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05 February 2015

Price Psychology

This post is also available in: Spanish

Consumers often look for the cheapest price when shopping, but it’s possible that some prices are just not appealing at first sight.

According to a study conducted by Journal of Consumer Research consumers are attracted to rounded prices when purchases are motivated by first impressions.

A rounded price ($100.00) encourages consumers to rely on feelings when evaluating products, while a non-rounded price ($98.76) encourages consumers to rely on reason. When a purchase is driven by feelings, rounded prices lead to a subjective experience of feeling right.

Monica Wadhwa (INSEAD, Singapore) and Kuangjie Zhang (Nanyang Technological University)

Numerous studies reveal that rounded prices encourage impulse buying, i.e. if the purchase is motivated by feelings the consumer is more likely to buy a product with a rounded price because they trust their feelings.

A practical explanation would be; the average consumer is more  likely  to chose a camera with a rounded price for a family holiday , however if the price isn’t rounded the purchase of the same product is more likely to have a more rational motive such as buying a camera for work purposes.

Thus, companies should realize that the tiniest changes in prices can have a big effect. According to the results of these studies, the sale of recreational or personal products (clothes, holidays…) could benefit from tags with rounded prices, whilst companies selling more necessary products (tooth paste, food…) would benefit from non-rounded numbers on their price tags.

Efecto del digito izquierdo2We must also note the effect of the left digit. Consumers don’t usually waste time looking at the final digits, they look at the number at the very left of the price. This is why we are all used to seeing numbers, especially in clothes shops, like 59.99 although it is almost 60, the consumer registers the number 5.

Efecto del digito izquierdo

However going back to what we said earlier, this extensively used practice is more effective when it comes to selling recreational products than necessities. Although many companies price products indifferently, paying no attention to price psychology. Perhaps they should apply Analytical Intelligence in order to analyze the data emitted from their different marketing strategies and product prices, for their prices to have a greater impact on the consumer and consequently increase benefits.

Intelligent analysis

With a BPM software like AuraPortal each process stores information which is later used for analysis to help companies understand their true product market and see which polices give the best results and which don’t. So in response to this research, implementing strategies in combination with Process Management makes it is easy to determine whether or not these type of actions will work, i.e. it is possible to trial and check if price rounding will be effective or not.