Psychology Pricing

There's a term in psychophysics call the 'Just Noticeable Differences' (JND) to indicate how much of manipulation we can use, for example to increase prices, before customers take notice.

For instance, research have found that price variations of 5% will make customers take notice. For example, pricing a $99.95 will be noticeable instead of $99.94, or $99.96. Do take note, the higher the base price , the more absolute change required to make a difference, as pointed out by Levine.

Here are some facts developed by researchers:

• We are more price sensitive to price differences when shopping for necessities than for luxuries
• It takes a smaller price increase to deter poor shoppers than rich ones
• Price drops are weighted more heavily for name brands than for generic store brands. Branded products require smaller discount to be perceived as a bargain than a generic brand
• Women are more discriminating of price differences than are men

Researchers have also found the following to be true in psychology pricing:

• Odd number prices is perceived to look lower than even, round number prices. The same goes for lowering prices from an odd to even number. So the 99 cents strategy works better then the a 98 cents strategy.
• Two prices ending with odd number have an impression of greater difference than comparing two even numbers. For example, the range between $1.99 and $3.99 looks greater than $2.00 and $4.00
• Consumers do not usually look past the second digit in a price, so something selling for $1.51 may look the same as something that cost $1.59

Here are some psychological pricing tips from Dr Robert Levine to increase the spending of your customers:

1. If you have the information, sell to the customer (direct mailer) the highest price he/she has paid in the past
2. Now comes the JND and contrast challenge. State a higher odd number price to increase. Care should be taken in the JND process that the customer do not feel any pinching sensation when they look at the price. Another way to show customers price increase is to break it down into a minuscule amount such as how much it will cost them per day. For example, you have increased your monthly subscription from $4o to $48.99, a little over 15% increase in price (take note, you should have a fixed increase/decrease percentage if you allow your customers to choose) . Therefore you can sell your new subscription price at $1.61 a day ($48.99 x 12 = $587.88, and divide by 365 days)