The Psychology of Pricing A Gigantic List of Strategies

The Psychology of Pricing: A 

Gigantic List of Strategies 

by Nick Kolenda 

Original Article: 

http://www.nickkolenda.com/ 

psychological-‐pricing-‐strategies/ 

Copyright 2015 © Kolenda Entertainment LLC

Intro ............................................................................ 5 

Step 1: Determine Your Price ............................. 6 

Strategy: Use Charm Pricing ................................................... 6 

Tactic 1: Reduce the Left Digit By One ......................................................... 7 

Strategy: Use the Proper Amount of Fluency .................... 8 

Tactic 2: Use the Right Amount of “Roundedness” ................................ 8 

Tactic 3: Choose Numbers With Fewer Syllables .................................... 10 

Step 2: InGluence Their Perception .................. 11 

Strategy: Reframe Your Price ................................................. 11 

Tactic 4: Keep the Shipping and Handling Separate .............................. 12 

Tactic 5: Offer Payments in Installments .................................................... 13 

Tactic 6: Mention the Daily Equivalence ..................................................... 14 

Strategy: Prime a Small Magnitude ...................................... 14 

Tactic 7: Position Prices Toward the Bottom-‐Left .................................. 15 

Tactic 8: Use a Smaller Font Size .................................................................... 16 

Tactic 9: Remove the Comma When Possible ........................................... 17 

Tactic 10: Use “Congruent” Language .......................................................... 18 

Tactic 11: Be Precise With Large Prices ...................................................... 18 

Strategy: Maximize Their Reference Price ........................ 19 

Tactic 12: Start Negotiations With a High Precise Number ............... 19 

Tactic 13: Expose People to a Higher “Incidental” Price ...................... 21 

Tactic 14: Expose People to Any High Number ....................................... 22 

Tactic 15: Raise the Price of Your Previous Product .............................. 23 

Strategy: Emphasize Gaps Between Reference Prices ... 24 

Tactic 16: Visually Distinguish Higher Price Comparisons ................ 24 

Tactic 17: Offer a Decoy Product .................................................................... 25 

Step 3: Motivate Them to Buy ............................ 28

Strategy: Reduce the “Pain of Paying” ................................. 28 

Tactic 18: Remove the Dollar Sign ................................................................. 29 

Tactic 19: Charge Customers Before They Consume ............................. 29 

Tactic 20: Bundle Your Product ...................................................................... 30 

Tactic 21: Shift the Focus Toward Time-‐Related Aspects .................... 32 

Tactic 22: Create a Payment Medium ........................................................... 33 

Strategy: Use Discounts Strategically .................................. 34 

Tactic 23: Follow the “Rule of 100” ............................................................... 35 

Tactic 24: Provide a Reason for the Discount ........................................... 36 

Tactic 25: Avoid Discounts With Precise Numbers ................................ 36 

Step 4: Maximize Your Revenue ........................ 38 

Strategy: Make Price Increases Undetectable .................. 38 

Tactic 26: Use More Frequent (Yet Smaller) Price Increases ............. 39 

Tactic 27: Downsize a Feature Besides Price ............................................ 40 

Strategy: Avoid Harmful Pricing Strategies ....................... 41 

Tactic 28: Don’t Use Bait-‐and-‐Switch Pricing ........................................... 41 

Tactic 29: Be Cautious With Dynamic Pricing .......................................... 42 

Conclusion ................................................................ 43 

Should You A/B Test Your Prices? ......................................... 43 

One Final Pricing Tactic ........................................................... 44

INTRO 

Welcome to a massive list of psychological pricing strategies. 

Whether you’re marketing a new product, selling items on eBay, or 

negotiating a deal on your house, you’ll learn how to choose a price 

that will maximize your proGit. 

5 of 44

STEP 1: DETERMINE 

YOUR PRICE 

Large companies have an advantage. They can afford cream-‐of-‐the-‐crop 

marketing research (e.g., conjoint analysis) to find the optimal price for 

their product. Small businesses don’t have that luxury. 

Fortunately, that’s where psychology can help. 

Based on research in cognition and behavior, certain prices are more 

effective than others. Even if you don’t find the exact sweet spot, you 

can make small — yet powerful — adjustments to maximize the 

effectiveness of your price. All for free. 

In this section, you’ll learn how people process numerical values (and 

how to choose the numbers in your price accordingly). 

STRATEGY: USE CHARM PRICING 

For the past couple decades, the marketing world has been inundated 

with charm pricing — prices that end in 9, 99, or 95. 

And the results speak for themselves. Check out Gumroad’s sales: 


When people see those positive results, they often credit the 9’s in the 

price. However, there’s another culprit responsible: the left digit. 

 

TACTIC 1: REDUCE THE LEFT DIGIT BY ONE 

Charm pricing is most effective when the left digit changes. For 

example, a one-‐cent difference between $3.80 and $3.79 won’t matter. 

However, a one-‐cent difference between $3.00 and $2.99 will work 

because the left digit changes from 3 to 2. 

Why is the left digit so important? It involves the way our brain 

encodes numerical values. 

Our brains encode numbers so quickly (and beyond consciousness) 

that we encode the size of a number before we finish reading it. 

Thomas and Morwitz (2005) explain that: 

“Since we read numbers from left to right, while 

evaluating “2.99,” the magnitude encoding process 

starts as soon as our eyes encounter the digit “2.” 

Consequently, the encoded magnitude of $2.99 gets 

anchored on the leftmost digit (i.e., $2) and becomes 

significantly lower than the encoded magnitude of 

$3.00” (pp. 55). 

Bonus Tip: You could emphasize the new base digit by visually 

minimizing the digits after the decimal. 


STRATEGY: USE THE PROPER AMOUNT OF 

FLUENCY 

When determining the numbers in your price, you should also consider 

processing +luency. 

Processing Fluency -‐ The ease with which we process information. 

Our perception of prices can be influenced through the way we process 

them. Depending on the ease of processing (e.g., easy vs. difficult), we 

can infer certain characteristics about a price. 

This section will teach you how to choose numbers that will trigger the 

proper amount of fluency in your price. 

TACTIC 2: USE THE RIGHT AMOUNT OF “ROUNDEDNESS” 

One aspect to consider is the “roundedness” of your price. Round prices 

(e.g., $100) are processed fluently, whereas non-‐rounded prices (e.g., 

$98.76) are processed disfluently. 

Could one choice generate more sales? Researchers think so. 

Wadhwa and Zhang (2015) found that round prices – because they are 

fluently processed – work better for emotional purchases. When 

consumers can process the price quickly, the price “just feels right.” 

The researchers also found the opposite to be true. Consumers need to 

use more mental resources to process non-‐rounded prices, so those 

prices are more congruent with rational purchases. 


Despite the direct evidence, I’ll propose a caveat. Even if your purchase 

context is emotion-‐based, you should still avoid rounded price intervals 

(e.g., $100, $5,000). 

Researchers have found that price intervals can backfire. When 

consumers encounter a rounded interval, they usually believe that the 

price is artificially inflated, as if it was plucked from thin air 

(Janiszewski & Uy, 2008). 

So where can roundedness help? That principle can help you determine 

whether to add cents to your price. 

If your purchase is based on emotion, then leave out the cents. 

If your purchase is based on rationalization, then add some cents. 


TACTIC 3: CHOOSE NUMBERS WITH FEWER SYLLABLES 

Our brain uses more resources to process phonetically longer prices 

(which triggers a fluency effect). Since we use a larger amount of 

mental resources, we falsely infer that those prices must be larger. 

The flipside is more important. People will perceive your price to be 

lower if it contains fewer syllables. 

But Nick! When I see a price, I don’t say it out loud. I just read it. 

Same here. But according to research…that doesn’t matter. When you 

read a price in written form, your brain nonconsciously encodes the 

auditory version of that price (Dehaene, 1992). You don’t even need to 

verbalize the price in your mind — your brain encodes it either way. 

Still skeptical? Coulter, Choi, and Monroe (2012) found a positive 

relationship between syllabic length and perceived magnitude. Even if 

two prices have the same written length (e.g., $27.82 vs. $28.16), 

people perceive the phonetically longer price to be higher in 

magnitude. 


STEP 2: INFLUENCE 

THEIR PERCEPTION 

“All our knowledge has its origin in our perceptions.” 

-‐Leonardo da Vinci 

Nothing in this world has concrete meaning. Everything we know 

results from our perception. At the end of the day, price is merely a 

perception. Nothing more. Nothing less. 

And that’s good news for you. There are no universal standards that 

dictate whether a price is high or low – it all depends on perception. 

With some clever tactics, you could transform a price from high to low, 

without ever changing the actual price (only people’s perception). 

In order to appreciate the psychological strategies in this section, you 

need to understand how people develop their perception of prices (and 

why they would perceive a price to be high or low). 

STRATEGY: REFRAME YOUR PRICE 

As I mentioned in that video, you can influence people’s memory for 

your price. When people compare your price to a reference price, you 

can influence them to pull a lower price into that comparison. 

This strategy takes advantage of our brain’s laziness for encoding 

numerical values. Adaval and Monroe (2002) explain that: 

“…price information about a product is unlikely to be 

coded into memory in terms of exact numerical digits 

but, rather, is coded spontaneously in more general 

magnitude terms (e.g., “low,” “high”). Thus the 

numerical price is susceptible to the influence of its 

original context when people attempt to reconstruct it 

later.” (pp. 585) 


Due to our lazy encoding, we don’t encode the actual values of 

numbers, only their general magnitude. With such a hazy memory, you 

can influence how people recall your price (and whether they perceive 

it to be high or low). 

You just need to reframe your price into a lower numerical value. This 

section offers a few tactics that can help. 

TACTIC 4: KEEP THE SHIPPING AND HANDLING SEPARATE 

If you sell products online, you should usually separate the shipping 

and handling fees. 

When you use “partitioned pricing” (i.e., breaking up your total cost 

into multiple components), you anchor people on your base price, 

rather than the true total cost (Morwitz, Greenleaf, & Johnson, 1998). 

When people compare your price to a reference price, they’ll be more 

likely to pull your base price into the comparison. 

Hossain and Morgan (2006) tested that possibility with eBay auctions. 

They set up auctions for music CDs, and they analyzed different bidding 

structures. 

Some auctions offered a low opening bid with a shipping cost 

(e.g., $0.01 with $3.99 shipping). 

Some auctions offered a higher opening bid without a 

shipping cost (e.g., $4 with free shipping). 

In the end, auctions with low opening bids (with shipping charges) 

attracted more bidders and generated more revenue. Oh…and Clark 

and Ward (2002) found similar results with auctions for the 

“Charizard” Pokemon card. 


TACTIC 5: OFFER PAYMENTS IN INSTALLMENTS 

When you give people the option to pay for your product in smaller 

increments (rather than one lump sum), you anchor people on the 

smaller price. 

Suppose that you’re selling an online course for $499. By offering 

payment installments (e.g., 5 payments of $99), you taint people’s 

comparison process. When they generate a reference price for 

comparison, they’ll be more likely to compare your installment price 

($99) to a competitor’s lump sum price (e.g., $500) – a huge difference 

that makes your offering much more appealing. 

But you shouldn’t get the wrong idea. People aren’t stupid. They know 

that comparing $99 and $500 isn’t an accurate comparison. 

Luckily, though, it doesn’t matter. Since people usually compare 

reference prices subconsciously (Muzumdar & Sinha, 2005), your 

installment price has a good chance of sneaking into their comparison. 


TACTIC 6: MENTION THE DAILY EQUIVALENCE 

Similarly, you can achieve the same effect by reframing your price into 

its daily equivalence (e.g., $0.87/day). Often referred to as “pennies-‐a-day” 

pricing, this strategy influences people to perceive a lower overall 

price (Gourville, 1998). 

You should still make your regular price the primary focus. Simply 

mention the daily equivalence. That low number will anchor people 

toward the lower end of the price spectrum. 

If you have trouble reframing your price into a specific daily cost, 

Gourville (1999) found that you can also achieve the same effect by 

comparing your price to a petty cash expense (e.g., cup of coffee). 

STRATEGY: PRIME A SMALL MAGNITUDE 

The previous strategy explained how numerical anchors can influence 

people’s perception of your price. By mentioning a lower version of 

your price, you alter the way people compare your price to a reference 

price, putting the odds in your favor. 

However, anchoring effects can stem beyond numerical values General 

magnitudes can also influence people’s perception. 

For example, Oppenheimer, LeBoeuf, and Brewer (2007) asked 

participants to draw either small or long lines. They found that people 

made lower numerical estimates if they had drawn shorter lines. 


If you want people to perceive your price to be smaller, you need to 

associate all of its related features with a small magnitude. Similar to 

fluency, when certain features of your price are related to a small 

magnitude, those associations influence people to perceive a smaller 

numerical size. 

Here are some tactics that can help. 

TACTIC 7: POSITION PRICES TOWARD THE BOTTOM-LEFT 

If you want people to perceive your price to be smaller, you should 

physically position your price to be on the left (Coulter, 2002). 

It sounds odd, but hear me out. 

Research shows that directional cues can prime related concepts. For 

example, your spatial concept for “up” is metaphorically associated 

with good qualities: 

“In the Bible, for example, the righteous go ‘up’ to 

Heaven, whereas sinners go ‘down’ to Hell. In the 

media, movie critics give good movies ‘thumbs up’ and 

bad movies ‘thumbs down.’ …people who smoke 

marijuana ‘get high,’ but when the euphoria 

diminishes, they ‘come down’…” (Meier & Robinson, 

2004, pp. 243) 

Due to our association between “up” and “good,” priming the spatial 

concept of “up” can trigger associations with “good.” For example, 

Meier and Robinson (2004) found that people recognized positive 

words faster when those words were positioned toward the top of a 

screen (whereas people recognized negative words faster when they 

were positioned toward the bottom). 

The same principle applies to numbers. Dehaene, Bossini and Giraux 

(1991) found that people conceptualize numbers on an imaginary 

horizontal line, with numbers growing larger from left to right. 

In their study, they presented participants with digits ranging from 0 

and 9, and they asked participants to indicate its parity (i.e., whether 


the number was odd or even). As expected, people responded faster to 

smaller numbers when they were using their left hand (and vice versa). 

In other words, people responded faster with the hand that matched 

the same side of their imaginary numerical scale. 

How does that finding relate to pricing? 

Since we conceptualize smaller numbers as belonging on the left, 

positioning prices toward the left will trigger people’s 

conceptualization for a smaller magnitude, thus altering their 

perception of your price (Coulter, 2002). 

Since we can also associate numbers with a vertical magnitude (with 

smaller numbers positioned toward the bottom), you might want to 

position your prices toward the bottom-‐left. 

TACTIC 8: USE A SMALLER FONT SIZE 

In addition to directional cues, the physical size of your price can also 

influence people’s perception. 

Thanks to processing fluency, you can influence people to perceive your 

price to be smaller if you display that price in a smaller font. This tactic 

is particularly effective when you contrast your price with a larger 

sized reference price (Coulter & Coulter, 2005). 

This effect might also apply to your font’s kerning – the spacing 

between letters. Fonts with smaller kerning should influence people to 

perceive a lower magnitude for your price. 


TACTIC 9: REMOVE THE COMMA WHEN POSSIBLE 

Besides font size and kerning, another consideration is punctuation. In 

fact, researchers found that removing commas (e.g., $1,499 vs. $1499) 

can influence people to perceive your price to be lower (Coulter, Choi, 

and Monroe, 2012). 

Why does that happen? Although physical length plays a role, that tactic 

uses another principle that I’ve already mentioned. 

Give up? When you remove the comma, you reduce the phonetic length 

of your price. 

$1,499: One-‐thousand four hundred and ninety-‐nine (10 

syllables) 

$1499: Fourteen ninety-‐nine (5 syllables) 

Consistent with fluency, that adjustment will influence people to 

perceive your price to be lower. 


TACTIC 10: USE “CONGRUENT” LANGUAGE 

Be careful when choosing the language near your price. Certain words 

can taint people’s perception. 

For example, Coulter and Coulter (2005) presented participants with 

various descriptions for an inline skate. Some descriptions emphasized 

a “Low Friction” benefit, whereas other descriptions emphasized a 

“High Performance” benefit. Even though participants rated those 

benefits as equally important, participants were more favorable toward 

the price when the description contained “Low Friction.” 

When you choose the language near your price, choose words that are 

“congruent” with a small value (e.g., “low,” “small,” “tiny”). 

TACTIC 11: BE PRECISE WITH LARGE PRICES 

Thomas, Simon, and Kadiyali (2007) analyzed 27,000 real estate 

transactions. What did they find? Buyers pay more money when prices 

are specific (e.g., $362,978 vs. $350,000). 

Is it because of the negotiation aspect? If someone asks for a very 

specific price, wouldn’t potential buyers perceive less room to 

negotiate? 

That’s what I thought. But nope. Researchers ruled out that possibility. 

Surprisingly, the real culprit involved priming a small magnitude. 

Think about it. When are you more likely to use a precise value? 

Answer: when you’re dealing with small numbers (e.g., 1, 2, 3). 


Due to the association between precise numbers and small values, 

precise numbers trigger an association with small values, thus 

influencing people’s perception. 

Bonus Tip: Since a house is a rational purchase, you could enhance the 

psychological impact by using a precise, non-‐rounded number (e.g., 

$362,798.76) 

STRATEGY: MAXIMIZE THEIR REFERENCE 

PRICE 

The past two strategies helped you lower the perceived magnitude of 

your price. However, you can achieve the same effect by maximizing the 

perceived magnitude of people’s reference prices. 

This section offers a few tactics. 

TACTIC 12: START NEGOTIATIONS WITH A HIGH PRECISE 

NUMBER 

Due to anchoring, it’s no shocker that sellers can get more money by 

starting negotiations with a high initial offer (Galinsky & Mussweiler, 

2001). That high number establishes an anchor point, pulling the final 

settlement closer to that range. 

Not only should you start with a high initial price, but you should also 

use a precise value. In one study, Janiszewski and Uy (2008) asked 

participants to estimate the actual price of a plasma TV based on the 

suggested retail price – either $4,998, $5,000, or $5,012. 


When participants were given precise values ($4,998 and $5,012), they 

estimated the TV to have significantly higher value. When the 

suggested price was rounded ($5,000), participants attributed much 

less value to the TV. 

Why does that happen? When we conceptualize precise numbers, we 

use a mental ruler with more units. 

When we adjust our judgment away from a precise anchor point, we 

move past fewer units. As Thomas and Morwitz (2002) explain: 

“If adjustment is viewed as movement along a 

subjective representational scale, then the resolution 

of this scale might also influence the amount of 

adjustment. X units of adjustment along a fineresolution 

scale will cover less objective distance than 

the same number of units of adjustment along a 

coarse-resolution scale.” (pp. 121) 

That insight works particularly well in eBay auctions. When creating 

your auction, you can generate more revenue by establishing a high 

reserve price -‐ a price that needs to be met in order for the item to be 

sold. Higher reserve prices anchor people toward the higher end of the 

price spectrum (Kamins, Dreze, & Folkes, 2004). 


TACTIC 13: EXPOSE PEOPLE TO A HIGHER “INCIDENTAL” PRICE 

Given our tendency to assimilate toward an anchor point, could 

exposure to high prices – even for unrelated products – anchor people 

toward the higher end of the price spectrum? Would those people be 

willing to pay a higher price for your product? 

Nunes and Boatwright (2004) tested that possibility. On a popular 

boardwalk in West Palm Beach, the researchers sold music CDs. Every 

30 minutes, the adjacent vendor alternated the price of a sweatshirt on 

display – either $10 or $80. 

What happened? You guessed it. The sweater’s price tag anchored 

people toward the respective ends of the price spectrum. When the 

price of the sweatshirt was $80, shoppers paid higher prices for the 

CDs. 

If you’re selling items on eBay, you might want to mention some of the 

other items you have for sale (the more expensive items, of course). 


TACTIC 14: EXPOSE PEOPLE TO ANY HIGH NUMBER 

Anchoring not only works for prices, but it also works for any type of 

number – regardless whether that number is associated with a price. 

Perhaps the most striking example can be found in an experiment that 

Dan Ariely described in his book, Predictably Irrational. 

Ariely, Lowenstein, and Prelec (2003) showed participants various 

products (e.g., cordless keyboard, rare wine, Belgian chocolates). They 

asked participants whether they would purchase each product at the 

dollar amount equal to the last two digits in their social security 

number. 

After receiving a YES/NO answer, researchers then asked participants 

to state the exact dollar amount they would be willing to pay. 

Remarkably, the researchers found a direct correlation between the 

social security number and the price that participants were willing to 

pay. Here’s the data for one of the products, a cordless keyboard: 

How can you apply that finding? Should you simply ask customers to 

contemplate a high number? Not quite. Luckily, your job is easier. 


Anchoring effects occur subconsciously, so consumers don’t even need 

to contemplate a numerical anchor. In fact, anchoring effects occur for 

people who are subliminally exposed to a number (Adaval & Monroe, 

2002). Even if potential customers don’t consciously notice your 

numerical anchor, they just need to be exposed to it. 

If you run an online store, you could simply mention your total number 

of customers on the checkout page. 

TACTIC 15: RAISE THE PRICE OF YOUR PREVIOUS PRODUCT 

If you’re launching a new (more expensive) version of your current 

product, how should you price the old product once you launch it? 

Many businesses will lower the price of their old product to gradually 

phase it out of the market. However, that strategy is often the wrong 

approach. 

Baker, Marn, and Zawada (2010) suggest raising the price of your old 

product, especially before you launch the new one. By raising the price, 

you raise the reference price, enhancing the perceived value of your 

new product. Thus, you’ll be releasing the product into more favorable 

market conditions. 

Conversely, if you lower the price of your old product, you set yourself 

up for failure. You’ll reinforce a lower reference price, which will make 

your new product seem more expensive. 


STRATEGY: EMPHASIZE GAPS BETWEEN 

REFERENCE PRICES 

The first two strategies helped minimize the perceived size of your 

price. The previous strategy helped maximize the perceived size of 

reference prices. 

This next strategy will help you influence the actual comparison 

process. These tactics will help you maximize the perceived distance 

between your price and higher reference prices. 

TACTIC 16: VISUALLY DISTINGUISH HIGHER PRICE COMPARISONS 

When you compare your price to a higher price, people are more likely 

to buy your product because they feel less motivated to research the 

decision (Urbany, Bearden, & Weilbaker, 1988). They’ve already done 

their homework. 

But here’s a neat psychological trick to enhance that comparison. 

If you visually distinguish your price from a reference price (e.g., using 

a different font color), you trigger a fluency effect. Consumers will 

easily distinguish your price from a reference price, so they will 

misattribute that ease of distinction to a greater numerical distinction 

(Coulter and Coulter, 2005). 

In other words, the visual difference will cause people to perceive a 

greater numerical difference. 


That fluency effect not only works with font color, but it also works 

with physical distance. When your price is horizontally farther away 

from a reference price, people perceive a greater numerical distance 

(Coulter & Norberg, 2009). 

And don’t forget about font size. Smaller font sizes are especially 

effective when they’re positioned next to a larger reference price 

(Coulter & Coulter, 2005). 

TACTIC 17: OFFER A DECOY PRODUCT 

Oftentimes, people use your own products for reference prices. To 

ensure that their comparisons are conducive for your bottom line, you 

should consider adding a “decoy product.” 

You might be familiar with the infamous study that sparked this tactic. 

In Predictably Irrational, Ariely (2008) describes a strange offering 

from the Economist magazine. One day, he noticed three subscription 

options: 

Web Only: $59 

Print Only: $125 

Web and Print: $125 

At first glance, it seemed like the “print only” option was a mistake. 

Who would choose that option when you could choose a web and print 

subscription for the same price? 


However, Ariely noticed an underlying motive. He conducted a study to 

test his hunch, and he was right. The “print only” option made a huge 

difference. 

Without the “print only” option, people couldn’t accurately compare the 

options. How much should you pay for a web and print subscription? 

Who knows. Most people chose the web option because it was cheaper. 

However, the “print only” option helped people compare those two 

options. Because it was a similar, yet worse, version of the “web and 

print” option, people could easily recognize the value of the web and 

print subscription. With more people choosing the “web and print” 

option – a more expensive alternative – the Economist generated 43% 

more revenue. 


When you offer different versions of your product, people will naturally 

compare those options. To influence that comparison process (and to 

guide people toward the more expensive version), you can take the 

same approach. 

By adding a similar, yet worse, version of your expensive product, you 

influence the comparison process. Suddenly your more expensive 

product becomes more appealing. 


STEP 3: MOTIVATE 

THEM TO BUY 

Even if you reduce the perceived magnitude of your price, customers 

might still be stagnant. To spark movement, you should give them a 

nudge. 

This section will teach you some pricing tactics that can motivate 

people to buy. You’ll learn (1) how to reduce the “pain” we associate 

with paying and (2) how to properly use discounts to drive purchases. 

STRATEGY: REDUCE THE “PAIN OF PAYING” 

Each time we purchase something, we feel a sense of pain – often 

referred to as the “pain of paying” (Prelec & Lowenstein, 1998). 

More specifically, the pain emerges from two factors: 

Factor 1: The saliency of the payment (e.g., we feel more pain if we 

see money leaving our hands) 

Factor 2: The timing of the payment (e.g., we feel more pain if we 

pay after we consume) 

Considering those two factors, you can see why Uber – a ride-‐sharing 

service –revolutionized the taxi industry. 

In traditional taxi rides, the saliency of payment is very high. You see a 

meter constantly rising. Each minute evokes an increasingly painful 

sensation. Plus, at the end of the ride, the taxi driver makes you pay by 

cash or credit card. So. Much. Pain. 

Uber is different. No visual meter. No physical payments. Everything is 

automatically charged to your card. Much less pain. 


Credit card processing is one tactic to reduce the pain of paying, but 

you can reduce that pain in other ways too. This section will give you a 

few ideas. 

TACTIC 18: REMOVE THE DOLLAR SIGN 

The pain of paying can be triggered pretty easily. In fact, the dollar sign 

in your price can remind people of that pain, causing them to spend 

less. 

In one study from Cornell, a restaurant generated more overall revenue 

by removing the dollars signs from their menus (Yang, Kimes, & 

Sessarego, 2009). 

But don’t get too trigger-‐happy. Before you start removing dollar signs, 

you should consider the overall clarity of your price. 

Oftentimes, you need a dollar sign to indicate that your number is, 

indeed, a price. In those cases, don’t risk losing clarity by removing the 

dollar sign. Only use this tactic in formats where customers will expect 

a price to appear (e.g., restaurant menus). 

TACTIC 19: CHARGE CUSTOMERS BEFORE THEY CONSUME 

When possible, your customers should pay for your product or service 

before they use it. Prepayments benefit all parties involved. 

For one, you won’t be delivering your product or service without being 

compensated. You’ll be more likely to get paid (eh, getting paid is 

overrated, right?). 


Second, people will be happier with your product. When people prepay, 

they tend to focus on the benefits they’ll be receiving, which numbs the 

pain of paying. If they’ve already experienced your product’s benefits, 

their payment becomes significantly more painful (Prelec & 

Lowenstein, 1998). 

That insight can be helpful with monthly subscriptions. If you charge 

customers monthly payments, you should charge them at the beginning 

of the month (and frame your message in a forward-‐looking manner). 

Avoid sending receipts at the end of a month (or summarizing the 

previous month’s payment). You’ll just be rubbing salt in the wound. 

TACTIC 20: BUNDLE YOUR PRODUCT 

To reduce the pain of paying, you might consider bundling your 

product. When you offer a packaged product, people can’t attribute a 

specific dollar value to the items within your bundle. 

However, if you decide to bundle your offering, you should follow two 

important rules. Whichever product you add, it should be (1) hedonic, 

and (2) similarly priced. 

Let’s look at each scenario. 

First, your product should be hedonic (emotional), rather than 

utilitarian (rational). Since hedonic purchases trigger more guilt (Khan 

& Dhar, 2006), a bundle reduces that guilt, especially when you 

attribute the discount to the hedonic product. 

As Khan and Dhar (2010) explain: 


“…framing the discount on the hedonic item provides a 

justification required to reduce the guilt associated 

with the purchase of such items. However, since no 

such guilt is associated with the purchase of 

utilitarian items, framing the discount on utilitarian 

component of the bundle has little additional 

impact.” (pg. 18) 

If you can only add a utilitarian product, then describe a hedonic use 

for that product. Khan and Dhar (2010) tested a bundle that consisted 

of a $50 lamp and a $50 blender. People were more likely to purchase 

the bundle when the description emphasized a hedonic use for the 

blender (e.g., making exotic cocktails) compared to a utilitarian use 

(e.g., making healthy shakes). 

Second, avoid bundling expensive and inexpensive products. 

Inexpensive products reduce the perceived value of expensive 

products. When bundled together, people expect to pay a lower price 

for the bundle than for the expensive product alone. 

For example, Brough and Chernev (2012) asked people to choose 

between a home gym and a 1-‐year gym membership. Not surprisingly, 

51 percent of people chose the home gym. However, when the 

researchers bundled the home gym with a free fitness DVD, only 35% 

of people chose it. The fitness DVD reduced the perceived value of the 

home gym. 


TACTIC 21: SHIFT THE FOCUS TOWARD TIME-RELATED ASPECTS 

When describing your product, avoid mentioning any references to 

money. Instead, mention a concept that has a much more beneficial 

effect: time. 

Mogilner and Aaker (2009) set up an experiment with a lemonade 

stand. In particular, they alternated three signs advertising the stand, 

each emphasizing a particular quality: 

Time: “Spend a little time and enjoy C&D’s lemonade” $2.50 

Money: “Spend a little money and enjoy C&D’s lemonade” $1.38 

Neutral: “Enjoy C&D’s lemonade” $2.18 

When participants arrived at the stand, they were told that they could 

choose how much they wanted to pay – anywhere between $1 to $3. 

The results were clear. People who were exposed to the “time” sign 

paid twice as much (and that sign attracted twice as many people). 

The researchers attributed those results to a personal connection with 

the product: 

“Because time increases focus on product experience, 

activating time (vs. money) augments one’s personal 

connection with the product, thereby boosting 

attitudes and decisions.” (Mogilner & Aaker, 2009, pg. 

1) 

When writing copy, emphasize the enjoyable time that people will 

spend with your product or service. Not only will that message make 

your offer more appealing, but it will also distract people from the pain 

of paying. 


TACTIC 22: CREATE A PAYMENT MEDIUM 

What do casino chips and gift cards have in common? They both reduce 

the pain of paying. 

By creating a separate medium between your customers’ money and 

their payment, you distort the perception of paying. They’ll know that 

they’re paying, but it won’t feel like it. 

Why won’t it feel like paying? Researchers find that, with the presence 

of an additional medium, people are too lazy to calculate the conversion 

between those currencies (Nunes & Park, 2003). 

Here’s a cool idea to provide customers with a payment medium. When 

new customers open an account with your business, you could require 

them to deposit a refundable $10 into their account (to be used for 

your services). 

Since the money is refundable, customers shouldn’t feel too much 

additional resistance. More importantly, that payment medium will 

distort the essence of that money. Once it enters a separate medium, it 

won’t feel like money (and people will be more willing to spend it). 

You could also strengthen that perception by referring to that money as 

“[Your Company] Balance” (or any other name that avoids connotation 

with real currency). 


If you implement that strategy, you might also want to match customer 

deposits by a certain percentage. For example, if a customer deposits 

$10 into their account, you could match it by 10% (which would bring 

their account value to $11). 

By matching their deposits, you incentive customers to deposit more 

money. With the psychological impact of payment mediums, you should 

enhance the appeal of deposits as much as possible. 

But there’s another benefit too. Payment mediums reduce the pain of 

paying more heavily when the conversion is off-‐balanced. Dreze and 

Nunes (2004) explain that the effectiveness diminishes if consumers 

can easily convert values between mediums. 

“With increased exposure and experience, the 

conversion between two or more particular currencies 

can, in theory, become second nature. If this were the 

case, we would expect that combined-currency prices 

across the currencies lose their efficacy.” (pp. 72) 

STRATEGY: USE DISCOUNTS STRATEGICALLY 

If not used properly, discounts can actually harm your business. In fact, 

some people suggest that you should never use discounts. 

That advice is pretty extreme. You can use discounts…you just need to 

use them properly. 

Where can you go wrong? If used too frequently (or too deeply), 

discounts can lower people’s internal reference price for your product, 


causing them to buy less in the future (because your price will seem too 

high). 

Besides reducing the frequency and depth of your discounts, the tactics 

in this section will help you use discounts properly. 

TACTIC 23: FOLLOW THE “RULE OF 100” 

Earlier, you learned that people can perceive different magnitudes for 

the same price, depending on the context. 

Discounts are no different. 

When you offer discounts, you want to maximize the perceived size of 

them. That way, people feel like they’re getting a better deal. 

Consider a $50 blender. Which discount seems like a better deal: 20% 

off vs. $10 off? If you do the math, both discounts are the same 

monetary value. However, one discount has an advantage over the 

other. 

How do you pick? Jonah Berger (2013) suggests following the “Rule of 

100.” 

When your price is under $100, use a percentage discount (e.g., 

25% off). 

When your price is over $100, use an absolute value (e.g., $25 

off) 

In both cases, you’ll be choosing the discount with the higher numerical 

value (which will influence people’s perception of the magnitude). 


TACTIC 24: PROVIDE A REASON FOR THE DISCOUNT 

To avoid the negative effects of discounting, you might want to avoid 

the term “discount” (or at least provide a reason for the newly lowered 

price). 

For example, every-‐day-‐low-‐pricing stores often refer to supplier price 

cuts: 

“In advertising rollback prices, EDLP stores (e.g., Wal- 

Mart) often convey the message that additional cost 

savings they are able to obtain from suppliers are 

being passed on to customers. This explanation of 

additional price cuts within an EDLP store is 

presumably to minimize the negative effects of 

promotions on [internal reference 

prices].” (Mazumdar, Raj, & Sinha, 2005, pp. 88) 

When you convey a specific reason for the newly lowered price (e.g., 

clearance racks at clothing stores), you avoid the negative perception of 

discounting. 

TACTIC 25: AVOID DISCOUNTS WITH PRECISE NUMBERS 

Earlier, I explained that you should use precise numbers for large 

prices. Since people associate precise numbers with small values, you 

can influence people to perceive large prices to be smaller in 

magnitude (Thomas, Simon, and Kadiyali, 2007). 

With discounts, you want to maximize the perceived magnitude. 

Choosing discounts with precise numbers can actually hurt you. Those 

precise numbers will make your discount seem smaller. 


Supporting that notion, Thomas and Morwitz (2006) found that people 

perceive a smaller magnitude between numbers that are very precise. 

In their study, people perceived the difference between 4.97 – 3.96 to 

be smaller than the difference between 5.00 – 4.00, even though the 

difference is roughly the same (1.01 vs. 1.00). 

To maximize the perceived magnitude of your discount, use rounded 

values. Customers should be able to compute the general magnitude 

pretty easily. 


STEP 4: MAXIMIZE YOUR 

REVENUE 

Your job doesn’t end when a customer purchases from you. Whether 

you want repeat purchases or a continuation of your subscription 

service, healthy businesses generate multiple streams of revenue from 

existing customers. 

This section will teach you a few pricing strategies that play a role in 

your long-‐term revenue. You’ll learn (1) how to make price increases 

more undetectable and (2) which pricing strategies can damage your 

reputation. 

STRATEGY: MAKE PRICE INCREASES 

UNDETECTABLE 

In a world with inflation, it’s inevitable. Your prices will increase at some 

point. 

Since most people are familiar with inflation, they’ll be forgiving, right? 

Surely, they’ll understand. 

Unfortunately, it’s not that easy. Despite inflation and other valid 

reasons, most consumers don’t see the justification for price increases. 

Bolton et al. (2003) analyzed that perception. They found that 

consumers “underestimate the effects of inflation, overattribute price 

differences to profit, and fail to take into account the full range of 

vendor costs.” That’s unfortunate. 

Although you won’t be able to eliminate all negative effects from price 

increases, you can make those price increases more undetectable 

(without being manipulative). 


TACTIC 26: USE MORE FREQUENT (YET SMALLER) PRICE 

INCREASES 

The easiest way to control price perception is through the just 

noticeable difference (JND). 

Just Noticeable Difference – The minimum amount of change that 

triggers detection (i.e., the difference that’s just noticeable) 

If your price is $11.79, an increase to $14.99 will be more detectable 

than an increase to $12.99. 

In theory, that concept is very intuitive. Obviously people will notice 

larger price increases. Duh. 

In practice, however, that principle is very counter-‐intuitive. Many 

businesses are afraid of increasing their prices, so they save that tactic 

as a last resort. They usually wait until it’s absolutely necessary to do it. 

However, if you reach that point, then you’ll usually be desperate for 

revenue. You probably won’t be able to increase your price by a tiny 

amount. You’ll need to increase it by a noticeable amount. 

If you know that you’ll need to increase your price eventually, you 

should use more frequent (yet smaller) changes. Avoid waiting until 

the moment of desperation. 

With more frequent price increases, you also avoid reinforcing an 

internal reference price. If your price stays the same for years, then 

people will become accustomed to your price at that specific level. Once 

you change your price, people will be more likely to notice. 


TACTIC 27: DOWNSIZE A FEATURE BESIDES PRICE 

You can also use the just noticeable difference for other aspects of your 

product. 

Food marketers know that consumers are pretty familiar with prices, 

so they often avoid price increases by reducing the physical size of their 

products (e.g., potato chip bags, candy bars, etc.). 

By reducing physical size by a small amount, food marketers lower 

their costs and increase their margin. More importantly, they increase 

their revenue without increasing their price (or alerting people to any 

negative changes). 

If you decide to downsize your product, you should reduce the size of 

all three dimensions — height, width, and length — by an equal 

amount. Consumers are less likely to notice a change in all three 

dimensions (Chandon & Ordabayeva, 2009). 

Downsizing a feature in your product can be risky. If consumers detect 

a mischievous intent, you can lose trust and lower sales. 

To maximize your revenue, you need to maintain and cultivate 

customer loyalty. The next strategy will describe certain pricing 

strategies that could damage your reputation. 


STRATEGY: AVOID HARMFUL PRICING 

STRATEGIES 

Certain pricing strategies can leave a bad taste. This section will teach 

you which ones to avoid. 

TACTIC 28: DON’T USE BAIT-AND-SWITCH PRICING 

When I was searching for apartments, I noticed an incredibly good deal 

on Craigslist. I visited the complex the following day, and I was blown 

away by the luxuriousness. 

Unfortunately, my starry-‐eyed naiveté didn’t last long. The deal was too 

good to be true. The price from the listing was a blatant lie – the 

cheapest apartment in the entire complex was an additional $250/ 

month. Yep, I was a victim of bait-‐and-‐switch pricing. 

Bait-‐and-‐Switch Pricing – Marketers promote an extremely low 

priced product to pull people into a store. When people arrive at the 

store, the product is unavailable (e.g., sold out, nonexistent). 

Marketers then try to upsell those customers to a more expensive 

product. 

Bait-‐and-‐switch pricing is not only unethical, it can also be illegal in 

some cases. 

Even if it were legal, that deception triggers a negative response, which 

can often lead to lower sales (Ellison & Ellison, 2009). 


TACTIC 29: BE CAUTIOUS WITH DYNAMIC PRICING 

Over the past decade, more businesses have been dynamically 

adjusting their prices for different customers. Based on a variety of 

factors, their algorithm spews out a price that should lead to the 

highest amount of revenue. 

That trend is known as dynamic pricing. Even though it seems 

appealing, you should usually avoid it. While it can boost sales in the 

short-‐term, Dai (2010) found that it can lower sales in the long-‐term: 

“Although dynamic pricing is attractive because it has 

the potential to maximize a seller’s profit, the results 

of this study indicate that charging different prices for 

the same product can trigger negative price fairness 

judgments which lead to negative behavioral 

intentions.” (pg. 86) 

Is dynamic pricing always bad? Not necessarily. Dynamic pricing can be 

effective when adjustments are based on supply and demand (e.g., 

stadiums trying to fill remaining seats). 

Dynamic pricing becomes harmful when adjustments are based on a 

customer’s willingness to pay. You should avoid charging different 

prices based on past behavior, demographics, or any other factor 

besides natural supply and demand. 


CONCLUSION 

Did you trudge through the entire article? Then you’re a brave soul, my 

friend. And you deserve a huge pat on the back. I spent a ton of time 

researching and writing, so I hope you found the insights helpful. 

Before parting ways, let’s look at a few final topics. 

SHOULD YOU A/B TEST YOUR PRICES? 

My recommendations are often bizarre. I get that. That’s why I always 

include academic citations. 

That’s also why I recommend A/B testing my suggestions. Theory is 

great. However, theory and practice don’t always align. If you were to 

A/B test images from my article on stock photos, not every test would 

be successful. 

That means you should test pricing, right? Well…here’s the thing. 

Pricing is a different animal. If customers see two different images, no 

problem. If customers see two different prices, uh-‐oh. You’ve got a 

problem. 

It’ll always depend on the situation. But here’s my usual 

recommendation: you shouldn’t A/B test your prices. 

You could test different features of the price (e.g., color, size, location). 

However, you should avoid running A/B or multivariate tests on the 

actual price itself. 

If you’re gung-‐ho about testing your price, then you should run a more 

controlled experiment. Send customers a survey (ideally, with a 

conjoint analysis segment). That way, you’re not altering the price for 

real customers in real-‐time. 


ONE FINAL PRICING TACTIC 

Instead of reiterating all of the pricing strategies, I want to end with 

one final tactic — the most important tactic in this list. 

If you still have trouble justifying your price to customers — even after 

implementing the strategies in this article — then you might not have a 

pricing problem. You might have a problem communicating the value of 

your product. 

Instead of focusing on a new price, try adjusting your value proposition 

to better convey the value of your product or service. 

What makes your product special? 

How is it better than other products? 

Why would customers enjoy it? 

Oftentimes, you can solve your pricing problem by communicating the 

value more effectively. 

With that tactic — and all of the other psychological pricing strategies 

in this article — you should be able to justify your price much more 

easily.

The Psychology of Pricing A Gigantic List of Strategies

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