To meaning of psychological pricing simplified, here:
A pricing strategy that specializes in inflicting psychological effects on consumers.
Common forms of pricing psychological techniques is the famous odd pricing technique.
Odd pricing focuses pricing in a way such as $19.99 instead of a full $20, this lowers the perceived value over its true cost, therefore encouraging more sales.
Be aware that odd pricing itself isn’t psychological pricing, it’s actually one of the subunits that fall under the main category called psychological pricing. Of course, there are many more pricing concepts and strategies involved.
The psychology behind pricing can’t JUST be explained in a sentence.
In fact, the concept depends on a wide range of aspects, which will be listed out below.
I’d like to make sure you are clear of a fact. A mistake that most people make – most people confuse the term psychological pricing with the term odd pricing; odd pricing is actually just one of the subunits of the more general term.
If odd pricing is to psychological pricing, then algebra is to maths.
Get it? Odd pricing is just one way of using psychology in pricing, not psychological pricing ITSELF.
Due to the customer perception of value, numbers do not always represent its true value in the brains of human beings – a price may appear expensive, but in another way it can be perceived as really cheap.
How is this possible? It is the psychology behind our everyday mental processes.
Leonardo da Vinci (1452-1519) understood this principle of psychology centuries ago, he once said:
“All our knowledge has its origin in our perceptions.”
In fact, how we react to numbers and how we think about any particular number is determined by the perceptions generated by our minds.
We make different perceptions each time and each time they can potentially make us believe something is less different (or more) to something’s true value.