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Using psychological pricing: advantages and disadvantages for your business

Updated: Apr 29

Anne Borup, Author of the article.

Author: Anne Borup

Date of Publication: 10/12/2022

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Why use psychological pricing? Does it work? Is it worth spending time on? The answer to that is “definitely yes”. In this article, you will find a compilation of some beneficial psychological pricing methods and a brief review of the advantages and disadvantages of using these methods.

1. Charm pricing and prestige psychological pricing

The oldest trick – but an efficient one – is charm pricing, also called 99 pricing. An easy method that always works. Here, you simply end your prices with 99, making people think that the price is much less than it actually is. Since our brain reads from left to right (for most cultures), we see the number to the left first. Therefore, if you see an item with the price €199, you will instinctively feel like the price is closer to €100 than €200 since you read the 1 in 199 first instead of 2 in 200.The opposite of charm pricing, prestige pricing, has somewhat the same principle. However, instead of using 9s to implicate a low price, you should use round numbers ending with 0 to indicate a luxury, prestigious product such as jewelry or high-end fashion clothes.

2. Artificial time constraints

Have you ever seen an ad or a window sign saying “one-day sale” or “big sale – only today”? Then you have seen psychological pricing in the form of artificial time constraints. This is another way to boost your sales through psychological pricing since it gives your potential customers a false sense of urgency. This way, the customer will make an impulse purchase to avoid the feeling of missing out on a good deal that seemingly has a time limit. Moreover, a cost/benefit approach suggests that “non-monetary promotions are most likely to be framed as gains whereas discounts and rebates are as reduced losses”. Hence, the customer will feel like reducing or avoiding a potential loss by purchasing the product at a time when the product is on sale.

psychologic pricing strategy

3. Decoy pricing

This method includes providing your customers with several options to create reference prices. In other words, this pricing strategy aspires to guide the customer towards one specific product by presenting the customer with an inferior and a superior choice. When we have three options of different prices, we tend to choose the middle option and avoid the two extreme options.

The psychological reason here is that our brain instinctively will eliminate the cheapest option of the three because it seems inferior compared to the other two options. This happens whether the most affordable option actually meets our needs or not. Furthermore, we also eliminate the most expensive option because we subconsciously conclude that this option’s extra features are unnecessary and not worth paying extra money for. Hence, we instinctively go for the middle option due to the decoys.


There are some clear advantages of using psychological pricing in your business. First, psychological pricing leads to extended public attention when implemented effectively. Second, many of these methods are easy to apply if you as a marketer just do a little homework. Get to know your customers’ behavior and research your competitors’ prices as well.


However, there are also disadvantages of psychological pricing. Using psychological pricing can be a long-term process since the market doesn’t necessarily respond to your methods immediately. Furthermore, the essence of psychological pricing is the non-rational impact it has on customers’ minds. Nevertheless, some customer groups may be more rational than others. In this case, fractional figures such as charm pricing might result in more confusion for a rational buyer than otherwise.

In conclusion…

All in all, it is better to know the market and your exact target customer behaviors. Put simply, if your target customer group is rational, then round figures are beneficial as with prestige pricing. On the other side, if your target customer is from an irrational part of the market, the tips and tricks of psychological pricing mentioned above might be a good idea to try out.

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