5 Pricing Strategies All Savvy Shoppers Know

When you go out to shop for, say, a new side table, what’s going through your mind? Style, definitely. Your budget, probably. Then you might have some thoughts about the abstract concept of value; if the price on the price tag is “worth it” or not. But do you know what your local big box retailer was thinking about when they set that price? Psychology.

Standard economic principles would predict that shoppers would pay the same price for the same pillow at two different stores. Or that a lamp priced at $25 will sell more than the same one priced at $29. But studies have shown that’s not the case.

In the reality that exists outside of Econ textbooks, people are terribly irrational. Smart retailers have learned how to take advantage of our brain’s subconscious impulses while shopping. Once you know the tricks that stores use to get you buying more, you’ll learn how to spend less.

Go to any store, anywhere, and you’ll see prices ending with the number 9. The idea is that buyers percieve more value in an item that costs $49 over an item sold for $50, even though the prices are essentially the same to the retailer. You’d think most people wouldn’t fall for such a simple sleight of sum, but they do. MIT and the University of Chicago conducted an experiment asking two retailers to price identical items of clothing at three different prices—$34, $39 and $44—in different versions of their catalog. The $39 item sold the best, even above the same item at the cheaper price of $34.

How to beat it: Train your brain to avoid getting tricked. Although in real life you won’t likely see as much of a clear-cut example as the one presented in the MIT study, you’ll have a better perception of cost if you learn to mentally associate a $39 price as something that costs $40.

The same MIT study cited above went on to test another pricing theory: Does the perception of a discount inspire people to buy? In a second experiment, researchers presented two prices for an item in different catalogs: One cost $39, and the second was on sale for $40 from its regular price of $48. The sale price tag inspired more people to buy than the actually lower price. When combined with the rule of 9’s (a sale price of $39 marked down from $48, compared to a regular price of $39), the effect on buyers is even more dramatic.

How to beat it: Try not to let the regular price of a sale item affect your perceived value. When comparing two different purchases, weigh them based only on the actual cost to you. While it’s tempting to think you’re getting a better product for a lower cost, its possible the sale item was always meant to be on sale.

You might have used this idea yourself to get what you want without even realizing it. Here’s the gist: Offering an extreme option (“Honey, let’s buy a new sofa!”), makes a second option seem more reasonable by default (“OK, how about just this table then?”). Conversion XL sums it up well: “Once you’ve seen a $150 burger on the menu, $50 sounds reasonable for a steak.”

How to beat it: Think about your purchases in a vaccuum. A $100 pillow isn’t cheap just because it’s sitting on a $20,000 sofa.

According to a reasearch study called Comma N’ Cents in Pricing (published in the Journal of Consumer Psychology) longer prices seemed drastically higher to consumers. “Longer” in this case, means prices that have a larger character count, meaning the prices take longer to pronounce. When these three prices were shown to consumers:

• $1,499.00
• $1,499
• $1499

…they percieved the first two price tags to have a higher cost than the last.

How to beat it: A single store will likely use a consistent format for its prices. But if you’re comparing costs across different retailers, don’t get fooled by character count.

Economist Richard Thaler designed an experiment specifically to test the kind of human economics at odds in this post. In one experiment, detailed in a profile of Thaler from The New York Times Magazine, Thaler “told lab subjects to imagine they are stranded on a beach on a sweltering day and that someone offers to go for their favorite brand of beer. How much would they be willing to pay?” The subjects routinely agreed to pay more for the same beer if it was coming from a ritzy hotel than a grocery store. In other words, the context of where the item is sold affects its value to buyers.

How to beat it: Shop around. Certain products (a basic white t-shirt comes to mind) can vary in quality depending on where they’re bought. But don’t ever pay more for the exact same product just because it’s from a pricier store. An app like RedLaser or Smoopa can help you find the lowet prices by scanning a barcode. And while you’re out: All the add-ons you know come standard—adapters, HDMI cables, lightbulbs—buy them online.