Psychology of Money

Psychological Pricing: What Retailers Don’t Want Us To Know

Pricing psychology is not a new phenomenon. In fact, if you just look at the words “pricing psychology” or “strategic pricing” (without Googling them right away) you intuitively know what both of these terms might mean.

Especially during the holiday season, retailers want you to think they’re doing you a “favor” through their careful pricing of heavily marketed products. However, retailers have a few extra tricks up their sleeves.

Hopefully, after reading this, you’ll be savvy enough to see right through some of these “favors” they’re doing for you.

What Is Pricing Psychology?

If you think that strategic pricing has to do with the fact that every single price in a store ends in $0.99, you’re partially right.

However, more techniques exist than retailers simply slapping a price tag that ends in $0.99 on everything in their stores—and there are lots of marketing studies that prove it.

Overall, pricing psychology is a tactic that takes advantage of customers’ emotional responses to certain price points. In fact, there are lots of theories wrapped around the fact that certain prices have a psychological impacts.

What’s even more interesting is that certain prices have a bigger psychological impact on customers than others.

Here are a few popular techniques that companies use intentionally throughout the holiday shopping season:  

Charm Pricing

Charm pricing is the technical name for the marketing magic that occurs when companies and even savvy small business owners label goods with a price tag ending in $0.99.

They also price items ending in nine before the decimal as well; $99 is a good example. (There just might be magic in that number!)

For example, if you’re in a toy store and a ride-on tractor is priced at $279.99, customers see that figure interpret it as $279, not $280, and may even mentally downgrade it to $270. You might have even had a conversation like that yourself:

You: “Honey, that’s a really expensive riding tractor. It’s $280.”

Your seven-year-old son: “Moooom, no, it’s only $270.”

To boot, retailers know that customers really do favor odd pricing over whole number pricing.


It all comes down to rational thought—consumers (this is you!) perceive that a shop employed a rational “thought process” in the pricing of whatever they’d like to buy.

Also, customers perceive odd pricing as a shop or business having priced the item at the lowest possible price. You may be unconsciously thinking, “Oh, they’re so nice. They saved me some money.”

Yep, sure they did.

If consumers see whole number price tags, they think they’re being overcharged.

For example, they might believe a cruise to Europe at $5,000 is a rip-off, but if it’s $4,999.99—they believe the cruise line worked super hard on their behalf to keep prices as low as possible.

When you’re shopping this holiday season, pay attention to the exact prices of items—and add tax to them.

Doing the calculations ahead of time and adding them up before you get the cash register will save you a major surprise when you’re caught in line with a huge bill.

Prestige Pricing Strategy

Here’s another interesting phenomenon: prestige pricing strategy. This is a pricing strategy that sets prices of luxury products to the expectations of a niche class of customers who associate higher prices with superior quality.

Conversely, these “niche” consumers associate low price with low quality, particularly when the brand name is not familiar.

Are you a customer who is willing to pay higher prices because of the perceived social benefits you’ll automatically receive by owning the product?

An extreme example of this concept in action could be of a wealthy couple who is willing to pay more for a certain brand of yacht because their friends have the same brand, instead of a just as nice brand that costs less.

Companies know where they stand in the market, regardless of whether or not their products are “better” than others, and price them accordingly. Do retailers know which lower-priced, off-brand items are just as high quality as the mega-expensive brands?


Does it matter? Not really.

Only a limited number of individuals can afford certain items, which adds to the items’ exclusivity and appeals to these customers.

Brands with expensive products, therefore, can unapologetically jack up prices and still sell them. It’s truly all about perception of quality and the mentality, “I’m in the club if I buy X.”

Read The Fine Print: It’s Everywhere!

You’ve scored an awesome deal on a brand new outfit at Macy’s. Armed with your coupon (which you carefully cut from the Sunday paper) you march to the check-out counter and deftly hand your coupon to the clerk.

“Oh, I’m sorry. We don’t allow this type of coupon for Doorbuster items,” the clerk says a little apologetically (with a little condescension, too).

You look at the fine print at the bottom of the coupon which is impossible for most humans to physically see without a magnifying glass.

“Oh,” you say.

The lady behind you in line sighs heavily, so you quickly say, “I’ll take it, anyway,” even though you feel way less excited about the purchase than you were initially.

The bottom line? Pay attention to fine print—and it’ll help you more effectively define your bottom line.

Buy One, Get One Free

Buy one, get one free could potentially be a trap—watch out! You’ll see this technique all the time with cereals, soaps, lotions, smaller products, etc.

During Christmas, this little scheme is everywhere.  

Retailers know that people naturally gravitate toward the word “free.” We intuitively might know that there may be no difference in the actual final price between two items, but we would psychologically do anything for that “freebie.”

In fact, if you walked around and did a street survey and asked people whether they’d rather buy an item half off or take advantage of buy one, get one free, it’s possible they’ll ask for free every time.

When you see that deal in a store, it’s also possible that you don’t really need two of the item you’re planning to purchase—so are you just getting suckered in by the great deal?

If you’re conscious of this great sales strategy, you may wind up with far fewer items you don’t need—because, remember, ultimately, you’re still spending money!

Comparative Pricing

Lots of stores highlight competitors’ higher pricing with their own. It also might be a risky maneuver for them, according to a study done and reported in the Stanford Graduate School of Business. Check it out.

Price matching is pretty common but many retailers limit or eliminate their price-matching policies during key times during the season. Therefore, it’s important to do your own homework and make your own comparisons, both online and in ads.

Here’s a quick example of all of Target’s “rules”: Target’s price match guarantee guidelines, limitations and exclusions.

These guidelines also say that items you’re price comparing have to be sold and fulfilled by select competitors—you can’t just assume Target will price match with any retailer under the sun.

Discounts Can Be Inflated

Retailers can set the “original” price of items to anything they want. For example, if Kohl’s and Bed, Bath and Beyond were to sell a Roomba, they might all have a tiny variation on the sale price—and on the original price. For example:

*Kohl’s: On sale for $324.99, originally $459.99! $135 off the original price!

*Bed, Bath and Beyond: On sale for $325.99, originally $465.99! $140 off the original price!

Here’s a wake-up call: The original prices can be inflated.

If you’re not carefully doing your homework, you could be lured into thinking that you’re “saving” more at Bed, Bath and Beyond because the it’s $140 off the originally priced Roomba.

However, you’re actually paying a dollar more on the actual price at Bed, Bath and Beyond.

By paying attention to the actual price of an item at different stores and comparing those only, your wallet may stay a little fatter.

*These are completely fictional prices listed for each retailer.

Stores Visually Highlight New Prices

Here’s another variation on highlighting the original price on items: Retailers actually keep the original prices on a new price tag. They cross out their old price and show the new price in bigger, bolder fonts. Font, size, color—it all preys on consumer psychology.

Retailers’ hope is that consumers will believe that the retailer is doing them a huge favor and that retailers truly do care about their wallets.

Again, the original price might not have been the original price at all—but inflated to make consumers believe they’re getting a major bargain.

“See, honey? Look how much the price used to be. We’re saving so much money!” (An actual conversation between a husband and wife at Kohl’s.)

Yep, they were truly suckered in.

Tricky Doorbuster Techniques

Door-busters definitely lure shoppers. I’m sure you’ll admit you’ve been enticed by a great Christmas deal or two.

But realize that once you’re in the store and bearing down on that specific doorbuster item, there are usually other related items around that make you think you’ll need to purchase those items, too.

For example: You see a coupon for a great doorbuster item in the Sunday paper. It’s a great deal on a down comforter for $99.99 (see the charm pricing at work?) and you head to Kohl’s to buy it.

Once in the store, you see some gorgeous reindeer-imprinted flannel sheets and a soft chenille blanket right next to the down comforter you wanted to buy.

Done and sold. You load all three items in your cart, and you’re happy—and Kohl’s is, too. Kohl’s sold you two more items that you had no intention of originally buying.

Doorbusters are also a tad misleading because while a store could offer a doorbuster, by the time you get to the store, they might have completely sold out of the item you wanted to purchase—because they only had three of that item to begin with.

Storewide Discount Pricing Strategy

Businesses also use storewide discount pricing to sell items. For example, they’ll lure you with a giant yellow “70% storewide sale!” sign with flashing lights—and you’ll then realize that not everything is actually 70 percent off. But then again, they got you in the store, didn’t they?

Other Psychological Tricks

There are a few more tricks that retailers use that have nothing to do with pricing—well, they do, but not in an outright way. They employ several tricky ways to lure you in, and then they psychologically woo you to get you to buy things.

Retailers intentionally do things like decorate their stores to the hilt so you’re guaranteed to stop in, capitalize on consumers’ fears of missing out on a major sale and revolutionize major marketing email campaigns to hype their products.

Staged To Dazzle

Does walking into a Pottery Barn at Christmastime cause you to forget why you walked into the store to begin with?

Yep, that’s intentional. Stores put their most beautiful, intricate, sellable, need-to-have-it items at the entrance for a reason. They’re trying to draw you in and keep you there.

The Christmas displays at stores like Pottery Barn or Williams Sonoma are irresistible—and you just want to stare, and stare, and buy, and buy.

Fear Of Missing Out Is Real

Retailers know that when they push a promotion—and this especially goes for Cyber Monday and Black Friday—that there’s a very real psychological phenomenon called the “fear of missing out.”

If they’re hyper-promoting a deal, they know that they’ll get some people snagged, whether their deal is even that great or not.

Many consumers (you?) feel major pressure to buy when stores heavily market. Green Monday is coming up, and it’s also an online shopping day very similar to Black Friday.

It happens the second Monday in December and 10 days before Christmas. Green Monday sales are high. They’re in the billion-dollar range because of—you guessed it—fear of missing out.

Retailers’ Email Hype

We know you’re aware of a particular feeling of panic you can get when you receive a certain type of marketing email from your favorite retailer.

For example, you might get a surprise in your inbox that says, “Best deal of the year! Sweaters for only $25! They’re going fast!”

It’s also totally geared toward causing you undue anxiety. (This is also reminiscent of when you’re booking airline tickets for a vacation and a notice pops up that reads, “Only two seats left on this flight.”)

Yes, it’s the fear of missing out combined with an: “I didn’t know I needed this but now I think I do,” instantaneous realization. It’s ingenious, and it’s an excellent marketing ploy to boot.

Don’t be taken in. There will always be more deals, just like there will always be more flight options and seats on planes for your next vacation.

Cheaper On The Website?

Be sure to check out all avenues for all products—including going directly to the source.

Here’s a good example: A certain Frugal for Less contributor was suckered in by Groupon’s canvas photo deals. She saw that Canvas on Demand was offering 16”x 20” canvas prints for $29.99.

She thought it was a steal, immediately purchased the Groupon, then immediately began searching for more Groupon deals, because she needed more canvas prints—just a different size.

A while later, she ended up on Canvas on Demand’s actual website, and saw that they were offering 16”x20” canvas prints for $24.50.

No kidding. The Groupon actually wound up costing more than if she had just gone to the company website and ordered there.

A Quick Psychological Check

We know you’ve been aware of these strategies all along, but it doesn’t hurt to bring them to the forefront of your mind so you’ll automatically realize when you’re being taken to the cleaners.

Don’t get us wrong—most of the time, these are actually really good deals, and if you’re intentional about your purchases, you should be just fine.

Also, it’s important to understand that the different types of retailers you’ll encounter in Columbus, Ohio compared to New York, New York, will be completely different.

Therefore, if you’re looking at online ads for a retailer that’s all over the country (think: Target) the same deals might only apply to “qualified locations.”

Consequently, pricing psychology campaigns will be completely different in one area of the country compared to another.

Try paying more attention to different pricing strategies, and don’t forget to do your research before you’ve even left the house.

When you get into the dazzling lights of department stores or other retailers, it’s easy to forget why you arrived at their door in the first place.

Can you think of other things that retailers do to make sure you’re buying things? Let us know in the comments below.

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