Why do people willingly pay premium prices for some products while hunting for discounts on others? Why does a $99 product feel significantly cheaper than a $100 product, even though the difference is just one dollar?
Pricing isn’t just about numbers—it’s about psychology. The way you position and present your pricing directly influences how people perceive value, trust, and urgency.
If your pricing strategy is based only on cost and competition, you’re leaving money on the table. Instead, you need to structure your pricing in a way that guides consumers toward the decision you want them to make.
Pricing Isn’t About Cost—It’s About Perceived Value
Consumers don’t buy based on what something actually costs to produce. They buy based on what they believe it’s worth to them.
A handbag from Louis Vuitton and a similar one from a department store may use comparable materials, but the perceived value of Louis Vuitton is exponentially higher. This is why some brands command premium prices while others compete in a race to the bottom.
The key to effective pricing isn’t being the cheapest—it’s making sure your customers believe your price is justified, no matter how high it is.
Five Pricing Strategies That Increase Sales and Perceived Value
1. The Power of Price Anchoring
People don’t determine value in isolation. Instead, they compare prices against other available options—a phenomenon called anchoring.
If you see a bottle of wine priced at $100 next to one that costs $30, the $30 bottle suddenly feels like a bargain. But if that same $30 bottle were next to a $10 bottle, it would seem expensive. The first price people see sets their perception of what’s “reasonable.”
How to Apply This:
• Introduce a premium, high-priced option first to make lower-priced options seem more reasonable.
• If you offer multiple pricing tiers, place your highest-priced plan first so the others seem like a better deal.
• Retailers often use high-priced “decoy” items that make the main offer seem more attractive.
Consumers don’t pick the best price—they pick the one that feels most reasonable in comparison.
2. Charm Pricing: Why $99 Feels Cheaper Than $100
A price of $99.99 feels significantly less expensive than $100, even though the difference is negligible. This is called charm pricing, and it works because our brains process the first number in a price more strongly than the last.
Studies show that prices ending in .99 or .95 outperform rounded numbers because they create the illusion of a lower price. This technique is used across industries, from retail stores to digital subscriptions.
How to Apply This:
• If you’re targeting price-conscious buyers, use $9.99 instead of $10 to create a psychological discount effect.
• For high-end brands, avoid using charm pricing—it can make a product feel cheap rather than premium.
• Test the impact of round numbers versus .99 pricing based on your audience’s behavior.
Charm pricing works because people process left digits first and associate lower prices with savings.
3. The Decoy Effect: Guiding Consumers to Your Preferred Option
Consumers struggle to evaluate price and value on their own, so they rely on comparisons. By strategically introducing a decoy price, you can guide them toward the choice you want them to make.
A classic example is popcorn at the movies:
• Small: $5
• Medium: $8
• Large: $9
Most people wouldn’t buy the medium popcorn if only small and large existed, but when placed between the two, the medium option makes the large feel like a much better deal.
How to Apply This:
• Offer three pricing tiers with the middle tier designed to push customers toward the highest-priced option.
• Use a slightly higher “decoy” price to make your preferred choice look like the best value.
• Restaurants, software companies, and retailers use this trick to increase revenue per customer.
Consumers tend to choose the option that seems like the best deal relative to its alternatives.
4. Bundling: Why People Prefer Packages Over Individual Purchases
Selling products or services individually requires customers to weigh the value of each item, which can slow decision-making. When you bundle multiple items together, it reduces friction and increases perceived value.
This is why software companies package features into different pricing plans and why fast-food chains offer value meals instead of just selling a sandwich.
How to Apply This:
• Create product bundles that feel like a better deal than buying items separately.
• Use phrases like “Best Value” or “Most Popular Choice” to reinforce the appeal of bundles.
• For service-based businesses, bundle offerings into tiered packages rather than charging by the hour.
Bundling increases conversions by making the decision simpler and more compelling.
5. Psychological Discounts: How Limited-Time Offers Drive Action
A product that’s always discounted loses credibility over time, but when discounts are strategic and time-sensitive, they create urgency.
Limited-time offers work because people experience loss aversion—they don’t want to miss out on a deal. This is why countdown timers, flash sales, and exclusive discounts increase conversions dramatically.
How to Apply This:
• Use limited-time discounts with clear deadlines to encourage immediate action.
• Frame the discount in terms of loss (“Offer expires soon”) rather than gain (“Get 20% off”).
• Create exclusive offers for first-time buyers or loyal customers to make them feel valued.
Scarcity and urgency force people to act now instead of waiting.
How to Apply These Pricing Strategies to Your Business
Effective pricing is about shaping perception rather than just setting numbers. If you want to maximize sales and profitability, focus on how your pricing is framed, presented, and compared.
1. Use price anchoring to make your core offer look like the best deal.
2. Apply charm pricing to make prices feel lower than they actually are.
3. Introduce a decoy option to guide consumers toward your preferred choice.
4. Offer bundles to simplify decision-making and increase order value.
5. Use limited-time discounts strategically to create urgency without devaluing your brand.
Brands that master pricing psychology don’t just sell more—they increase profitability without lowering value.
What’s Next?
If you want to learn how to apply psychological pricing techniques to increase conversions and revenue, check out On Brand Behavior’s resources.
How do you feel about brands that use psychological pricing? Do you think it works, or do you see through it? Let’s discuss.