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4 Psychological Techniques That Can Improve Your Product Pricing The "decoy effect" introduces a "useless" price. Think about it during your next outing at the movies.

By Darian Kovacs Edited by Dan Bova

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It's no secret that successful marketers employ psychology in getting a sale. Sure, we humans love to think of ourselves as highly rational beings who weigh our options logically before making a decision; but several studies have confirmed the powerful role emotions play in purchasing. As Gerald Zaltman wrote in his book, How Consumers Think, 95 percent of purchasing decisions occur in the subconscious.

Related: 5 Strategies of 'Psychological Pricing'

What this means is that without understanding the buyer's emotions and driving beliefs, you'll have a difficult time getting them to do anything, including, and especially, handing you their money. Psychological pricing, however, appeals to the buyer's emotion, and its techniques can be used to strategically increase sales.

So, if you are looking to improve product pricing, here are four "classic" psychological techniques which can have a striking effect on consumer purchasing behavior.

1. The decoy effect: Introduce a "useless" price.

The "decoy effect" is a familiar term in marketing. Here, via an article on LinkedIn by conversion expert Jeremy Smith, is an example that starts with your arrival at the cinema for a movie, and your consideration of two price options for popcorn:

Small popcorn -- $3.00

Large popcorn -- $7.00

If you're like most people, you'll go for the $3.00. The reason is simple. You'll rationalize that you don't really need the large popcorn. Small will do. But the equation changes when a third option is introduced, like this:

Small popcorn -- $3.00

Medium popcorn -- $6.50

Large popcorn -- $7.00

Which one looks more appealing now? That's what the team at the National Geographic Channel investigated. They found that in the second scenario, most people went for the most expensive popcorn. When these people were asked the reason for their choices, they said that the difference between the medium and the large was only 50 cents. Who wouldn't want such a bargain?

Related: Mastering the Art of Pricing: What the Textbooks Don't Teach You

Gregory Ciotti, in his article on the Kissmetrics blog, on the same topic, explained what is going on here. He wrote: "The price in the middle, while seemingly 'useless' in there, didn't provide any value but was useful in getting customers to turn from 'bargain hunters' to 'value seekers.'"

In psychology, the action at play is called cognitive bias. That is the tendency of the human mind to make inaccurate judgments or believe distortions or other fallacies. The decoy effect was popularized by Dan Ariel during a TED talk describing an observation he'd made on the The Economist pricing page, which prompted him to initiate a study.

To apply this effect to your own product pricing, you need to identify the product whose sales you want to increase. Then create two more price points applying the decoy effect.

2. Bundling: Reduce the "pain of buying."

Buying comes with pain. A 2007 study conducted at Carnegie Mellon and Stanford universities found that prices that were set at unfairly high levels activated -- in study participants -- the part of the brain that's responsible for pain processing, while reduced prices activated the medial prefrontal cortex region, which is responsible for decision-making.

Bundling technique involves reducing this "pain of buying" effect by bundling items together into one package. That way, buyers are unable to judge individual items by a specific price.

Bundling is often employed with luxury products and is popular among car dealers. Car-sticker prices include extras like GPS and sunroofs among other options. But it can be used for other products, as well. Microsoft, for example, has applied this technique with its Microsoft Office Suite, as has McDonald's with its value meals.

Bundling technique requires some caution and strategic thinking, as customers will spend less if the bundling is done incorrectly. The key? To bundle without reducing value. For example, you should avoid bundling a cheap item with an expensive one because research shows that consumers will actually pay less for such a bundle.

3. Anchoring: Give the user "a deal" by using a reference price.

This technique is perhaps the most widely applied psychological technique. Its basis is that consumers subconsciously generate a reference price against which they judge your price as being either high or low. But price is relative. By influencing that reference price, you can trigger a more receptive perception of your price.

As an example, consider the anchoring technique behind those ubiquitous strikethroughs of old prices seen at retail stores:

Jeans -- $19.89 (imagine this price crossed out and followed by): $16.89

This way, the old price of $19.89 is anchored in the buyer's mind, so $16.89 looks like a deal.

Again, Jeremy Smith addressed this psychological pricing technique. In a detailed article, he explained anchoring this way: "The anchoring effect happens when people make a decision based on the first information that they encounter." Smith then pointed out that anchoring can be applied beyond just slashing retail prices.

Apple, for example, anchors the "feel" of its iPhone Mini 3 on the buyer's mind, to shift the focus from other elements such as price or product specs.

When you include a price table, showing the most expensive product first creates a similar effect, so the buyer uses the first price as a reference for subsequent prices.

To apply this technique to your own product pricing, fix the price you want to anchor in the buyer's mind, and position it as the first price the buyer sees or hears.

4. Foot-in-the-door technique: Get a small "yes"; then ask for the big "yes."

Research on this technique was reported by Jonathan Freedman and Scott Fraser in 1966. In the study, subjects were split into two groups. One group was asked to put a small sticker promoting safe driving on their cars. The other group was not contacted.

Two weeks later, both groups were again contacted and given a larger request. This time, they were asked to put up a huge sign on their lawns promoting safe driving.

The researchers found that those who had carried out the first request were significantly more likely to perform the second larger request.

Today, this technique is applied in several ways in marketing. A common example occurs in lead generation: Advertisers ask for an email address in exchange for a free ebook. Once those advertisers have gained entry to their prospects' inboxes, they can gradually build up to larger requests such as asking prospects to buy a premium ebook.

The psychology behind this is compliance and several theories have attempted to explain it. One theory says that once people have performed the first request, they get a new self-image as someone known to perform that kind of action. They are then more likely to perform a large request in the same line. Another reason is consistency: People want to be consistent in their actions.

In pricing, an application of this technique occurs with free trials of a product: "Try it free, no credit card required." Once people are using a product in a free way, it's easier to get them to "upgrade," or pay for it.


The beauty of marketing in a digitized world is that it is easy to track what you do. Although these techniques are effective, some might be better for your business than others.

Related: 10 Pricing Strategies That Can Drastically Improve Sales

The only way to find out what works best is to A/B test different techniques until you find the combination that hits home and sells the product or service you're offering.

Darian Kovacs

Principal and Director of Strategy, Jelly Marketing

 Darian Kovacs is the principal/director of Strategy at Jelly Marketing and a marketing professor at Trinity Western University. He has worked with various local, national and global brands building and executing on their digital and PR strategy. Recently, he taught a series of series of workshops for the BBB on the topics of social media, digital ads and public relations

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