Let’s consider a situation where you go shopping for groceries and you see that one snack costs ₹199 whereas the other costs ₹200. Regardless of taste or quality, we always tend to go for the food item costing ₹199 even though the difference is just ₹1 and we might end up paying ₹200 anyways due to a lack of change. This happens subconsciously and the reason behind it has nothing to do with the price or the value of the good. It is all about how human brains process numbers and organize them.
The Psychology Behind It
So why is it that even an amount as minute as ₹1 has such a big influence on our decisions? A study published in the Journal of Consumer Research by researchers Thomas and Morwitz (2005) conducted a series of experiments to understand why prices ending in 99 are so common. Through their research, they have found that when there is a number with multiple digits, the attention is usually focused on the first digit. For example: -
- ₹199 is seen as being in the "₹100 range."
- ₹200 is immediately associated with the "₹200 range."
Even though there is only a ₹1 difference in the 2 numbers, they are subconsciously considered to be part of separate ranges and the simple change in the first digit has such a deep psychological impact on our minds.
The interesting thing is that one may believe this is a modern - day marketing trick but the truth is that researchers have been making observations related to this since as early as 1932. This leads us to believe that the way people perceive prices has been consistent for a long time.
Real - life impact
This theory also has real-world evidence to back it. An experiment was conducted by Anderson and Simester in which they had identical products placed at different prices to see which product the customers would pick. Their results showed that more customers picked the products ending with a “9” rather than those priced at rounded numbers.
But this isn’t as foolproof as one might be led to believe. Several other scientists have conducted studies and written papers under Data Colada indicating that perhaps the effect of this pricing isn’t as drastic as we may think. They re-ran some of the experiments and although the result did suggest that this theory is real, it is much less certain than previous studies claimed.
So, this effect of ₹199 is a small incentive rather than an incredible business plan. But, for rural women entrepreneurs, this small incentive can also make a world of a difference.
Importance for rural women entrepreneurs
Entrepreneurs, especially in rural areas, cannot always afford large-scale marketing or advertising due to their high cost. In a business, packaging or labelling is used to make a product more attractive, and just like that, pricing can be strategically used too.
Picking the “correct” price in goods can make them seem more affordable and hence more desirable to the masses without taking on any extra expenses. This kind of pricing strategy is more important for smaller entrepreneurs rather than bigger corporations because they can afford to spend on large-scale marketing and advertisements but the smaller rural women entrepreneurs cannot.
WeAct’s role
Entrepreneurs receive knowledge about packaging or labelling from many different sources because it is something that is relatively common knowledge. But psychological pricing is a skill that isn’t entirely well - known but is extremely effective. WeAct provides our rural women entrepreneurs with knowledge on the requirements for getting a product ready for the market which includes pricing strategy.
WeAct helps them understand the prices they need to set their goods at based on a variety of factors such as competitor pricing, mode of selling (online or in-person), etc.
Conclusion
At the end, we come right back to the grocery store we started with. 2 identical items with just a singular rupee of difference. But it wasn’t about the amount of money. It is about the effect that one rupee has on an individual’s mind.
Pricing plays an extremely important role in marketing. Although it is not a foolproof business strategy and its impact isn’t extremely drastic, for rural women entrepreneurs it could be the small change that makes a customer stop by their store rather than simply moving past it.