Psychological Pricing

Psychological pricing

Many companies use psychological strategies as their pricing strategy, especially when there is higher competition on the market. Some suppliers price their products lower than their competitors, and others rely on psychological perception of prices.

There are popular price points, which are recognizable by consumers. When merchandize is priced at an even whole number, $50 or $100, consumers consider these products to be at a regular price. A price point such as $49.97 or 99.97 is more often used by retailers, as it presents the assumption that the customer is getting a “good deal”. A good understanding of psychological pricing can be achieved through evaluation of appliance retailers. Home Depot, a leading appliance merchant has set its prices for major kitchen appliances in numbers mainly ending in eights. Common prices for different units are $698.00, $798.00 $1398.00 and similar others. The company also uses the discount strategy, for example it reduces items from $1199.00 to $998.00. This psychological technique works successfully for Home Depot, as in the last five years the company has increased its appliance sales by 20 percent. On the other hand, Best Buy uses a different strategy in establishing its prices. The company has set prices ending in ninety-nine. Common prices for kitchen appliances are $764.99, $809.99 and 1099.99. It appears that Best Buy believes that these prices are more likely to convince the customer that their products are offered at a lowest price. Sears prices are similar to those of Best Buy, and most of them end in ninety-nine. Reduced price signs are a common tactic of Sears, such as was $1539.99, now $1199.99. Another retailer, considerably new on the appliance retail market compared to the previously mentioned is hhgregg. The company’s pricing psychology is based on offering appliances at prices such as $839.98, $1099.97 or $1299.97.

Whether it is true or not that this type of pricing affects sales is...