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Does Psychological Pricing Actually Work?

Its been 2 months since we last had the developer’s tips, and we are back again! Today, we take a look at psychological pricing for applications, but wait, what is that exactly? Psychological Pricing is a pricing/marketing strategy based on the theory that certain prices have a psychological impact. The retail prices are often expressed as “odd prices”: a little less than a round number, e.g. $19.99. The theory that drives this is that lower pricing such as this institutes greater demand than if consumers were perfectly rational. But does this actually work?

The psychological pricing theory is based on one or more of the following hypotheses:

  • Judgments of numerical differences are anchored on left-most digits, a behavioral phenomenon referred to as the left-digit anchoring effect. This hypothesis suggests that people perceive the difference between 1.99 and 3.00 to be closer to 2.01 than to 1.01 because their judgments are anchored on the left-most digit.
  • Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored. Keith Coulter, Associate Professor of Marketing at the Graduate School of Management, Clark University suggests that this effect may be enhanced when the cents are printed smaller (for example, $1999).
  • Fractional prices suggest to consumers that goods are marked at the lowest possible price.
  • When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.

In essence, yes, it does work, as you can see in the infographic, using the “charm” or psychological pricing, you can actually garner a better price for your application as opposed to using a lower “rounded” price.

I hope these series of developer infographics have been useful, but until the next series!

Category: Developers

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