Saving Smart Spending

The Science of Sales Pricing: How to Avoid Being Swayed

Written by Beth Trach

Did you know that there are researchers out there who spend their time trying to figure out which price points are most likely to get you to make a purchase?

It’s true. Though it seems like coming up with a price would be easy, there’s actually a lot that goes into it. In addition to figuring out supply and demand basics, companies also want to take advantage of some good old-fashioned human psychology to influence your purchasing habits.

If you’re not careful, you could move a lot of items into your shopping cart that aren’t actually a very good deal — even though their price tags make you think they are.

To avoid spending more than is strictly necessary, take a look at the science of sales pricing so you can recognize when you’re getting a truly excellent sales price — and when you’re being manipulated.

Pricing Basics

At its most simple, pricing comes down to adding up all the costs that go into producing an item and then tacking a profit margin on top of that. For a kid’s lemonade stand, it’s easy: Add up the cost of sugar, lemons, water and paper cups; then divide that total by the number of cups you can get out of those ingredients. If you’re really fancy, you’ll figure in the cost of poster board and markers used in advertising, too. Then you add to the per-cup cost so that you actually make more than you spend on raw materials, and you’ve got your price.

It’s basically the same for big businesses, but their overhead expenses are more complicated. There’s also the price of utilities, factory costs, employee benefits, and a whole lot of other factors. Savvy retailers also pad that profit margin at first so they have plenty of room to drop their prices for sales later and still make money.

This is why you should never buy something at full price unless you’re really desperate — there’s nearly always room for a sale baked into the original price.

Supply and Demand

Modern pricing science gets more interesting when you consider the effect of supply and demand on goods. If something is scarce, sellers can charge more because people are willing to pay extra to make sure they get it. Likewise, if an item is everywhere, the price will come down thanks to lots of competition for your attention.

There’s also a lot of science that goes into “demand pricing” these days. Buying a plane ticket is a great example: On busy holidays, airlines can jack up the prices because they know people will pay it. This is also how Uber operates during rush hour, and it’s why a winter coat is cheaper in March than it is in October.

The lesson? If you can adjust your life so that you can buy things at your leisure instead of in a last-minute rush, you can save a lot of money. The same goes for planning travel during the off-season.

The Tricky Stuff

Beyond the basics of pricing, there’s a whole lot of psychology behind sales pricing. A store like Kohl’s may not always have the best prices, but they work really hard to make you think you’re getting a terrific deal. Here are some of the tricks of the trade that make sales prices irresistible — even when you should walk away:

  • Price Anchoring: If a store wants to move an item, they know that they can surround it with similar things that have higher prices. This will make you feel like you’re getting a good bargain in comparison, and could even convince you that sale item is worth more because of the company it keeps.
  • The Magic Number 9: Sales prices end in 9 or 99 for a reason. It’s an easy way to tick the price down by what looks like a dollar (or ten!), but it’s really just by a tiny bit. Still, this tactic works, and studies show that people are highly attracted to prices with a 9. If you see one, pause to do that math before you close the deal.
  • Missing Dollar Signs: This happens a lot on menus, but you might see it in upscale retail joints, too. Price tags without dollar signs aren’t just pretty: They tend to make you think things are cheaper, because you’re very subtly not thinking in terms of money. To overcome this trick, take out your hone and type the prices with dollar signs as you comparison shop.
  • Missing Commas: Similarly, if you’re shopping for a big-ticket item, be on the lookout for price tags that go into the thousands without adding a comma. $1299 looks cheaper than $1,299 because the comma emphasizes the thousands place by offsetting it. Again, type those prices with commas in your notes as you shop around to make an end run around this trick.
  • Beware of Decoys: You know all those “as seen on TV” gadgets that come with a bunch of freebies if you call now? These are designed to make the total price seem lower, but really, they’re always going to throw those in. Sellers know which choice they want you to make, so beware of decoy prices that are either too high or super-low but don’t come with the best features. When things are bundled, add up the a la carte prices to see if the deal is really a deal before you buy.

The best way to make sure you’re getting a truly great sales price? Comparison shop. There are loads of apps and websites designed to help you check in on the competition, so you won’t be so easily swayed by anchor pricing, decoys and inflated original prices while you shop. Even though you can only physically be in one store at a time, the internet puts every retailer at your fingertips with just a few clicks.

Got any tips for avoiding the hype when it comes to sales pricing? Let us know in the comments!

About the author

Beth Trach

Elizabeth Trach is a writer and editor living in Newburyport, MA. She also sings in a band, grows almost all her own food, and occasionally even cooks it. You can catch up on all her adventures in frugal living and extreme gardening at Port Potager.

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