Does psychological pricing work?

If you’re wondering what psychological pricing is, it’s where retailers set the price of something to make it appear cheaper than it is using a simple trick of the mind. This typically means using a 5, 7 or 9 to round off a price, rather than using a round number. The classic is something that costs, say, £4.99. Wow, that’s much less than £5 right! Well to most humans it is, hence why retailers do this. It’s to do with our primitive brains looking at the first digit and ignoring the rest.

In the world of property that means a price tag of £400,000 becomes £399,999, or more commonly £399,950.

So, does psychological pricing work for property? Well, the answer is yes and no, which I’ll now explain.

Yes it does, in that £399,950 does at first appear much cheaper than £400,000. In the olden days when property buyers would look in estate agents shop windows and the local newspaper listings this worked well. Plus, when people would contact estate agents to enquire what properties they had for sale, the estate agent would be able to say it cost “3-9-9-950”, which sounds a lot cheaper than the one next door who said “400-thousand”.

However, in today’s mainly online world i.e. where people scroll through the property portals, there are a few major downsides to continuing with this old method of psychological pricing.

Firstly, the default of the property portals is to list properties by ‘highest price first’. That means the property listed at £400,000 actually appears higher up the page than the one at £399,950, unless the user has played around with the sort function.

Secondly, most people will use the search parameters to narrow down the amount of properties that are shown. The £399,950 and £400,000 price tags will both show up when someone enters a maximum budget of £400,000. But the next level up may be someone with a £450,000 budget, who therefore sets a minimum price of £400,000 to narrow the field. Now, the property listing of £399,950 is cut from the search entirely!

And thirdly…..it doesn’t work as well anymore as people have grown wise of this ruse!

You should also consider the ‘big round numbers’ when listing a property. I’ve just seen a property reduced to £251,750….what a bizarre figure! How many people do you think set their maximum budget at £250,000? I can tell you that it’s a lot, and this estate agent has just wiped out a whole bunch of people from even seeing this property when they click ‘search’.

So, next time you’re scrolling through the property portals, why not have a play with its search tool and see the price increments it uses and let me know whether you think psychological pricing when it comes to property listings is a good or bad idea.

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