Is Psychological Pricing an Effective Strategy?

Price has a psychological value. Buyers will buy a high priced product because they believe that the high price is a good indicator of value. Their perception is not reality based, it is psychologically based therefore buyer behavior is affected by more than the product and price tangibles.

Interestingly, as buyers do more investigation into the product's attributes or the business promotes the product's characteristics more effectively, that product knowledge ('familiarity breeds contempt') enables buyers to make a more rational, versus psychological, buying decision and for buyers, price moves down the value scale.


One use of psychological pricing is in price-ending numbers. Buyers believe that prices ending in uneven, rather than even numbers, (such as, .99, 9,999, etc.) are a better deal or a better price than even numbers (e.g. or 0,000). If the products to be priced are to be in a price 'band' (such as on-line auctions, or cars or other sales listings), if the listing price is in the odd range, say 9,000, it will appear in a lower price band than the 0,000 listing and will be viewed as better value. The challenge with this strategy is that products ending in an odd number are also often perceived as being lower in value. Ensure that you chose the right price and the right strategy for your specific product or service.

Another use of psychological pricing is reference price. Reference pricing is when buyers have a psychological response to the price that mirrors the way they view a price's relationship to a specific product. A business could capitalize on reference pricing and position their product amongst high value or luxury items to imply that its product belongs in the same category. Be careful with that positioning strategy, it can backfire if buyers feel that your product doesn't really belong in that category.

For psychological pricing to be an effective price strategy, the product needs to have some characteristics that would appeal to an ego-sensitive buyer. For example, luxury goods are attractive to ego-sensitive buyers. Premium recreational goods, such as boats, are attractive to ego-sensitive buyers. Your strategic planning model must ensure that the pricing strategy selected for your product or service is a best-fit price.

Make sure that your price strategy fits your product and your market by testing the price before releasing that price to your whole target market. Also consider the impact that the other elements of marketing mix have on your price: is the product the right fit for a psychological price strategy, is the promotional program in-step with the price strategy, and is place or the distribution channel in balance with the price (i.e. shipping of the product should not cost more than the product itself)?

Is Psychological Pricing an Effective Strategy?

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Kris Bovay is the owner of Voice Marketing Inc, a business and marketing services company. Kris has 25 years of experience in leading large, medium and small businesses.
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