Ten Easy-To-Apply Behavioural Science Approaches For Smarter Pricing, Greater Customer Persuasion And Enhanced Profitability

The report consolidates a variety of research carried out in Europe, Canada and North America over the past ten years. It offers evidence-backed, low-cost, and easy-to-apply tactics for enhancing pricing power and profitability.

Sophie Bailey, Managing Director, Acuity Pricing, said: “Today, pricing success comes from being informed and intentional; using data not just to keep up with the market, but to lead it. This study explores how the quirks of human decision-making can be powerful tools for smarter pricing, and greater persuasion.” 

Richard Shotton, Behavioural Scientist and Author, added: “It’s tempting to base pricing on the assumption that we, people, are rational calculators who calmly weigh cost and value. But the reality is, humans don’t shop with spreadsheets – we shop with shortcuts and subconscious biases.”

The ten key behavioural insights on how to set retail prices and how to reduce price sensitivity outlined in the paper are:

How to Set Prices:

• Present Bias: What happens in the present matters much more to people than what happens in the future. Shoppers are less price-sensitive if payments are pushed into the future. Brands could allow customers to pay in installments or offer a lower initial payment followed by higher payments.

• Charm Pricing: 0.99 prices boost sales without negatively impacting perceived quality, due to the “left-digit effect.” Research by US e-commerce platform Gumroad found that 51% more sales converted when the price ended in .99 rather than a round figure. Research by Leuphana University of Lüneburg, Germany, also found that prices ending in nine were perceived as significantly better value, leading to higher purchase intentions and, importantly, had no effect on perceived product quality.

• Precise Pricing: Related to charm pricing, specific prices (e.g., $20.12 rather than $20) are perceived as more trustworthy and less inflated than rounded ones, allowing for higher charges without dampening demand.

How to Reduce Price Sensitivity:

• Price Relativity: People judge prices relative to those of similar products, rather than in absolute terms. By controlling the comparison set (e.g., highlighting a pre-discount price or framing next to a higher-priced competitor) presents brands with an opportunity to shape the context in which prices are viewed. 

• Extremeness Aversion: When given three differently priced options, people tend to choose the middle one, assuming the cheapest will be of less quality and the more expensive overpriced. If brands offer a two-tier pricing option, consider introducing a third to drive sales up and increase profit margins.

• The “Order Effect”: Placing higher-priced items first on lists makes subsequent prices seem more reasonable due to the anchor effect – the first price people see is disproportionately influential. When selling items on a shop floor, by placing high-ticket items prominently, e.g. near the door, other items will seem cheaper.

• Decoy Effect: Choosing between two products can be tricky for people if the options vary on attribute, such as price and size. Introducing a third, less appealing option (the decoy) can make a target offering seem more attractive and simplify decision-making.

• Unit Reframing: People focus on the size of the number. Expressing prices in the smallest possible unit (e.g., per serving or daily cost) makes them appear more appealing.

• Differential Price Framing: Price framing is another way to ensure the number shown is the smallest possible. Showing the additional cost for an upgrade rather than the total new price increases adoption of higher-priced offerings.

• Price as a Badge for Quality: Price influences the perceived and actual experience of a product. Frequent or steep discounts may be a tempting way to boost sales in the short run, but can damage quality perceptions over time.

Acuity Pricing’s ‘The Hidden Mind on Pricing’ report is available to read in full here.