What You Need to Know About Pricing and Consumers

Have you ever wondered why so many items are priced at some dollars and 99 cents? Or, have you noticed that you never see anything with an advertised price of "$100?" You probably have, and the answer to your questions has to do with psychology. Specifically, it's about consumer behavior, a science that is always coming across new discoveries as media and technology evolves. We thought it would be a good idea to share some findings related to pricing with you. These are some ideas to get you started on pricing optimization.

Your Brand Determines How High Your Prices Can Go

In 1985, Richard Thaler published the findings of a pricing experiment he devised. His experiment tested the perceived value of a product based on its "transactional utility," which is the perceived value of a deal. In the experiment, he asked a number of people how much they were willing to pay for a beer. Some were told the beer would be purchased from a basic convenience store and others were told it would have to be purchased from a fancy hotel nearby. All of the test subjects were told that the beer may be priced a little high and were asked to name the highest price they were willing to pay for a can. It was the same can of beer but from two different places; one fancy and the other, dinky. 

Thaler found that the respondents were willing to pay $2.65 to buy the beer from the hotel but only $1.50 to buy it from the store.1 The decision wasn't based on the value of the beer itself, but on the deal. We expect things to cost more when they're sold from upscale places. Therefore, the deal is acceptable at higher prices when the outlet or provider is more upscale, high-class or prestigious. 

How this relates to your business depends on your image. How do consumers perceive your brand? Are you prestigious and upscale or mundane and "bargain?"  If it's the former, you might be more likely to get away with a price hike.

Reviews and Customer Questions Matter

Today, comparing products and services is easier than ever, thanks to the internet. Whatever product or service you need, you can probably find reviews and other information about it somewhere online. If information about your products or services isn't available, you'll miss out on sales and you won't be able to price as high as you otherwise would. 

This isn't just conjecture. We knew it as far back as 2011. Then, consumers were 105% more likely to make a purchase while visiting the vendor's/provider's website after interacting with reviews and customer questions and answers. They also spent 11% more than consumers who didn't interact with QAs and reviews.2  

What this means is that you should encourage your market to review your products and interact with your social accounts. Set up a Google My Business account, as a start. It's also a good idea to feature testimonials and other useful information on your website.

"9" over "0" All Day

You might be able to guess the reason businesses often price their things one cent under whole-dollar prices. Even though $2.99 is only one cent less than $3.00, the "2" in front of the decimal is the part of the price that is most persuasive to us. It's so important that businesses often omit the dollar symbol ($) in front of it. The dollar symbol can be distracting and counteractive; sometimes it's better to leave it out. 

Have you ever wondered if the one-cent discount works in practice? It does, in fact. Gumroad tested ".99" prices and whole-dollar prices and found that the ".99" prices led to significantly higher conversion rates. In other words, they found that people bought their products more often when they were advertised at ".99" prices, versus when they were priced at whole-dollar prices. Here's how the two price types compared.


source: Gumroad

Summing Up

It's obvious that the way you price what you offer has a direct effect on our behavior. The findings we've discussed are useful to every business, especially those who engage in web marketing and e-commerce. However, they're just a few minnow-sized findings in a sea of knowledge. For a much longer list of pricing tips and know-how, visit Nick Kolenda's blog

Need help connecting with your target market and locating qualified leads? That's what we specialize in, here at isoTree. Contact us



  1. Thaler, Richard. "Mental Accounting Matters." Journal of Behavioral Decision Making 12: 183-206. 1999. (link)

  2. Charlton, Graham. "Ecommerce Consumer Reviews: Why You Need Them and How to Use Them." 8 July, 2015. Econsultancy. (link)



Maxim Kurapatkin