Psychological pricing

Determining prices slightly below a whole number is known as psychological pricing. This strategy is based on the concept that consumers, perceiving these costs as less than they actually are, are less likely to round up such prices. Consumers often process prices starting with the leftmost digit and tend to overlook the final few digits. The effect is heightened when the fractional part of a price is printed in a smaller font than the rest.

An example of psychological pricing is pricing a car at $29,999 instead of $30,000, a common method for pricing consumer items. Another approach involves raising prices, with the belief that consumers will value a product more highly if it is priced at a premium.

Example of Psychological Pricing:

XYZ International, catering to metropolitan commuters, introduces an all-electric vehicle. After researching competitive price points, XYZ discovers comparable cars priced at $19,999. Many automobile buyers use price comparison platforms, where options within the $10,000 price range are prevalent. Consequently, XYZ decides to price the car at $19,999 to both compete and position itself in the $10,001–$20,000 price range. This strategic decision aims to appeal to consumers while maintaining a competitive edge.