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 listings that means a price tag of £400,000 becomes £399,999 (or more commonly £399,950). So, should property listings utilise these psychological pricing techniques i.e. do they work? Well, the answer is yes and no, which I’ll now explain.
Yes they do work, 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 number 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!
For me, it’s more important to consider the pricing within the context of the market and how it stands up against the competition.
Referring to another bit of customer psychology though, the ‘big round numbers’ are of more significance when listing a property for sale or let. I once saw a property marketed at £251,750, which I thought was quite bizarre; how many people do you think set a maximum budget of £250,000?! Similarly, it’s why some rental properties that may well be worth £1,050pcm get dragged down to £1,000pcm, as this will open a far greater number of prospective tenants.
So, next time you’re scrolling through the property portals, why not have a play with its search tool and see the price increments they use so you can understand how this may fit in. Be sure to let me know whether you think using psychological pricing when it comes to property listings is a good or bad idea.
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