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Guard Yourself Against These 4 Pricing Strategies

Every time you step into a physical store or visit an online store, you are bombarded with pricing strategies. These strategies are employed to entice you to purchase more than you intended. Having a general knowledge of pricing strategies can make you become a wiser consumer and reduce the likelihood you will overspend.

What are some common pricing strategies? Here are four:

1. Odd Pricing. $12.99, $24.97. This doesn’t actually work, does it? It does. Studies reveal that if you price something at .99 instead of 1.00, sales will be 10% to 30% higher. Mentally the distance between 12 and 12.99 feels less than the distance between 12.99 and 13. Why? We latch on to that first number, the 12 and 13.

This simple pricing strategy has shown to be effective for many years. So, don’t be swayed by the one cent difference. Let rational thinking prevail.

2. Price anchoring. Is a product cheap or expensive? Neither. It’s relative. Consider this—the same purse is available for $50 in two different stores. In the first store, the price tags says that it should sell for $40. How do you think customers in that store feel about the purchase? In the second store, the price tag says is should sell for $100. Now, how do you think customers feel in the second store feel?

Everyone likes to get a good value for their purchase. Retailers know this. Therefore, many retailers do something called price anchoring. Price anchoring establishes a price point to which customers can refer when making purchase decisions. Price anchoring can make a customer feel excited about buying a $50 purse because the anchor price was $100. But in reality, $50 was exactly what the store wanted you to spend all along.

3. Precise numbers. Which is a better deal: A house that costs $300,000 or a house that costs $327,850? Even if the homes are similar in size, location, quality, and presentation, many will assume the home selling for $327,850 is the better deal. Weird, right?

Price numbers make consumers assume that more thought has been put into the price and is therefore more accurate. The buyer will assume there are factors the seller knows about the home the buyer does not. So, even if a home is comparable, the buyer may view the home with a more precise number as a better deal.

4. Buy now, pay later. The buy now, pay later strategy is rapidly growing, leaving some in financial distress. This strategy takes the purchase price of an item and divides the price into multiple, equal monthly payments, creating an installment loan. The strategy leverages consumers’ desire for immediate gratification by allowing consumers to purchase items they might not be able to afford immediately.

As an example, a pair of pants may cost $100. If the consumer is unable to pay $100 now, they can instead opt for four monthly payments of $25.

So, what is the risk? First, if a payment is missed, interest and fees may be applied. Second, the consumer can accumulate several small payments over time, creating significant future financial strain.

Pricing strategies are all around you. Be a better steward of your resources by becoming more aware of how they can lure you in to making purchase decisions that negatively impact your financial health.


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