The Psychology of Pricing : Some Useful Tactics

Group - 4
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Tailor Prices toward Names and Birthdays

Studies have found that customers prefer prices that contain the same letters/numbers as in their name or birthday

But WHY? IMPLICIT EGOISM - innate self-centeredness

• Implicit egotism is the hypothesis that humans have an unconscious preference for things they associate with themselves.
• In their 2002 paper, researchers Pelham, Mirenberg, and Jones argue that people have a basic desire to feel good about themselves and behave
according to that desire.
• They also argued that people named Dennis are more likely to become dentists, and people named Louis are more likely to live in St. Louis
• But some conflicting studies also exist. For eg: Researcher Uri Simonsohn suggested that implicit egotism only applies to cases where people are
nearly indifferent between options, and therefore it would not apply to major decisions such as career choices

Some Real life instances where Implicit Egoism finds application

A person who was born on 1/1/2011 or 6/7/1989 will likely have a
preference for 1111 or 6789 as a plate number
(Source: Gujarat RTO Website)

Fancy number choices are common among the consumers of

telecom companies. This gives the telecom companies a pricing
power to charge a premium for these numbers.

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Name-Letter/Price effects
Consumers like prices (e.g., “fifty-five dollars”) that contain digits
beginning with the same first letter (e.g., “F”) as their own name (e.g.,
“Fred,” “Mr. Frank”) more than prices that do not.
The name-letter preferences manifested when price names were either
orally presented or internally rehearsed (i.e., which allowed
participants to mentally “hear” the prices). This suggests that auditory
encoding of sounds - and the accompanying visual encoding of those
sounds as words - was necessary in order to form name-letter
associations and elicit affect transfer. Eg: effect is likely to be stronger
for ads viewed on tablets where consumers are used to processing
auditory information in addition to visual information.
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Birthday-Number/Price effects
People are positively biased towards persons, objects or events
that share numbers corresponding to their birthdays
If prices are presented visually (as numeric characters), consumers
will demonstrate greater price liking and purchase intentions if the
price does (vs. does not) share birthday numbers with the consumer
Eg: prices that contain cents digits (e.g., $49.15) that correspond to a
consumer’s date of birth (e.g., April 15)
Matching on left (primacy effect) or right (recency effect) digits
could create more pronounced implicit egotism effects than matching
on “interior” digits
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Show Prices at Optimal Time

The real question is – What should you display first: your product or your price?
• To answer that question, 3 researchers gave participants $40 in shopping money. The researchers used fMRI to analyze their brains while they
shopped for online products. Turns out, the first exposure — price vs. product — influenced the criteria that people used when
deciding whether to buy.
Here, two cases arise:

When products were displayed first, participants based their When prices were displayed first, participants based their purchase
purchase decision on the product qualities. decision on the economic value.

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Luxury Items
Consumers were more likely to buy these products if they
encountered the product first.
For Luxury products, the aim should be for customers to focus on the
qualities of the product rather than on the economic value of the same.
So, for the Luxury products , show the product and then show the
price.
Even when revealing the price, the aim should be to visually
deemphasize it making the customer feel price is unimportant and
negligible.
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Utilitarian Items
Consumers were more likely to buy those products if they
encountered the price first.
Utilitarian products are effective, helpful, functional, necessary, and
practical. Their value is derived from a product or service that helps
the consumer solve problems and accomplish tasks.
When utilitarian value is the primary motive, consumers usually offer
a rational explanation of why something is purchased. With the
exposure of the price first, people were more likely to appreciate the
economic value of the purchase.
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Some real life cases

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Display Red Prices to Men

Studies have found that : Men are more likely to buy products when prices are displayed in red.
“Men seem to process the ads less in-depth and use price color as a visual heuristic to judge perceived savings offered by the store.”
• Because men use heuristic processing to evaluate ads, when they encounter a red price, they’re more likely to base their decision around the red
price - and the red price alone.

• “When price information in retail ads is emphasized (e.g., by making it red), compared to other product attributes, the ability for people
to process the other attributes of the ad (e.g., photo quality of products) is diminished.”

• That red price became a focal point of attention – and thus the only information that men used to evaluate their purchase.

• More importantly, because men associate red prices with savings, they relied more heavily on that belief.

• Studies have shown that warm colors increase arousal.

• Arousal is a physiological state, characterized by higher
Red color increases arousal which triggers heuristic
adrenaline, blood pressure, and heart rate. 
processing
You feel more activated. 

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Why Does Color Influence Us?

We know that colors possess certain meanings but why and how does color influence our perception and behavior?
According to Crowley (1993), color produces two reactions: Arousal Reaction & Evaluative Reaction
• Arousal Reaction

• As discussed earlier multiple studies have shown that warm colors increase arousal. For example,
Crowley (1993) found a U-shaped relationship between arousal and color wavelength

• When you’re exposed to warm colors (e.g., red, orange), you experience an immediate biological
reaction. Your adrenaline starts flowing. Your blood pressure rises. You experience a greater sense of
stimulation.

• Evaluative Reaction

• In addition to arousal, the other reaction is evaluative: do consumers “like” your choice of color?

• Crowley (1993) found a positive linear trend between evaluation and color wavelength. People tend to
“like” colors with shorter wavelengths.. So, we can use Yellow, Orange & Red color to increase arousal
in that order & use Purple, Blue & Green to decrease arousal in that order

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Start Negotiations With A High Precise Number

But WHY? - Maximize the perceived magnitude of reference price

• Studies show that adjustment away from a numerical anchor is smaller if the anchor is precise than if it is rounded
• Precise anchors, compared with rounded anchors, are represented on a subjective scale with a finer resolution
• If adjustment consists of a series of iterative mental movements along a subjective scale, then an adjustment from a precise anchor should result
in a smaller overall correction than an adjustment from a rounded anchor
• People love to compare when valuing products and having an anchor price allows them to do that
• Our cognitive bias is always veered towards the best reward for the least money/effort
• Due to anchoring, sellers can thus get more money by starting the negotiation at a higher initial price
• Using a high initial price is not sufficient to maximize the perceived magnitude of reference price. In addition to it, having a precise value

Research on “Precision of Anchor influences the

amount of Adjustment”
• Chris Janiszewski and Dan Uy, conducted an
experiment to study the influence of precise anchor
prices on the amount of adjustment
• Through their experiments, they observed that the
participants estimated the actual price to be closer to
the range when the suggested retail prices were precise
rather than rounded

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I will sell Ok, some

• People adjust/bargain when they perceive that the anchor price is diagnostic but at Rs. discount
incorrect. However, adjustments tend to be insufficient, so the final values are 8,000
please. Lets
call at 7,000
biased in the direction of the initial anchor value and you have
• While many factors influence this amount of adjustment from a diagnostic a deal
anchor, the common theme is that reduced confidence in the accuracy of a
diagnostic anchor will lead to a greater amount of adjustment
• If adjustment is viewed as movement along a subjective representational scale,
then the resolution of this scale might also influence the amount of adjustment. Ok, some
X units of adjustment along a fine-resolution scale will cover less objective I will sell discount
please. Lets
distance than the same number of units of adjustment along a coarse-resolution at Rs.
call at 11,500
scale. As a consequence, there will be less adjustment when numerical 12,424
and you have
judgments are made using subjective scales with a finer resolution a deal

Application
• This has several applications in negotiations or bidding
• The profit in negotiations is partly determined by the initial price because it
influences both, the seller and the buyer
• Starting the offer with an initial price that’s both high and precise will eventually
lead to higher final prices in the bidding
• In case of eBay auctions, one can generate more revenue by establishing a high
reserve price - a price that needs to be met for the item to be sold
• High reserve prices anchor people towards the higher end of the spectrum,
resulting in higher revenue

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 THANK YOU !!
Group 4 - Members
Sanket Sourav Bal 19BM63012
Medha Sehgal 19BM63042
Dhawal Thacker 19BM63050
Ankit Raju Mirajkar 19BM63062
Devendra Singh Bhakuni 19BM63074
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Aparna J R 19BM63084
Subham Paul 19BM63123
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