Psychological Price: Everything You Need To Know About The Price Of Acceptability
In this article, you will discover what the marketing and commercial notion of psychological price is based on: how you can determine it, how to calculate it, and what you need to pay attention to to find a relevant psychological price.
How To Determine The Selling Price Of A Product?
Your product is a good or service that you offer on the market, so that it is noticed, acquired or consumed in order to satisfy a need.
When you put it on the market, you need to set the price of your product. You can do this by aligning yourself with the competition, but in this case you risk losing the benefit of standing out, and your product may end up drowned in the mass of offers if it is not innovative enough.
The most effective solution is to determine the price of your product by taking into account two important concepts:
- The first is the minimum selling price below which your business could not survive. This minimum selling price must include the overall cost of the product (the manufacturing cost divided by the quantity produced excluding scrap), or the cost of performing your service, and your margin. Remember that to ensure its sustainability and promote its financial autonomy, your company must obviously generate a profit.
- The second notion to take into account is the definition of the psychological price, or acceptability price of the product. This is the value perceived by the consumer.
How Is The Value Of A Product Defined?
The value of your product will be defined by cross-referencing two pieces of information:
- At what price would your product or service be perceived as too expensive?
- From what price would your product be perceived of poor quality?
Several factors may be taken into account to answer these questions. The notoriety of your brand or your company, which can be a guarantee of quality, the packaging, your communication, the information and the “most products” brought to the attention of the consumer, the budget set, the competition, the market environment .
The best way to answer these two questions is to call on a panel of consumers, which makes it possible to orient the monetary value of the product in a neutral and objective way. This panel of “testers” can be set up by calling on a marketing research agency, or simply with your entourage, by taking care to select people with the profile of the customers you are targeting; and ideally, in a buying situation as close as possible to reality. Thanks to this information collected from your panel, you will be able to calculate the optimal psychological price of your product.
How To Calculate The Psychological Price?
To calculate the psychological price of your product/service, you will therefore use marketing tools such as market research, consumer research, surveys, panel monitoring or market-test.
By grouping and cross-referencing the information collected from the consumer panel, you will determine what is called the area of acceptability, that is to say where the interval that has the largest size is located (see example below). Below this zone, the value perceived by the consumer is synonymous with “poor quality”, the product is not credible.
Above this area, the price of the product is a brake on the purchase, it is considered “too expensive”. Although these notions are partly subjective since they are related to the panel, they define the equation rules for calculating the optimal price.
With the help of a table or graph, we can identify the price level against which the greatest number of people are ready to buy your product. This is called the psychological price, or the price of acceptability. It is at this price level that the highest percentage of consumers willing to pay to acquire your product is located; so the highest potential turnover for you.
For example, the product P is tested by a panel of 1000 people, who are asked to define at what price this product would be considered credible, and at what price it would be considered too expensive. The price judged by the greatest number as fair – neither too low nor too high – is the psychological price to take into account to determine the market value of your product. (see table)
NB: We also use the term psychological price to designate commercial techniques such as “round” prices, which arouse the practical interest of the consumer