You may think pricing is the most rational part of your marketing. It isn’t.

After you have crunched the numbers, analysed the margins and benchmarked against competitors you get to what feels like the 'right' price. But here's the thing – your customers are the ones actually deciding what your price feels like, and when or if the price feels right.

Successful pricing, whether strategic or tactical, isn’t about finding the perfect dollar number. It's about understanding the behavioural principles, tics and foibles that people apply every time they see your price tag.

Instead of approaching pricing like accountants, we should be thinking like behavioural scientists. And we need to get beyond the tricks like the $19.99 price tag – Price, cost, affordability, and value aren't just financial concepts – they're human experiences that happen in your customer's head, often without them even realising it.

Cheese is expensive as a concept, not a numeric unit.

If you were to ask “do you think cheese is expensive?” many people would promptly say yes because they are responding intuitively and complete with a shopping bag full of cognitive biases and cultural opinions.

Ask yourself, why do they say it’s expensive?. Is it that it costs more than it did six months ago? Is it that we live in a country that produces dairy products so we think they should be low cost? Or perhaps they are comparing it with the cost of meat or a bottle of milk or a McDonald’s cheeseburger? Maybe the size of the block of cheese compared to the size of a loaf of bread makes it look expensive. If cheese is a core part of your family’s diet it could be that the quantity of cheese you need to buy makes it seem expensive. It’s complicated. It makes sense therefore that your pricing decisions should take these things into account, not just as regards the absolute dollar price but how the price is presented.

The core principle behind the psychology of pricing lies in the interplay between price, cost, affordability, and value. These components are not isolated but interdependent, influenced by a range of human factors that affect how people make spending decisions.

To dive deeper into these elements and explore how brands can harness the power of behavioural science to set a price that feels “right” we need to consider each component of the mix: the dollar price, the holistic cost, affordability and value – and the human experience.

Recognising that purchasing decisions happen at an emotional level first, then get rationalised by the thinking brain later is the first step to designing effective pricing.

Price is never just a number

When a person sees your price despite the fact that you have presented a dollar amount, they're not seeing a neutral number. They're seeing it through the lens of every other price they've encountered, all the expectations they have, and every emotion your brand triggers.

Anchor and reference points are important principles for marketers to consider when they optimise their price point. Context, references and anchors can have a big effect on how people judge a price. Buy a chocolate bar in a local dairy and the price might feel right. The same product at a higher price will feel just as right in a cinema candy bar.

Take the personal hygiene section of a supermarket as an example of context. Period pants feel very expensive when set against disposable feminine hygiene products. The pack may only contain one item whereas the disposable pack might contain 24 items. Put the same product in a lingerie environment and the price comparison is very different.

It’s why when we research pricing we show it in a branded context, and we have competitor pricing to provide a real-world comparison. It is important to show price as it would be shown in the real world, therefore we always have people responding to an actual price rather than asking an open-ended question because this mirrors the real world. Look how hard it was to unpick ‘is cheese expensive?’.

Another way we see price is time related – when will the pain of payment be rewarded. Future discounting and emotional rewards create irrational feelings for how we feel about a price. It is why people might splurge $20 for some fancy fish and chips (immediate pleasure + emotional satisfaction) while hesitating over a $200 tool that would save them money over years (delayed benefit with little emotional payoff).

People value future benefits more highly than present costs. Promise them something down the line – whether it's loyalty points, future discounts, or long-term benefits – and today's price feels good.

Cost isn't what you think it is

Here's where most pricing strategies fall apart – they only think about financial cost. But your customers are calculating a much more complex equation. They're weighing up mental effort, opportunity cost, and what they have to give up to buy from you.

Mental accounting is the key principle here. People don't have one money bucket – they have lots of them. Entertainment money feels different from grocery money, even though it's the same cash. A $20 cocktail might feel fine on a night out, but outrageous in a can at the supermarket. Same money, different bucket, completely different reaction.

The challenge is to get people to reframe your product into a mental accounting budget that they are happy to dip into. Air New Zealand’s Grab a Seat does this well. Buying a flight as part of a predetermined plan, like flying to your family home for a Christmas get together will sit in a planned mental budget for the trip. Whereas a Grab a Seat offer might sit in your indulgence or fun money category. Even if the price of the ticket was the same on the main site and the Grab a Seat site, the latter is paid for from a different mental account so sits outside the planned travel budget.

Another example is Peloton who reframed from 'gym equipment money' to 'ongoing health investment money'. Rather than being just expensive exercise equipment (which would compete with one-time purchase budgets), Peloton reframed their bike as an ongoing health investment. The monthly subscription model taps into people's "health and wellness" budget – the same mental bucket they use for gym memberships, personal trainers, or therapy. It feels like paying for ongoing personal care, not buying a piece of equipment where you would be competing with the new fridge someone is hoping to buy.

Amazon Prime has done this well too. By creating a subscription model that gives free delivery. Delivery costs sit in a different mental bucket from buying a gift or treating yourself to something. Everyone has felt that pang of resentment when a delivery cost is added to an online purchase.

State backpacks reframed the category by making it a social enterprise donation. They're not selling backpacks; they're selling the feeling of doing good (they donate one for every purchase). Suddenly, paying more feels like paying for social impact, not just a treat for yourself.

Affordability is an illusion

Affordability has almost nothing to do with how much money someone has. It's about how your price fits into their mental model of what things should cost and how much they want what you're selling. Take two people with the same disposable income and one will say they cannot afford health insurance and the other person will say they can. Affordability is about priorities so if your customers are telling you they can’t afford your product, take a look at what they are affording to buy. How can you offer what they are getting from something else?

A $4 coffee might feel unaffordable to someone in the context of their daily expenses but perfectly reasonable to the same person when framed as a weekly treat or time productivity investment. As brand owners you can influence these perceptions by helping people reframe the category–positioning a premium product not as an expensive version of a commodity, but as an affordable entry point into a higher category.

Think about reframing affordability as the cost of not doing something to bring it back into feeling affordable. We are very loss averse so if we think we might be worse off or risk FOMO we can see something as affordable that previously we didn’t.

For pricing research we always need to make sure that there’s a clear distinction between I can’t afford it, e.g. there’s just no money in the budget for it, and I don’t see value in it, e.g. I could afford it, but I don’t see enough value in it to purchase it.

The lipstick effect is real

During tough times, people don't stop spending – they just spend differently. The lipstick effect shows us that people will skip the big purchases but still buy small luxuries. They're not being irrational; they're managing their emotional needs within financial constraints.

Smart brands pivot their pricing strategy to capture this. Instead of discounting big-ticket items, offer smaller, emotionally rewarding products that fit into the 'affordable luxury' mental bucket. Offering a low price entry point can open the door to higher spend when more disposable income becomes available.

Value is emotional maths

Value isn't a calculation – it's a feeling. It's the emotional maths of 'what I get' versus 'what I give up', and emotions are not known for their mathematical accuracy.

Lululemon proves this perfectly. They're not selling yoga pants; they're selling membership to a fitness lifestyle and community. The functional product is almost secondary to the emotional rewards. People will pay premium prices for average leggings when those leggings come with identity and belonging. But they also play on reciprocity offering free fitness instruction.

Social proof amplifies this. When customers see others benefiting from your product, value perception increases. It's not just 'this product is good' – it's 'people like me think this product is worth it'. That's value.

So what's your real pricing strategy?

Real pricing strategy starts with understanding the psychological journey your customers take from seeing your price to justifying the purchase. It's about managing anchors, leveraging social proof, understanding mental accounting, and designing emotional value that makes your price feel not just fair, but right.

The brands winning on price aren't necessarily the cheapest – they're the ones whose prices make sense in their customers' minds. They've figured out that pricing isn't about finding the right number; it's about creating the right mental experience around that number. They have understood why cheese ‘feels expensive’.