
The Psychology of Pricing: A Gigantic List of Strategies - nkolenda
http://www.nickkolenda.com/psychological-pricing-strategies/
======
mbesto
Nick, this is extremely impressive and I applaud you for putting this together
so concisely. Some comments:

1\. Kahneman and Ariely both mention in their writings how their is a
difference between free and even just 1 penny. Especially given how popular
Freemium is I thought this might be a good topic for you to cover. (Ariely
calls this "market norms" vs "social norms")

2\. A common theme here on HN (mainly from people like Patio) is to "charge
higher". I couldn't find a place that explicitly mentioned this. Many people
perceive higher quality and value of products and services simply because they
cost more (regardless of whether they actually do or not)

3\. No mention of Kahneman?!?

This is awesome regardless...saving it and sharing it with some clients.

Feel free to contact me directly if you want me to elaborate on any of this.

~~~
nkolenda
Thanks so much for the kind words.

1\. I remember reading about that concept in Ariely's book. And I actually
considered adding it to the list, but I wasn't sure where to incorporate it.

2\. I think everything boils down to your ability to communicate the value of
your offering. People will pay any amount, as long as they perceive to be
getting more value from it.

3\. And I can't believe I didn't mention Kahneman anywhere! His research was a
large foundation behind a good portion of those techniques.

~~~
mbesto
Re: point 1.

Maybe something like:

"Strategy: Giving away for free and then upsell"

Tactic X: "Give away free product or usage of your service" (talk about
Ariely's theory of social norms vs market norms)

Tactic Y: "Up-sell free users into a more compelling value proposition"
(distinguish between the free product/service and use it as a framing exercise
to get your users to pay)

------
imron
I know the arguments behind it, and I know the research shows it brings
slightly higher conversions, but I always see charm pricing (e.g. 2.99 vs
3.00) as an insult of sorts to my intelligence.

It's like the company is saying they don't think their customers have the
mental capacity to reason that 9.99 is effectively the same price as 10.

It's even doubly meaningless for some products in Australia, because with 5c
being the lowest coin in circulation purchasing a single item worth $9.99 will
be rounded up to $10 anyway.

~~~
erikb
Can't find it any more, but in some literature I was reading that actually
it's not so clear as people think. In some situations -1ct works well in other
situations other prices like $10.23 work much better. I don't remember the
requirements, though.

In any case it's bad to do something that you haven't tested yourself for your
market. So if you sell something try different prices and pricing strategies
and see what works best.

What certainly works (but is illegal in many countries, I think) is price
tagging something as $20 and offering 50% off.

~~~
thomasahle
Well, tfa says it pretty clearly: When asked to estimate the real value of TVs
priced at 4998.10, 5000 and 5012.56 the middle one was estimated nearly $500
lower than the others.

Same goes for houses and other situations where you're likely to be conceived
as having rounded up.

~~~
tormeh
Interesting. Wasn't something like this in the undercover used car salesman
article a while back as well? You should always come up with weird numbers so
the customer doesn't think you made it up.

~~~
erikb
Maybe that's the article, yeah.

------
Animats
This is a great How to be Evil manual.

 _" If you decide to downsize your product, you should reduce the size of all
three dimensions — height, width, and length — by an equal amount. Consumers
are less likely to notice a change in all three dimensions."_

 _" People will perceive your price to be smaller if you display that price in
a smaller font."_

 _" People will perceive your price to be lower if it contains fewer
syllables."_

~~~
danuker
When I shop, I look at the quantity. If my chocolate has 90 grams instead of
100, I'll immediately put it back and look for another brand - because it's
too hard for me to compute how much I would get swindled of.

~~~
draz
I'm not sure whether it's a practice everywhere, but many shops in NYC also
indicate the "per unit" price: per gallon/oz/pieces etc. I use it all the
time, and I wish it was mandatory by law for all products.

------
charles2013
a colleague sent me a link to "tactic 14." after reviewing the citations i'm
skeptical of the rest. it appears the author misunderstood some research he
cited.

the thesis for tactic 14 is:

> Anchoring not only works for prices, but it also works for any number,
> regardless whether that number is a price.

the SSN example demonstrates anchoring based on price (not just any high
number). the results of this experiment would have likely been the same if
people rolled dice.

and the only experiment [#4 of 5 from adaval and monroe (2002)] which tested
"irrelevant dimensions (e.g. weights)" vis-à-vis priming with high/low prices
seems to have been poorly designed and produced questionable results. (it
should be noted the test methods were also sufficiently different than the UX
illustrated in the article.)

so based on the cited research there's nothing that leads me to believe it
makes sense to use "any high number" to make my price look better. and if i've
understood adaval and monroe (2002) correctly this could actually create a
contrast effect (and diminish value perception).

additionally, the suggestion in the article -- "join 2,387 happy customers"
\-- could also be an example of social proof, making it difficult to ascertain
the cause of behavioral change. (was it any high number, or all those happy
customers? or both?)

and lastly/separately, why base pricing strategy on the offline behaviors of a
bunch of starving students looking for extra credit? it's 2015. where's the
shopping cart data?

~~~
blumkvist
I skimmed through the article and saw some misunderstandings of research too.

Also another thing that made me raise an eyebrow - "You should avoid charging
different prices based on past behavior, demographics, or any other factor
besides natural supply and demand."

Clicked the "X" shortly after.

People are eating out of his hand it seems though, so he has that going on for
him at least. Many ebooks will be sold.

~~~
charles2013
i'm disappointed this made it to the top of the front page yesterday with such
little criticism. it feels like something written by an intelligent yet naïve
marketing undergrad, not something on which to base pricing strategy.

> "You should avoid charging different prices based on past behavior,
> demographics, or any other factor besides natural supply and demand."

wow. what an incredibly stupid recommendation. based on this, every major
grocery chain should terminate their loyalty card program, many luxury
products/services should never see the light of day, and perhaps the rest of
us should just start businesses in perfectly competitive markets with little
hope of long-term economic profit.

an aside: searching for "you should avoid" led me to another incredibly naïve
recommendation: "you __shouldn’t __A /B test your prices."

there are so many ways to test pricing it seems irresponsible to dissuade
people from doing this, especially in the context of a gigantic list of
pricing strategies.

here are just a few types of tests that come to mind:

* practically any promotional/limited offer pricing scheme could (and probably should) be tested.

* prices of users' shopping cart items saved for later (e.g. amazon) \- can a/b test same items in different users' shopping carts and measure purchase patterns

* grocery coupons for people in different zip codes \- most people don't get coupons for other neighborhoods so they won't see two prices

anyway. rant over :)

~~~
nkolenda
Thanks for the feedback. I don't mind the criticisms - I think a healthy
debate is good. :) However, I just want to clarify something.

> "You should avoid charging different prices based on past behavior,
> demographics, or any other factor besides natural supply and demand."

That quote is taken out of context. Obviously you should determine prices
based on those factors. That quote was referring to dynamic pricing and how
you shouldn't charge different customers different prices based on those
factors (e.g., I'll charge $200 to Customer X, but I'll charge $150 to
Customer Y because I don't think he'd buy at $200).

~~~
blumkvist
Price discrimination is like the most wide spread marketing initiative period.
Don't worry ebook buyers don't like to read comments, you're safe :)

------
soheil
I also find this list fascinating, but I also agree with other commenters that
energy is better spent educating people on these psychological pitfalls than
to try to take advantage of them. If "do no evil" was ever a motto that a
company believed in this would certainly qualify.

~~~
chippy
Agreed, but I wonder how many companies would educate people on these tricks?
Would it give any company any advantage or benefit? And what if a large
charity uses these tricks in their fund raising schemes? In the UK for example
we have a number of street "chuggers" (charity muggers) who use a range of bad
tactics on the street and doorstep. Legally they are allowed to get away with
their bad behaviour because so many people support the charity in normal ways.

------
hobofan
Nice write-up, but it hurts to see a generalized warning against dynamic
pricing since that's what we provide with our product Baabedo[0] (we don't
adjust prices on a per-customer level though).

One point where we observed the exact opposite effect is the splitting of
shipping cost. Products with free shipping sell better than with split
pricing, but that might be a marketplace specific effect of Amazon.

[0] [https://baabedo.com](https://baabedo.com)

~~~
chippy
I'd say the dynamic pricing should be done transparently, that is, the user
should know that the products have been re-priced.

It also depends very much on how you do it.

From the article:

>Is dynamic pricing always bad? Not necessarily. Dynamic pricing can be
effective when adjustments are based on supply and demand (e.g., stadiums
trying to fill remaining seats).

>Dynamic pricing becomes harmful when adjustments are based on a customer’s
willingness to pay. You should avoid charging different prices based on past
behavior, demographics, or any other factor besides natural supply and demand.

Does badbedo do re-pricing based on the positive or negative factors? From the
blog it appears to be choosing optimal prices based on the market, not on the
user.

~~~
hobofan
> Does badbedo do re-pricing based on the positive or negative factors? From
> the blog it appears to be choosing optimal prices based on the market, not
> on the user.

Because we are currently only on Amazon we can't do optimization based on the
customer because we only get information about him when a sale is made. So at
the moment we optimize based on market and past sales history.

I am generally open to the idea of customer based pricing and think that it
can be very powerful if done right and be benifical to both the merchant and
the customer.

------
QuantumRoar
That's an interesting read. But it just feels wrong. And the worst is that it
works. Could we all just stop buying things based on some annoying pricing
tactics and start buying products of companies that we want to support for
their good work?

~~~
chippy
Are you are suggesting consuming based on how the company makes you feel? If
they make you feel good, or convince you that they are doing good work then
should they get more business? Is that rational? What if they are lying or
exaggerating? Doesn't a lot of marketing and advertising seek to increase the
positiveness of the particular brand? How about morality? How about if a
charity uses these tactics in their fund raising? Is a charity raising funds
to protect children allowed to use somewhat manipulative psychological pricing
strategies to do good?

My point is that it does feel wrong and it does work, but it works because of
feelings and psychology. It's fascinating morally. I agree, it's very hard to
stop this and start consuming based on rationality.

~~~
QuantumRoar
> If they make you feel good, or convince you that they are doing good work
> then should they get more business? Is that rational? What if they are lying
> or exaggerating?

It is certainly more rational to believe a company should get more business if
they can convince you that they're doing good work or better work than others.
In order to protect customers from lying or exaggerations, there are (ideally)
laws in place that should give you the right to return whatever it is that you
bought. The whole discussion loses its purpose if we include fraud or
otherwise illegal tactics.

> How about morality? How about if a charity uses these tactics in their fund
> raising?

That's a tricky question. I think you could reframe it into: Is it morally
justifiable to do bad things in order to ultimately achieve a greater good?
Morally, the answer is no since the morality of a society are a set of rules
that determine what can be done and can't be done (instances of these rules
can be found in the law). So, if something can't be done morally (e.g. child
labour), you simply can't do it, whatever the context might be.

On the other hand, pricing tactics are not illegal and there's probably not
enough consensus to derive morality from it. However, ethically, from my
personal viewpoint, I would argue that it amounts to manipulation and
therefore deceits people. Thus, I can not endorse charities that use
manipulation, no matter the context. After all, if you want to do something
good for people, why would you try to manipulate the ones trying to help you?

~~~
chippy
I like the idea about the charity. In the UK we have what's been called
"chuggers" \- charity muggers. Essentially doorstep and high street salesmen,
these professionals work on behalf of many well loved charities but they
harass and aggressively try to make sales.

Councils and people have tried making laws to enforce against them but they do
not succeed because the charities are well liked by the majority of the
population. So on the whole the charities do lots of good and people cannot
effectively complain against their fund raising tactics. The charities do not
suffer as a result of this, and those who support the charities do not suffer.

Is any kind of physical cold calling, being stopped in the street, or at your
doorstep manipulative? Does it seek to control people into donating to the
charity? Yes. Is it objectively wrong? I don't know, but personally I think it
is subjectively. Do some people dislike the behaviour? Yes. Do some people
like the charity nonetheless? yes.

------
csomar
_I hate SPAM and promise to keep your email safe._

Then why are you asking for my email? I hate it when they ask for your email
for something can be provided without. And the worst part is that it doesn't
tell you if it's going to send more emails.

~~~
sukilot
It doesn't say he won't email you . he is going to email you.

------
ddingus
This is very high value, well presented, and I went to read some of your other
work.

I appreciate your source cites. Well done.

Gold Star for never discounting without a reason. The amount of lost value due
to this is insane. It is a constant issue I face. Most of the time, I find
improving value perception to be the better, more sustainable answer to
sluggish sales.

------
dools
This is a list of tactics, not strategies.

------
foolinaround
Can knowledge of these strategies reduce their effectiveness on the part of
the buyer?

For example, even though many items like gas are priced at 2.1999, I calculate
it to be $2.20.

~~~
nkolenda
That's a good question. I think it depends on the pricing technique.

For example, research shows that anchoring effects occur even when people are
explicitly warned about anchoring before they make their estimate.

On the other hand, if people are aware of other pricing techniques, then those
techniques could backfire in a negative direction. For example, researchers
have found a "reverse priming effect." In other words, if people detect some
persuasive intent behind the marketer, then those people are more likely to
resist that persuasion attempt. So it could make things worse.

~~~
petjuh
So it might have negative effect on some people (who feel it as insult on
their intelligence), but if twice as many people don't notice it and are
positively affected, it's still a net gain.

------
benhirashima
Some of these tactics are contradictory. Tactic 2 says to add cents for a
"rational" purchase, i.e. 19.86 verus 19. This contradicts tactic 3 which says
to use fewer syllables, i.e. 19 versus 19.86. How do you prioritize these
tactics?

~~~
mafuyu
I think you need to look at it holistically and place yourself in the shoes of
your audience. I imagine an example of a "rational" purchase to be something
like searching for a good (eg. headphones) on Amazon and comparing prices
between brands. A buyer will try to research and justify their purchase, and
the cents may help push them over the edge and convince them that they've
"done their homework". Meanwhile, an example of the syllable tactic is a
restaurant menu. When I order from a menu, I'm time constrained and forced
into a decision. I ask myself internally: "Would I get 19 dollar value from
this meal?", and if the answer is "Yes", I'll order it.

------
reubenswartz
Great list. Minor quibble-- I wish Nick had put the last part first. Pricing
effectively is all about successfully communicating value. Your price is
limited by your perceived differential value. Once you get that part, the rest
of the techniques might be helpful to optimize, but if you start with the
optimizations without really understanding how your value compares to your
customers' alternatives, you may get a local maximum, but you won't get the
best results.

------
kornakiewicz
I am biased (or the audience of this post, who knows) because neither I am nor
a salesman or startups funder (not even american), but I really feels bad
about the vendor when noticed that psychological tricks are used to convince
me to buy something. Yes, I know that's how world works, but I am more keen to
buy when I am sure and here is a room for valuable marketing.

------
edpichler
It's a really good list, can work as starting point. I advice you to be
careful before applying in your business.

Pricing is too important for we stop just with this list. The list just show
topics, results and conclusions of experiments, not the psychology experiments
made and the reason behind each strategy, so, very easy to be forgotten, or
even applied wrongly.

If you want to lean in a way you will never forget, and apply it correctly,
you need to read some books about pricing.

Books about pricing on Amazon:
[http://www.amazon.com/s/ref=nb_sb_noss?url=search-
alias%3Dst...](http://www.amazon.com/s/ref=nb_sb_noss?url=search-
alias%3Dstripbooks&field-keywords=pricing&rh=n%3A283155%2Ck%3Apricing)

------
neo_optimus
Excellent writeup. Just one point that I disagree on is the Shipping price
split up. I tend to look for other sellers when I see one with paid shipping,
and tend to favour free shipping sellers more.

\- If you are combining a discount with the product, and mention a shipping
charge, the discount registers as a false discount ('He is just shifting costs
through shipping split')

\- Maybe it registers as more of mental processing (X$ + Y$ needs more time to
process than Z$)

\- Sometimes, it is human nature to be greedy, and look for best value
possible. Seeing a shipping cost feels like seller is not 100% working for the
customer, or we just become plain greedy, that why should someone else get a
part of the price.

Just my 2 cents.

------
joeyspn
Conversion rate of 2 --> 2.39%

Converison rate of 1.99 --> 5.2%

Mind = Blown. I mean, I knew the *.99 affected the consumer perception about
the price, but not in such a huge way... Fantastic article (and blog).

PS: The "leaving know" modal is annoying, I was just trying to switch tabs

~~~
blumkvist
Hey, do you believe everything that you read on the Internet? Because I might
have some bad news for you, that will blow your mind too.

~~~
joeyspn
> do you believe everything that you read on the Internet?

Only when I put my tin foil hat on

------
brentis
This list is great. I think it's funny how many of these folks criticize the
list. They are probably the same ones who chose to OS their products for them
to go off and die on Git rather than actually sell it.

I would add that doing bundles after payment is huge. Once a customer has
paid, adding 15% to their bill is a very easy sale. Whether a soft good or in
the form of version insurance/download protection. Conceivably, it could be
done on Saas too, perhaps to lock in the rate for life with a one-time charge.

Cheers.

~~~
simoncion
"...version insurance/download protection."

This set off each and every one of my slimy scumbag _and_ no-good charlatan
alarms. Please convince me that this protection is a good that's actually not
extortionate and/or doesn't rely on the ignorance of one's customers.

------
zhte415
A short heads-up: The page seems to freeze IE11 on Win 8.1 - tried 2 times
(once with lots of tabs, one in only one tab/instance). IE has to be restarted
both times.

(Firefox worked.)

------
copsarebastards
This kind of stuff is a strong argument for communism. An immense amount of
mental energy was squandered on creating this list (not Nick Kolenda, the
people who studied these things). That same energy could have been spent on
curing any number of psychological ailments, but instead it was spent on
getting people to pay more for less. It's interesting, but as far as I'm
concerned the energy was wasted.

~~~
tjradcliffe
Translated: "That same energy could have been spent on something I care about
and not what the author cares about."

Which kind of explains why communism always leads to tyranny: it is based on
the essentially tyrannical assumption that communists alone have the knowledge
to decide how _everyone else_ should be spending thier time, and the moral
authority to impose that judgement on others by force.

The problem is that no one has ever found a way of granting such power of
central decision making in such a way that either:

a) central planners have access to the information and computing power
distributed in the market such that they can make well-judged decisions even
by the theoretically pure criteria they claim to be using (that is, communism
is inefficient)

b) central planners have no incentive not to make decisions that serve their
own interests to the detriment of all others (that is, communism is corrupt).

Given that theses results are incredibly robust and widely known, it is weird
that anyone would suggest communism is an interesting alternative to anything.
Reform capitalism all you want, but why bring up the political equivalent of a
perpetual motion machine as the solution?

~~~
bryondowd
Just curious, but does communism by necessity or definition require central
planning? Is a distributed power model not possible, aside from the fact that
it hasn't been done?

I'm genuinely curious, as I've never studied political systems in any depth.

~~~
copsarebastards
It doesn't: in fact, I think central planning is generally what breaks
communism.

Kibbutzes and communes generally are communist but work without central
planning

------
carrotleads
Pricing is a very inexact science and this list is quite helpful to educate
startups. Thanks for writing this.

One of my favourite articles on this is
[http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...](http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html)

------
mckoss
I was hoping to see a list based on how the price of a product better
communicates a product's value. It's sad to me that there is so much energy
focused on the manipulation of the buyer as the goal.

Frankly, I consider the aggressive use of these tactics to be a sign that the
company is manipulative and untrustworthy.

------
yellowapple
Now I feel like I'm ready to go make and sell some "As Seen On TV" product.

