How Products Are Priced - The Psychology Of Pricing

Summary

This video delves into the psychological intricacies of product pricing, revealing how charm pricing, exclusive pricing, and visual tactics subconsciously influence consumer decisions. It illustrates how companies like Apple sell lifestyle and social status, while tactics such as using small fonts for prices or breaking down costs can make products seem more affordable. The video also discusses the strategic use of specific numbers versus rounded figures in pricing, emphasizing the complex interplay between perceived value, exclusivity, and emotional appeal in the world of pricing.

Takeaways

• 💡 Charm Pricing: Prices ending in 99 or 95 make products seem cheaper by reducing the perceived leading number.
• 🍏 Anchoring Effect: Our brains use the first number as an anchor to perceive the cost, influencing our buying decisions.
• 🏷️ Exclusive Pricing: Brands like Apple sell a lifestyle and social image, where higher prices convey exclusivity and financial status.
• 👜 Luxury Perception: Consumers often associate higher prices with better quality, even if the actual difference is minimal.
• 🔍 Visual Tactics: Small font prices make products seem less expensive, while large tags on discounted items suggest greater savings.
• 📉 Comma Omission: Removing commas from large prices can make them seem smaller by influencing how we read the numbers.
• 📈 Specific Pricing: Using specific numbers in pricing can be perceived as more honest and less negotiable.
• 📊 Breaking Down Costs: Dividing total costs into smaller, more frequent payments can make them seem more affordable.
• 💍 Emotional Purchases: Round numbers are preferred for emotional purchases like jewelry, where higher prices are seen as more prestigious.
• 🔑 Psychological Complexity: Pricing strategies are complex and vary based on the product, price, and consumer emotions.
• 🛒 Awareness of Pricing: Consumers are encouraged to be more aware of the psychological tactics used in product pricing.

Q & A

What is charm pricing and how does it influence consumer perception?

Charm pricing is a pricing technique where the price ends in 99 or 95, making the leading number one less than the next place value. It reduces the perceived cost by using the first number as an anchor, making products seem like a greater value and increasing the likelihood of a purchase.

How does exclusive pricing work and what is an example of it?

Exclusive pricing is when consumers prefer to pay a higher price for a product that is perceived as exclusive or luxurious. An example is Apple, which sells products not just for their specs but for the lifestyle and social image they represent.

Why do some companies avoid using commas in their large price tags?

Companies avoid commas in large price tags to influence how we read the numbers. Without a comma, we are more inclined to read the number as smaller, making the product appear cheaper than it is.

What is the psychological effect of using specific numbers in pricing?

Using specific numbers in pricing, such as twenty nine thousand six hundred fifty-four dollars and 37 cents, is associated with honesty. It makes consumers believe that the company is not trying to overcharge, making them less likely to negotiate.

Why do companies use small font for high-priced products?

Using a small font for high-priced products is a visual tactic. Our brains perceive the cost of a product not just by its numerical value but also its physical size, making the price seem less imposing.

How do companies make monthly subscription costs seem more appealing?

Companies break down the total price of a product into smaller, daily or per-use quantities, making it seem like a better deal. For example, a gym subscription of nine dollars a month might be advertised as just three dollars a day.

What is the purpose of using words associated with smallness for high-priced products?

Using words that imply smallness, such as 'versatile' and 'low power consumption', can make high-priced products seem more appealing by focusing on less expected characteristics that add value.

Why might a company choose to price a product at a rounded number instead of a specific one?

In cases where the purchase is emotional, such as with jewelry, rounded numbers can make the product seem more expensive, which can be appealing to consumers who are proud to pay more for such items.

What is the impact of the psychology of pricing on consumer buying decisions?

The psychology of pricing significantly influences consumer buying decisions by subconsciously affecting their perception of value, exclusivity, and emotions associated with a product.

How can understanding the psychology of pricing help consumers when shopping?

By understanding the psychology of pricing, consumers can be more aware of the tactics used by companies and make more informed decisions, potentially avoiding the subconscious influence of pricing strategies.

What are some common pricing strategies used by companies across different price ranges?

Common pricing strategies include charm pricing, exclusive pricing, visual tactics like font size, using specific numbers for perceived honesty, breaking up total prices into smaller quantities, and choosing between rounded or specific numbers based on the product and the emotional context of the purchase.

Outlines

00:00

💰 The Art of Pricing: Psychological Strategies

This paragraph delves into the psychological aspects of product pricing, highlighting how consumers are influenced by various pricing techniques. Charm pricing, where prices end in .99 or .95, is explained as a strategy to make products seem cheaper by reducing the leading number. The concept of exclusive pricing is introduced with Apple as an example, where consumers pay a premium for the social image and lifestyle associated with the brand, rather than for the product's technical specifications. The paragraph also touches on visual tactics like font size for prices and the use of commas to influence perception, as well as the effectiveness of breaking down total costs into smaller, seemingly more manageable quantities, such as monthly subscription fees.

05:02

💎 Emotional Pricing and the Psychology of Value

The second paragraph explores the emotional side of pricing, particularly in the context of luxury goods like jewelry. It discusses how consumers are more likely to pay higher prices when the purchase is emotionally driven, valuing the product based on personal preference rather than cost. The paragraph also examines the use of specific versus round numbers in pricing, suggesting that specific numbers can convey honesty and discourage negotiation, while round numbers might be preferred in emotionally charged purchases to maintain a perception of higher value. The video concludes by emphasizing the complexity of pricing psychology and encourages viewers to be more aware of the strategies used by companies when shopping.

Keywords

💡Pricing Strategy

Pricing strategy refers to the method businesses use to set the price of their products or services. It is a crucial aspect of marketing that can influence consumer behavior. In the video, the theme revolves around various pricing strategies such as charm pricing and premium pricing, which are used to manipulate consumer perceptions and buying decisions.

💡Charm Pricing

Charm pricing is a psychological pricing technique where prices end in .99 or .95 to make products seem cheaper. The video explains that this method reduces the leading number, creating an anchor in the consumer's mind that the price is less than it actually is, as seen with the example of $1.99 making the product seem less than $2.

💡Anchoring

Anchoring is a cognitive bias where the first piece of information encountered influences subsequent judgments. The video describes how consumers use the first number in a price as an anchor, which affects their perception of the product's value, making charm pricing effective.

💡Exclusive Pricing

Exclusive pricing is a strategy where products are priced higher to convey a sense of exclusivity and luxury. The video uses Apple as an example, stating that consumers are willing to pay a premium for the perceived social image and lifestyle associated with owning Apple products, despite not always offering the latest technology.

💡Perceived Value

Perceived value is the consumer's assessment of the worth of a product or service in relation to its price. The video discusses how pricing strategies like charm and exclusive pricing can increase perceived value, making consumers more likely to make a purchase.

💡Visual Tactics

Visual tactics refer to the use of design elements to influence consumer perception. The video mentions that presenting prices in small fonts or without commas can make them seem less intimidating and more affordable, which ties into the overall theme of psychological pricing manipulation.

💡Discount

A discount is a reduction in the price of a product or service. The video explains that large physical price tags are used to signify discounts, influencing the perception of value and making consumers more likely to buy.

💡Specific Numbers

Specific numbers in pricing, such as $29,654.37, are used to convey honesty and precision. The video suggests that consumers perceive these prices as less negotiable and more trustworthy, leading to higher likelihood of sales.

💡Round Numbers

Round numbers, like $28,999, are often used in pricing to simplify the decision-making process for consumers. The video contrasts this with specific numbers, noting that in some emotional purchasing contexts, round numbers can make products seem more expensive and desirable.

💡Monthly Plans

Monthly plans are a pricing structure where consumers pay a fixed amount per month for a service. The video uses gym subscriptions as an example, explaining how breaking down the total cost into a per-day rate can make the plan seem more affordable, even if the actual usage doesn't justify the cost.

💡Emotion in Pricing

Emotion in pricing refers to the influence of emotional factors on the pricing of products, particularly in the context of high-value or sentimental purchases. The video mentions that in cases like jewelry, consumers are more likely to pay a premium based on their emotional connection to the product, rather than just the price.

Highlights

Product pricing is a psychological manipulation technique influencing daily buying decisions.

Charm pricing, ending in 99 or 95, reduces the leading number's perceived value.

The anchor value in pricing affects perception, making products seem like a greater value.

Exclusive pricing leverages the desire for high-priced exclusive products like Apple's.

Apple sells a lifestyle and social image, not just products.

Luxury brands use premium pricing to sell exclusivity over value.

Visual tactics like small font prices make products seem cheaper.

Large physical price tags are used to highlight discounts.

Removing commas from large prices influences how we read and perceive the cost.

Associating smaller numbers with high-priced products makes them seem more affordable.

Breaking up the total price into smaller quantities can make products seem less expensive.

Monthly subscription costs are often presented as lower per-day costs.

Specific pricing, rather than round numbers, is seen as more honest and less negotiable.

Emotional purchases like jewelry benefit from round numbers to appear more prestigious.

The psychology of pricing is complex and varies based on price, emotions, and product type.

Different pricing strategies are used across all price ranges and companies.

Pricing strategies include selling value, exclusivity, or emotions depending on the context.

The video provides an overview of the psychology of pricing with practical examples.

Transcripts

product pricing is a masterful

psychological manipulation technique

that we're exposed to on daily basis

from simply picking up a gallon of milk

for $1.99 to pre-ordering an iPhone for

$9.99 we try to make buying decisions

based on value use and longevity but

despite our best efforts these pricing

games subconsciously affect all of our

buying decisions

considering this how exactly our

products priced

[Applause]

starting off we have the most blatant

pricing technique charm pricing charm

pricing is when the price ends in 99 or

95 charm pricing is less about the

ending number and more about reducing

the leading number by one this is

especially effective for prices that are

just under a new place value like 10 100

or 1000 dollars our brains use the first

number as an anchor and used this to

perceive the cost of the certain product

when we see the price $1.99 the anchor

value is one rather than two despite the

actual cost being nearly two dollars by

reducing the perceived cost companies

are able to make their product seem like

a greater value test increasing the

likelihood of a conversion next up we

have exclusive pricing logically we want

the best value for the cheapest price

but in practice we often prefer getting

exclusive product for a higher price the

best example of this is Apple they don't

offer the best specs or the latest

technology in fact they often lag behind

the market whether it's a LED

implementation or ddr4 Ram but this

doesn't stop Apple from selling millions

of iPhones and Mac books the thing is

Apple isn't selling your phones or

laptops for selling a lifestyle and a

social image people are well aware of

how expensive Apple products are and

owning an Apple product will display

that you are financially stable and even

wealthy and this perceived image is what

sells Apple products as well as all

luxury brands our Rolls Royces really

four times as luxurious as Mercedes s

classes our organic foods really twice

as healthy as normal food and after

designer brands this really needs an

explanation

overall with premium pricing companies

try to get consumers to buy their

products based on exclusivity rather

than value moving on let's take a look

at a few visual tactics riding prices in

a small font is a popular technique used

by many companies our brains perceive

cost of a product not just by numerical

value but also its physical size

conversely discounters products

have large physical price tags as this

is perceived as a larger discount

speaking of larger prices you may have

noticed at large prices generally don't

have commas this is designed to

influence the way we coop the numbers in

a price if there was a comma we are more

likely to read this number as 2399 but

without a comma

we are aspired to read it as $23.99 by

associating smaller numbers with larger

prices companies make their products

appear cheaper than they really are

similar to this companies also share

words that mean small with high priced

products for instance if you were trying

to sell a $1500 phone instead of

advertising as high performance and high

capacity which are characteristics

consumers would already expect it is

much more effective to say 10 versatile

and low power consumption another

pricing technique used is breaking up

the total price of product into smaller

quantities this is especially popular

with monthly plans whether subscriptions

or installment payments for example a

gym that charges nine dollars a month

may advertise her subscription cost as

just three dollars a day this doesn't

sound nearly as bad and makes it seem

like a per visit cost is only three

dollars but the thing is it is unlikely

you go every single day the average

person would be lucky if they went just

ten times a month so the per visit cost

is actually three times more at nine

dollars similarly most gyms don't even

offer a nearly subscription because you

are less likely to renew given a higher

upfront cost following up for large

prices it is very effective to offer

specific pricing rather than round

numbers for example it's better to price

a car at twenty nine thousand six

hundred fifty four dollars and 37 cents

rather than just simply twenty eight

thousand nine hundred ninety nine cents

though you're offering a higher MSRP the

higher price is more likely to lead to a

sale this is because people associate

specific numbers with honesty they think

since you went through a trouble to come

up with a specific price you're not

trying to rip them off and so they're

less likely to negotiate the

around 28,000 $999.99 is perceived as

having a much larger markup

despite actually being cheaper however

in cases where purchase is emotional it

can actually be helpful to choose ground

numbers this is often the case in

jewelry in such cases the buyer has

already decided to buy the product

whether a wedding ring or a wedding

dress here people's budgets are much

more flexible and they choose to buy a

product based on how much they like the

product rather than the price as a

result you want the prices seem higher

as this is one of the few cases that

people are actually proud to pay more as

people are proud of these purchases as

you can see the psychology of pricing is

a very complex subject as a rules and

strategies vastly differ based on the

price emotions and a product itself

sometimes you want round numbers

sometimes you want specific numbers and

other times you want charming numbers

similarly sometimes you're selling value

while other times are selling

exclusivity or emotions but these are

some of the most commonly used pricing

strategies across all price ranges and

all companies use a combination of them

so next time you're shopping take a

closer look at the price because I

assure you there is more going on than

what meets the eye if you guys thought

this video gave a good overview of the

psychology of pricing then make sure

drop a like and consider subscribing to

see more questions logically answered

but until then I'm hari I'll see you

guys on the next one