Psychological pricing is about understanding how a potential buyer will perceive the value of the property that’s for sale. You can use psychological pricing to subconsciously make people think your price is lower … without changing the inherent magnitude thereof.
Yes, price is just a perception!
Today’s real estate agents can use some psychological biases to their advantage.
Reduce the left digit by one
| Psych principle: When you reduce the left digit by one and the price is left with ‘something ninety-nine’, people perceive anything as cheaper. |
It’s called ‘charm pricing’. When a house for sale is priced at R1 999 000 instead of R2 000 000, buyers tend to remember the ‘1’ rather than the ‘2.’
According to research, that effect weakens when the second or third digit is changed. Even when property buyers read the total price, the brain starts to record the numbers before that entire price is read, explains Robert Schindler, a marketing professor at Rutgers University, Camden.
Strangely, people see a one-cent difference between R7.60 and R7.59 as different from the one-cent difference between R8.00 and R7.99. All because we see the price from left to right and think of it as high or low before we even get to the ninety-nine part. And this happens unconsciously.
Estate agents may consider this when listing a property as, for example, R1 999 999 instead of R2 million. The flip side of this is that online portals usually have price brackets. In this example, this property will therefore not be shown to someone looking from R2 million and up in their search criteria.
Reduce the number of characters
| Psych principle: People are more likely to buy something if the price appears simple. |
For example:
R1,834.00 is a complicated price.
R1,834 is better, but drop the comma… (fewer syllables)
R1834 is a price that makes clients much more likely to buy.
Even though people don’t read the price out loud, the brain still unconsciously processes the auditory version thereof.
The more syllables something has, the more resources it takes for your brain to process the number. The harder the brain works, the higher the price seems. People perceive prices to be smaller when they contain fewer syllables.
Precise pricing
| Psych principle: We associate precise values with small numbers. |
Property buyers pay more money when prices are specific. So, pick an exact list price, to begin with. Buyers are less likely to negotiate the price down. It suggests a price based on a thorough study of the property’s features, and therefore as negotiable. Any price ending in “000” looks like an opening bid.
Think about it. We are likely to use precise values when we’re dealing with small numbers such as 1, 2, 3. Due to this association, exact numbers trigger our association with small values, influencing our perception.
So, the brain is tricked into thinking that, irrespective of its length and complexity, R462,898.12 is more wallet-friendly than R450,000!
Agent Grant Rea from Remax Living Cape Town remarks “In fact, I find an obscure yet precise price like R1,972 500 gets more attention.”
Price anchoring
| Psych principle: We use an initial price point to refer to when making decisions (because we are not so good at assessing values and prices). |
Tversky and Kahneman’s research (1974) showed that when individuals are asked to make a numeric estimation, they look for cues in the environment and use those cues to make a final decision.
What this means is individuals pay more attention to the first stimuli. So, consumers use the first price they are exposed to as an anchor to form subsequent judgments about the value of the sale.
“I think we are in a market that offers much lower than the asking price at the moment. To me, the listed price is only an indication in any event. At least for now,” says Andre van Rooyen from Grounded Property Professionals.
Retha van Zyl from Retha van Zyl Real Estate comments “I believe in pricing a property correctly - that means price based on recent comparable sales in the area. Buyers in the luxury market are well informed and see right through psychological pricing. It could still work for entry-level properties aimed at first-time buyers, where R10 000 really does make a difference in how much (if at all) transfer duty is payable.”
So along with all the other tools of the trade, estate agents can use clever pricing as part of their arsenal too, if they choose to. Not only should you start with a precise value, but also look at the format of the number and consider the number of syllables. Keep the left digit in mind and let your listing stand out in the listing clutter!
