The Psychology of Pricing: How to Set Prices That Attract Customers and Increase Profits

Pricing is more than just assigning a number to a product or service—it’s a strategic tool that influences customer behavior, perception, and profitability. Understanding the psychology behind pricing can help small businesses attract more customers, increase sales, and maximize profits without necessarily lowering prices.

In this week’s blog post, we’ll explore key pricing strategies backed by psychology and how you can apply them to your business in 2025.

1. The Power of Charm Pricing ($9.99 vs. $10.00)

Ever wonder why so many prices end in .99 instead of rounding up? This isn’t just a random marketing trick—it’s a proven psychological effect known as “charm pricing.”

Why it works:

• Customers tend to perceive prices ending in .99 as significantly lower than the next whole number, even if the difference is just one cent.
• The brain processes numbers from left to right, so “$9.99” feels closer to “$9” than “$10,” making it appear like a better deal.

How to use it:

• If you sell products, experiment with prices ending in .99 or .95 to see if they drive more sales.
• Use whole numbers for premium services (e.g., $100 instead of $99.99) to communicate value and luxury.

2. The Anchoring Effect (Setting a High Starting Price)

Customers often rely on the first number they see—the “anchor”—to make pricing decisions. A higher anchor makes subsequent prices seem more reasonable in comparison.

Why it works:

• When customers see an expensive item first, the next items feel like a bargain—even if they’re still pricey.
• High anchor prices create perceived value, making mid-tier options seem like the best deal.

How to use it:

• Set a high-priced option first on your pricing menu (even if it’s rarely purchased) to make mid-range options more attractive.
• Bundle products or services and present the higher-priced bundle first before revealing the lower-cost options.

Example: If you offer consulting packages, start with a premium $5,000 plan before introducing the $2,500 or $1,000 options. The lower-cost options will feel like a better deal in comparison.

3. The Decoy Effect (How One Extra Option Can Boost Sales)

The decoy effect happens when businesses introduce a third option designed to make one of the original choices look more appealing.

Why it works:

• When given two options (e.g., Small Coffee: $3, Large Coffee: $6), customers often choose the cheaper one.
• But adding a “decoy” (Medium Coffee: $5.50) makes the Large Coffee seem like a much better deal for just 50 cents more.

How to use it:

• Offer a third pricing option that is strategically placed between two others to guide customers toward the most profitable choice.
• In subscription-based businesses, introduce a mid-tier plan that makes the premium plan seem like a smarter investment.

4. Bundling: The Art of Perceived Savings

Bundling groups multiple products or services together at a slightly reduced price, creating the perception of higher value.

Why it works:

• Customers feel they’re getting more for their money, even if the discount is minimal.
• Bundles encourage customers to buy more than they initially planned.

How to use it:

• Offer “Buy One, Get One 50% Off” deals to encourage multiple purchases.
• Create a “Starter Bundle” that includes a mix of popular products at a slightly reduced price.

Example: If you sell business coaching services, bundle a 1-hour session with an eBook and a follow-up call for a “special bundle price” that is more attractive than buying each item separately.

5. Scarcity and Urgency (Act Now or Miss Out!)

People are more likely to make a purchase when they believe an item is in limited supply or a deal is ending soon. This taps into FOMO (Fear of Missing Out) and motivates quicker decision-making.

Why it works:

• Scarcity increases perceived value (“Only 3 left in stock!”).
• Urgency reduces procrastination (“Sale ends in 24 hours!”).

How to use it:

• Use countdown timers for special promotions.
• Show limited stock messages (“Only 2 left at this price!”).
• Offer flash sales with a short time window to create urgency.

Final Thoughts: Pricing is More Than Just Numbers

Understanding pricing psychology allows small businesses to strategically influence customer behavior without resorting to constant discounts. By implementing tactics like charm pricing, anchoring, bundling, and urgency, you can drive higher sales while maintaining profitability.

Key Takeaways:
✅ Use charm pricing (.99) for affordability and whole numbers for premium appeal.
✅ Set high anchor prices to make mid-tier options look more attractive.
✅ Introduce a decoy option to steer customers toward the most profitable choice.
✅ Bundle products or services to increase perceived value.
✅ Create urgency with limited-time offers and scarcity messaging.

At BizAccountants, we know that smart pricing is just one part of running a profitable business. Need help optimizing your finances and tax strategy? Contact us today for expert advice!

📢 What do you think? Have you tried any of these pricing strategies in your business? Let us know in the comments!