Psychology of pricing

Heading home on the bus today, I was thinking about whether I would be more likely to buy something priced $9.99 over something priced $10.00. And even though I KNOW in my mind that this is a trick (that before I left the store I would be paying far more than $10.00 after tax), somehow the penny difference means I would be more likely to buy it. I even remember times when I was pleased with myself about buying something and telling Smart Guy that it was "just a little over $9," as if he would have cared. I was just kidding myself.

Once I got home I hit the Internet, looking for the reason behind this phenomenon, and it was of course easy to find. But I discovered some things I never knew before. First of all, I learned that there are established rules for pricing, one being that you never price something ending in 0 or 1. End your price with a 5, 7, 8 or 9. I also found this humorous picture of a "markdown" price by sylvar on Flickr. You know, if I wasn't paying strict attention, I might have fallen for this one myself!

I also learned about "decoy" marketing. On a website called "Neuromarketing: Where Brain Science and Marketing Meet," I discovered an interesting experiment using magazine subscription offers:

Two groups of subjects saw one or the other of these offers to subscribe to The Economist.

Offer A:
$59 – Internet Only Subscription (68 chose)
$125 – Internet and Print Subscription (32 chose)
Predicted Revenue – $8,012

Offer B:
$59 – Internet Only Subscription (16 chose)
$125 – Print Only Subscription (0 chose)
$125 – Internet and Print Subscription (84 chose)
Predicted Revenue – $11,444

Take a moment to look at this rather startling result. Both offers are the same, with the exception of including the “print only” subscription in Offer A. Despite the fact that not a single person chose that unattractive offer, its impact was dramatic – 62% more subjects chose the combined print and Internet offer, and predicted revenue jumped 43%. The print-only offer was the decoy, and served to make the combined offer look like a better value. While it’s true that Ariely’s test had the subjects make the choice without actually consummating the deal with a credit card, it’s clear that introducing the decoy made the combined offer look more attractive.

I don't know about you, but it irks me that I would have actually fallen for this ploy. Psychology is used to tempt us to buy things we really don't need or want all the time. I see it on TV and in print, and I am just as susceptible as the next person. This gives me even more incentive to be vigilant about only purchasing what I really need.

What does this mean for those of us who really hate to get pennies in change? For one thing, it means that the penny will be with us (here in the United States at least) for a long, long time. Now the trick is to find out what to do with all those extraneous pennies. Hmmm. Maybe I'll do something like this:

:-)