Many people think they’re making a logical decision when they see a price. In reality, price is an emotional choice. Smart companies know very well how to use this to their advantage.
This method is called psychological pricing – and it is one of the oldest and most powerful tools in business.
For example, $4.99 plays tricks on the mind, while “prestige pricing” makes a product appear luxurious. The number you choose changes the customer’s perception of your product. If you are working on your product, brand, or market position, understanding this concept can mean the difference between being ignored and achieving success.
Why $4.99 seems better than $5.00
This is one of the most popular tricks in retail. It works due to the left-digit effect phenomenon: when our brain sees the price, it focuses on the “4,” not the “5,” even if the difference is only one cent. This makes the product seem cheaper, while the actual price is almost the same.
Companies around the world use this method. Prices ending in .99 are everywhere – from supermarkets like Korzinka to SaaS products. The reason is not that it seems clever, but that it actually works.
Expensive = Good (Even if it’s not really the case)
Now for the opposite scenario: in many industries, a high product price can make it appear even more valuable.
This is called prestige pricing. Luxury brands like Rolex, Apple, or Louis Vuitton never offer significant discounts. This is because a high price is part of the product experience. People buy a product not only for its functionality but also for status, confidence, and emotion.
In one study, participants were offered the same wine at two prices: one for $5 and the other for $45. Most preferred the $45 wine, even though both were exactly the same. Why? Because the brain associates price with quality.
Therefore, be cautious about offering your product at a very low price just to make it “appear cheap,” as you might unknowingly be devaluing it.
The middle choice is not random
Imagine you want to buy a new laptop. There are three models available: one for $399, the second for $599, and the third for $1,099. You’ll likely choose the $599 option. It seems neither the cheapest nor the most expensive, but the most reasonable balance.
This is no coincidence. It’s a pricing strategy called “anchoring.” The most expensive option is often added solely to make the middle product appear more attractive and a safer choice.
The brain initially sees the most expensive product and forms price expectations. As a result, the middle option doesn’t seem too cheap or conscience-strikingly expensive – it appears to be the most sensible choice.
Many startups and SaaS platforms use this exact method. On their pricing pages, the middle plan is usually highlighted. This is because they want you to choose that particular option. The most expensive plan serves to make the middle one appear even more attractive through comparison.
This tactic plays an important role not only in determining the product price but also in shaping the customer’s emotions at the time of purchase. Often, the inner conviction of “I made the right choice” is formed precisely in this way.
When “free” is not actually free
Another trick: “decoy pricing” – that is, adding a misleading price. Sometimes companies deliberately add a third, unnecessary option to guide your choice.
For example, a magazine might offer the following:
•Online only: $59
•Print only: $125
•Print + online: $125
Which one will people choose? Of course, the third option. Because it seems like a good deal. In reality, the second option was deliberately added as a decoy, that is, to make the third option appear more attractive.
Why is this important for startups
For early-stage founders, pricing often resembles guesswork – postponed with the thought “we’ll figure it out later.” In reality, how you set the price is one of the most crucial decisions. The price you choose directly affects how customers perceive your product, how confident they feel when purchasing it, whether they buy it, and how quickly your business grows.
If you want your product to have a premium appearance, then don’t hesitate to set a high price – just ensure that the quality and the message the product conveys support this perception. If your goal is to ensure rapid conversion, use psychological tactics such as prices ending in .”99″ or offering products in bundles. If you want to increase the average order value, introducing a higher-priced option will make your main product more attractive, even if fewer people choose it. If you are offering multiple pricing tiers, you can guide the client in the desired direction using a decoy option.
These strategies don’t require a large budget or a big team. You just need empathy, observational skills, and a willingness to experiment. This is a significant advantage for startups, because in pricing, smart strategy, not big money, can be the winning factor.
Conclusion
Pricing is not mathematics, it’s psychology. It’s one of the few areas in your business that simultaneously affects both the mind and the heart.
If you’re a startup founder, this is your advantage: smart pricing doesn’t require a large marketing budget. You just need to understand how people think and, accordingly, create appealing choices for them.
Because ultimately, we choose not the best product, but the one that makes us feel the best about purchasing.
Prepared by Navruzakhon Burieva
