clothing was used to test the left-digit effect. Prices were set for $34, $39, and $44. The items sold best at $39 even though this price was more expensive than the lowest options.4
Use Charm Pricing to Your Advantage
There is a time and place for everything. Research has shown that ending your prices in a nine was more effective when your customers did not have a starting point for a price, meaning that charm pricing works best on new products rather than on older stock being marked down to end in a nine.
For charming pricing to work, you must want to give an impression that your product is a steal. The prevalence of charm pricing has led to social conditioning that if a product price ends in a nine then it's a good deal.
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Charm pricing is a hotly debated topic in the retail world as customers and retailers have long associated charm pricing as a gimmick. But this does not take away from the statistical information found.
"People don't think what they feel, they don't say what they think and they don't do what they say.” - David Ogilvy, advertising legend
Of course, there are other retail pricing strategies to consider. But in my opinion, charming pricing is the easiest to implement for retailers of all sizes without overwhelming your customers. And who wants that?
Sources
Meghan O’Brien, “5 Psychological Pricing Tactics That Attract Customers, With Examples,” NetSuite, April 1, 2021. https://www.netsuite.com/portal/business-benchmark-brainyard/industries/articles/cfo-central/psychological-pricing.shtml
William Poundstone, Priceless: The Myth of Fair Value (and How to Take Advantage of It), (NY: Hill and Wang, 2010), 184.
Gregory Ciotti, “5 Psychological Studies on Pricing That You Absolutely MUST Read,” Neil Patel (blog), retrieved May 7, 2022. https://neilpatel.com/blog/5-psychological-studies/
Pius Boachie, “5 Strategies of 'Psychological Pricing,” Entrepreneur, July 21, 2016. https://www.entrepreneur.com/article/279464