One day, my mom and brother went shopping for some t-shirts. They were looking for a gift, something nice but not too pricey. They picked up two similar green t-shirts and asked if there were any discounts. To their surprise, both were on sale. One had a 25% discount and the other had a 30% discount. The prices were $89 and $99.
Without doing the math, my mom thought the t-shirt with the bigger discount would be cheaper. It seemed logical because a bigger discount should mean a better deal, right? But my brother quickly calculated the final prices: the 25% off t-shirt would cost $66.75, and the 30% off t-shirt would cost $69.30.
So, the t-shirt with the bigger discount was actually more expensive. After realizing this, my mom decided to buy the first one.
It might make sense if the real cost of making the t-shirts (like the raw materials and production) were different, but brands aren't always that honest. Today, let's see how these brands trick us into buying things we didn't really plan to buy.
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The tried and tested 99 ending
You might be surprised to know that, as also mentioned here, the 99 pricing didn't start as a marketing trick.
Here's a bit of history: In the early 1900s, when cash registers were new, store owners started charging $0.99 instead of $1. This was to make sure employees opened the cash register to deposit the money and didn't pocket it.
If something cost $5 and someone paid exactly that, the employee could just keep it. So, owners started pricing items at $4.99 instead. This way, the cashier had to open the register to give change.
But why did it prove to be such a successful trick?
It has something to do with the Left Digit Bias. The bias arises when people focus more on the first digit of a price. For example, they think there's a big difference between $10.00 and $8.99 but not much difference between $12.01 and $11.00. This happens because the first set of numbers looks more different than the second set.
Factors like not having other prices to compare to and looking at prices digit-by-digit make this bias stronger. People who don't know much about the product or its usual prices are more likely to be influenced by Left Digit Bias. They might think price differences are bigger than they really are.
The Decoy
Have a look at the Zoom pricing page.
It's so tempting to go for Business Plus instead of Business. Even though they offer Business, it feels like Business Plus is a better deal for the money.
Decoy pricing is a trick businesses use to make you choose a specific product. They show you several options to steer you toward the one they want you to pick, called the target. They add another option, the decoy, which is less appealing. This makes the target look better by comparison.
This strategy works because we tend to avoid things we think are low value. By using a decoy, sellers make the more expensive, profitable product seem like the best deal.
Anchoring
Now let’s take a look at this website.
I chose the option for 500 contacts, but noticed some small wording changes. "Phone & Priority Support" was changed to "24/7 Email & Chat Support" and "Dedicated Personalized Onboarding" to "Personalized Onboarding." These minor changes increased the price from $7 to $137.
Even if we scale up to the maximum of 100,000 contacts that the Standard Plan can support, the price difference remains huge.
So what's going on here? Why would anyone choose Premium over Standard for anything less than 100,000 contacts? Even the company wouldn't expect anyone to make that choice. But then, why offer that option at all for lower contact range?
Price anchoring is a way to make you think something is a good deal. It works because people rely too much on the first piece of information they see (the anchor) when making decisions.
Here's how it works: a store shows you an expensive item first, like a $200 jacket. Then, when you see a $100 jacket, it feels like a bargain because your mind compares it to the $200 one. The first price you see becomes an "anchor" that influences how you see other prices.
It's a trick to make you more likely to buy something by making it seem cheaper than it really is.
Discounts and Sales
Discounts and sales manipulate customers into thinking they’re getting a great deal. Most of the time, we don’t know the actual prices of items, so it’s hard to tell if we’re really saving money. Sales create a sense of urgency and make us feel like we’re missing out if we don’t buy now. Sometimes, the discounts are fake because the prices were inflated before the sale. This makes the discount look bigger than it really is. All these tricks make us believe we’re buying things much cheaper, even when we might not be.
And then there's the trick of double discounts. A 30% + 30% discount isn't really a 60% discount. It's 30% off the remaining 70%, which is more like a 51% discount.
You can play all sorts of games with this. A 40% + 40% discount isn't 80%; it's 64%, and so on.
What happens if a company skips all these tricks?
In 2011, JC Penney hired Ron Johnson as the new CEO, replacing Mike Ullman. Johnson made a bold move in 2012 by eliminating most of Penney's discounts. He introduced a simpler pricing plan with everyday prices, monthlong special values, and clearance prices. He also added cheerful catalogs and ads, and new brands in the stores. Prices will now end in "0" instead of "99," and price tags will show just one price, without mentioning the "previously sold at a higher price" convention.
This was a risky change, and it didn't work out. In 2011, JC Penney made $64 million in the first quarter. But by the first quarter of 2012, it lost $163 million.
Ron Johnson later reflected on this, saying, "Experience is making mistakes and learning from them, and I have learned a lot. We worked really hard and tried many things to help the customer understand that she could shop any time on her terms. But we learned she prefers a sale. At times, she loves a coupon."
People are still more attracted to offers from other companies. You'll always pick a $14 dress with a 50% discount over a JC Penney dress sold for $7 flat.
This is because a $14 dress seems more valuable if you can get it for $7 on a special sale day, rather than always being $7. Even without a time-limited sale, a $14 dress at 50% off feels more worth it than one priced at $7 every day.
Until next time…
So, what can we learn from all this? Retailers use many tricks to make us feel like we're getting a great deal. From misleading discounts to clever pricing strategies, it's all about making us spend more money.
Next time you go shopping, be aware of these tactics. Don't be fooled by a bigger discount or a flashy sale. Take a moment to do the math and see if you're really getting a good deal. And remember, sometimes the best way to save money is simply not to buy something you don't really need. Happy shopping!
