The Psychology of Pricing Products & Services

dollarOne of the most frequently asked questions I get about marketing revolves around price. Setting prices for products and services takes a combination of science, psychology and intuition. Let’s walk through some of the most effective ways to determine price and create a checklist of what to test to find the best one.

Your Cost Plus Profit

Of course, business 101 tells us to cover our costs and earn a profit (or go out of business fast!). But once the basics have been covered, where do you go from there?

Check the Competition

Are there other products or services like yours? There almost certainly are. Search online and find 10-20 others and jot down their price points. Watch them over the course of 30 days to see if they offer discounts and, if so, how much.

Do you want to position your product/service alongside competitors? If so, matching their prices could be a good strategy. If you want to be seen as the least-expensive option, you’ll try and beat the others’ prices. And, conversely, if you want to position yourself as a luxury/premium option to the rest, you’ll start with a price point higher than the average product/service.

Useless Prices

If you have levels of products/services, there are several interesting pricing tactics you can test. The first is from “Predictably Irrational” author Daniel Ariel. (Awesome book, by the way!) Watch this short video.

Did you understand what he was saying? The “useless” price of $125 for only the print subscription was not really useless. While it was there, people jumped to the higher price point because they clearly saw the value of getting TWO subscriptions (print and web) for the same price as web-only.

Contextual Prices

Ariel offers some other strategies in his book as well.

 Let’s say you have three sizes of popcorn at your movie theater (or three subscription models or three sizes of drink at a gas station). You can influence sales to purchase at the middle price point or the higher price point.

If the medium-sized popcorn bucket is the one you want people to choose, space the prices out equally among the three choices. By nature, most customers will select the middle option.

However, if you want people to buy the highest-priced subscription, leave a large gap between the lowest-cost option and the middle-priced option. Then price the other two very close together.

For instance, a small popcorn would be $3.50. A medium-sized bucket of popcorn would be $7.50 and a large would cost $8.00. The mindset here is that “for only 50 cents more” you can get a much larger portion of popcorn. The same is true for fountain drinks at gas stations. Small = $.99. Medium = $1.49. Large = $1.59. Which sells more? Almost always the large for “just 10 cents more.”

The Power of 9

You might be tempted to think that lower numbers would lead to even greater sales, but that’s not true. 

Price Anchoring

Want to sell a $1,000 home entertainment center? Show it to customers AFTER you’ve introduced them to a $5,000 home entertainment center. Anchoring works because most of us have a tendency to compare everything else to the first prices we encounter.

The high $5,000 system makes everything else look like a real bargain. The point here is not to sell the $5,000 system, but to use it as an anchor that allows you to move more $1,000 systems.

Like most other marketing elements, choosing the right price point takes testing. Make some notes about how you could possibly use these strategies with your products/services. Then work your way through the options to see which brings the best results.

I’d love to hear what pricing tactics you use and the results you get.

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About Karon Thackston

For over 25 years, web & SEO copywriter Karon Thackston has created optimized copy and content that has increased conversions & search rankings. Find out more about Karon on Google+.


  1. This is great information. I loved the view perspective and will be sharing this with a couple of my clients that are toying with pricing strategies. Thank you!

  2. Thanks for proving food for thought…I find it difficult to change my mindset to ask higher prices for my web design services particularly when there are so many competitors offering lower prices. I like the strategy of contextual prices. Will give that a try for one of my products that only offer 2 pricing options.
    Herman recently posted..How To Use YouTube Videos For Lead GenerationMy Profile

  3. Hi. This is very interesting article. Thank you.
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