Psychological Pricing

Thursday, September 29, 2022
By dreeves

A gas station sign advertising $9.999/gallon gas

The other day (a Very Other day, because I’ve pulled this from the bottom of Quite A Pile of blog post drafts) we were musing idly amongst ourselves about what the psychological effect would be if Beeminder pledges were amounts like $4.99.

The answer is it doesn’t matter because I can’t stand so-called psychological pricing, where you subtract a penny from the price to make it appear cheaper. It almost makes me hate capitalism. No way will Beeminder ever exploit that. Unless we have some kind of beehavioral economic reason to exploit it for Good, I suppose. (We don’t, because, for Beeminder, $5 should sting more, psychologically speaking, than $4.99, so that’s more motivational bang per buck. Incentive alignment!)

“You’re exploiting the customer’s constrained attention with the goal of implanting an inaccurate perception of the actual price”

But so far my argument for why companies in general shouldn’t do that amounts to a barf emoji. Can we put the case against psychological pricing on firmer philosophical principles? Yes, this is my favorite thing to do.

I think the answer is that pricing things a penny below a round number is deceptive. You’re exploiting the customer’s constrained attention with the goal of implanting an inaccurate perception of the actual price.

Now that I put it that way, I’m actually angry that this is a thing. And of course psychological pricing is downright benign compared to other crap companies pull. Like blatantly hidden fees and such. Not to mention things like Volkswagen’s Dieselgate.

(I guess that was timely when this blog post draft materialized in our backlog. But the fact that we’ve pretty much forgotten Dieselgate by now really proves my point.)

Not to get too I-have-a-dream about it but one can imagine a version of capitalism where this isn’t a problem. A stronger Better Business Bureau or Consumer Reports, or just different social norms, could solve it. There are already lines companies can’t cross, things that consumers do not remotely put up with, like the CEO kicking puppies on YouTube. Why not include any kind of sociopathic corporate behavior? Even small instances of trying to trick you, the kind of thing a friend could never possibly do and stay your friend. I don’t know that psychological pricing rises to this level but there’s so much that consumers should rightly be horrified by and walk away from en masse. But since all big companies are like that, consumers just feel stuck and are apathetic. We need to break out of this sucky equilibrium!

So let this be a call for solidarity and a call-to-arms. Fellow startups, don’t stoop even to mild shadiness like psychological pricing. And fellow consumers, cultivate more outrage when companies try to trick you!

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