Most founders and marketers still treat pricing as a spreadsheet exercise. Cost + margin + “what competitors do” = price. Then they wonder why conversions are weak.
In reality, pricing is 30% maths, 70% psychology.
Two products, same cost structure, same value… but different presentation, anchors, and options can perform radically differently. I’ve seen SaaS tools double their MRR and ecommerce stores lift AOV by 25% just by changing how prices are framed – without touching the product.
In this article, we’ll walk through psychology-backed pricing strategies you can apply today to both digital and physical products. No theory for the sake of theory – only tactics you can A/B test this week.
Why pricing is more about brains than spreadsheets
Customers don’t evaluate prices in a vacuum. They compare, anchor, and shortcut.
Three core psychological principles you need to keep in mind:
- Relative thinking: People judge prices relative to other prices, not absolute value.
- Cognitive load: The more effort required to evaluate a price, the more likely they are to default to “no”.
- Emotion first, logic second: The brain buys emotionally and justifies rationally. Your pricing has to work on both layers.
Once you accept that, you stop asking “What is the right price?” and start asking “What is the right context for this price?”
Use anchoring to make your main offer look like a no-brainer
Anchoring is simple: the first number a customer sees heavily influences how they perceive all following numbers.
Example from a SaaS client: They were selling one core plan at $39/month. Conversion was stuck at ~2.1%. We added:
- A high-end “Pro” plan at $99/month with a few extra features.
- A stripped “Starter” plan at $19/month with clear limitations.
Result: without touching the $39 plan, its conversion rate jumped to 3.4%, and overall ARPU increased. Why? $39 no longer lived alone; it sat between “cheap but limited” and “premium but pricey”. It felt sensible, safe, and fair.
How to apply anchoring for digital and physical products:
- Create a high anchor: Add a premium option (even if few buy it) to make your core offer feel affordable.
- Show “before” prices: For ecommerce, a clear “£79.00” crossed out with “Now £49.00” sets a strong anchor.
- Use price comparison tables: Highlight what customers lose by choosing the cheapest option, not just what they gain when upgrading.
Key rule: your anchor has to be believable. If your ecommerce store only sells £30–£60 products and you suddenly add a random £699 “VIP” item with no justification, it backfires.
Frame prices to feel smaller: endings, periods, and packaging
Small changes in how you write a price can shift perception more than a few actual pounds or dollars.
Here are patterns that repeatedly win tests across businesses:
- Charm pricing (“.99” or “.97”): £19.99 often outperforms £20.00, especially for B2C and ecommerce. The left digit effect is real: the brain encodes “19-something”, which feels lower than “20”.
- Round pricing for premium offers: For high-end consulting, luxury products or “done-for-you” services, rounded prices (e.g. £5,000 instead of £4,997) can signal confidence and quality.
- Break down big numbers: “£600 per year” can feel heavy. “Just £50 per month” or “£1.64 per day” feels more digestible – as long as you stay honest about terms.
- Remove visual clutter: “£49” beats “£49.00” in many tests. Fewer digits = less perceived mental cost.
One SaaS subscription business I worked with moved from only annual pricing (“£480/year”) to dual messaging: “£480/year (only £40/month)”. Same price, +18% annual plan uptake. People didn’t suddenly find new money; they just understood the commitment better.
Use the decoy effect to steer customers to your most profitable option
The decoy effect is the art of adding a “bad” option that almost no one should pick, just to make your target option look better.
Classic example: a print & digital magazine offered:
- Digital only: $59
- Print only: $125
- Print + digital: $125
Almost everyone chose Print + digital, because Print only made it look like a bargain. When they removed Print only, far more people chose Digital only, and revenue dropped.
How to design a decoy for your product:
- Identify your target plan: Usually the one with the best margin and retention.
- Create a “worse deal” at a similar price: Slightly cheaper or equal price, but clearly fewer benefits.
- Make the comparison obvious: In your pricing table, visually show how close the prices are and how different the value is.
For a digital course, this might look like:
- Basic: £149 – course only.
- Standard (target): £199 – course + templates + community.
- Decoy: £189 – course + templates (no community).
Most buyers will comfortably land on Standard, because the decoy exposes the value gap for a tiny price difference.
Design “good–better–best” tiers that match real decision-making
Tiered pricing isn’t new. But most businesses do it poorly: random features in random buckets.
The psychology behind effective “good–better–best”:
- People like a middle choice: Faced with three options, many default to the middle as a safe compromise.
- Different buyers, different jobs-to-be-done: Some want cheap access, others want full power, others want simplicity.
A structured way to build tiers:
- Good: Low friction entry, limited but functional. Designed for price-sensitive or “just testing” users.
- Better: Your main product. Best value for most. Includes everything needed for success.
- Best: Premium, for power users / teams / status buyers. Higher margins, extra support, priority service.
Make sure each step solves a clearly bigger problem, not just “more features”. For physical products, think in use cases:
- Coffee machine Basic: for 1–2 coffees a day.
- Coffee machine Plus: for families or home offices, auto-cleaning, bigger tank.
- Coffee machine Pro: for heavy users, advanced programming, heat stability for enthusiasts.
Pricing should feel spaced enough to justify upgrading, but close enough that moving up feels doable. If your middle plan is £39 and your top one is £299, you don’t have “good–better–best”; you have “good–spaceship” with a huge gap.
Bundle vs unbundle: when to package products together (and when not to)
Bundling plays directly on perceived value and loss aversion.
People hate the idea of “losing” part of a deal. When you bundle multiple items at a perceived discount, they feel like they’re leaving money on the table if they don’t take it.
Types of bundling that work well:
- Value bundles: “Starter kit”, “All-in-one pack”, “Launch bundle”. Great for ecommerce (skincare routines, home gym sets, kitchen starter kits).
- Outcome-based bundles: For digital: “Client acquisition bundle” (course + templates + scripts), “Launch bundle” (tool + onboarding + consulting).
- Cross-sell bundles: “Add X for only £Y more” at checkout (extended warranty, accessories, extra seats).
But there’s a trap: bundling everything by default can backfire if it raises the entry price too much.
When to unbundle instead:
- When your audience is highly price-sensitive and just wants a “foot in the door”.
- When add-ons would feel forced (e.g. mandatory “onboarding fee” for a simple app).
- When different segments care about very different pieces of the offer.
Quick test: if customers often say “I’d buy, but I don’t need X and Y”, your bundle is bloated. Offer a lean core and optional add-ons.
Use scarcity and urgency without destroying trust
Scarcity works because of loss aversion: people fear missing out more than they value a potential gain.
The problem is that fake scarcity is everywhere. “Only 3 left!” on a digital file that can be duplicated infinitely is insulting.
Trustworthy ways to use scarcity and urgency:
- Real stock limits: If you’re selling physical items, show “Only 5 left in stock – order soon” if it’s accurate.
- Time-bound bonuses, not fake discounts: “Enroll before Sunday and get the workshop replay + templates free.” When the date passes, remove the bonus. Full stop.
- Cohort-based offers: For coaching, masterminds, or implementation programs: specific start dates and capped seats.
- Seasonal or production-based: “Next batch ships in six weeks” or “Limited to 200 units this month due to production capacity.”
For one online program I advised, we moved from “Doors close in 24h!!” countdown timers (that kept magically resetting) to:
- A clear enrollment window (10 days, twice per year).
- Hard cap on seats (based on actual coaching capacity).
- Transparent explanation: “We cap at 120 students so our team can review your work each week.”
Conversion improved, refund rates dropped, and brand reputation significantly improved. Urgency works better when people believe you.
Reduce risk with guarantees and social proof right next to the price
Pricing isn’t only about “how much”; it’s also “what if this is a mistake?”.
Risk reduction levers:
- Guarantees: “30-day no-questions-asked refund”, “Love it or your money back”, “Results-based” guarantees (with clear conditions).
- Trial periods: For SaaS: 7–30 day free trials or low-cost trials (e.g. “£1 for 7 days”).
- Pay-as-you-go options: For those allergic to long commitments.
Then, combine that with social proof exactly where the decision happens: around the price.
- Place key testimonials, star ratings, and logos directly in or near the pricing section.
- Highlight outcomes: “+37% average revenue per user after three months”, “Used by 2,300+ agencies”.
- Use micro social proof: “1,284 teams chose the Pro plan last year.”
One ecommerce brand selling premium mattresses shifted their guarantee messaging from a small line in the footer to bold text under the price: “120-night risk-free trial + free returns”. Adding a carousel of short customer quotes below the Add to Cart button increased conversion by ~22% – without changing the price.
Position “free” and discounts so they don’t kill your perceived value
“Free” is powerful… and dangerous.
People overvalue free things, but they also downgrade their perception of what’s always free or always discounted.
Smart ways to use free:
- Free as an entry point, not the whole business: Free lead magnet, free trial, free first consultation.
- Free with conditions: “Free shipping over £50”, “Free audit for qualified businesses”.
- Free bonuses as value, not price cuts: “Buy now and get X and Y included” instead of “20% off forever”.
Where founders go wrong:
- Constant discount codes that train customers to wait for sales.
- Deep discounts as the only acquisition play, destroying margins and brand positioning.
- Free tiers so generous that no one feels the need to upgrade.
If you sell a digital product, it’s almost always better to add value than to slice price. Stack bonuses, support, community, templates, or implementation help rather than racing to the bottom.
Implementation checklist: how to test and roll out psychological pricing
The point is not to copy every tactic above blindly. The point is to test.
Here’s a simple roadmap:
- Step 1 – Pick your main metric: Conversion rate? Average order value? MRR? Don’t test blindly; know what you’re optimising.
- Step 2 – Start with anchoring + tiers: Add a premium option and structure clear good–better–best plans.
- Step 3 – Adjust framing: Test .99 vs rounded, monthly vs yearly framing, “per day” breakdowns.
- Step 4 – Introduce a decoy: Add a strategically “bad” option and track shifts in plan selection.
- Step 5 – Test risk reducers: Guarantees, trials, and stronger social proof placement.
- Step 6 – Add real urgency: Time-bound bonuses or cohort-based launches, with strict honesty.
- Step 7 – Review margins and brand: Ensure new structures still align with profitability and positioning.
Run A/B tests where possible. If your traffic is low, rotate offers over time and track results carefully instead of splitting traffic.
Common mistakes that quietly kill your pricing performance
After working with dozens of SMEs and startups, the same errors come back again and again:
- Copying competitors blindly: You don’t know their costs, strategy, or if they’re even profitable.
- Too many options: A wall of plans, add-ons, bundles, and special cases leads to analysis paralysis.
- Hiding the price: “Contact us for a quote” on basic offers drives away busy buyers.
- Underpricing out of fear: Low prices can signal low quality, especially in B2B or premium niches.
- Never revisiting prices: Inflation, new features, and better positioning should all trigger regular price reviews.
If your pricing page looks like an airline booking form, you’ve gone too far.
Quick playbooks: digital vs physical products
The principles are the same, but execution differs slightly between digital and physical.
For digital products (SaaS, courses, memberships):
- Lean hard on tiers: clear good–better–best with a highlighted “recommended” middle option.
- Use time-based framing: monthly/yearly, per-day breakdowns, and ROI language (“one new client pays for a year”).
- Guarantees and trials matter more than tiny price tweaks.
- Use decoy plans to steer to the highest LTV option (often annual or “pro”).
- Add scarcity through cohorts, bonuses, or limited coaching access, not fake stock limits.
For physical products (ecommerce, retail, DTC):
- Use bundles and kits to raise AOV (starter kits, complementary products).
- Charm pricing (.99) and visual simplicity pay off at scale.
- Real stock-based scarcity works well when honest.
- Cross-sell at checkout: accessories, extended warranties, complementary items.
- Make shipping costs and returns policy very clear near the price.
In both cases, remember: your price is not just a number. It’s a story about value, risk, and trust.
If you treat pricing as a one-off decision, you’ll leave money on the table indefinitely. Treat it as an ongoing experiment grounded in human psychology, and it becomes one of the highest-leverage levers in your business.