Pricing is one of the most misunderstood parts of entrepreneurship.
We like to believe customers buy logically. That if we set a fair price based on time, cost, and margin, the math will speak for itself.
But research in behavioral economics tells us something different.
Much of our purchasing behavior is emotionally driven first. Logic comes later.
Here are three common pricing paradigms along with a quick synopsis of the psychology behind them.
The Anchoring Effect
The first number a person sees becomes their reference point. This is called the anchoring effect.
If a client sees a $3,000 coaching package first, then sees one for $1,000, that $1,000 feels like value.
If the order is reversed, the $3,000 feels premium.
The brain doesn’t ask, “Is this objectively worth it?”
It asks, “Compared to what?”
That’s why starting too low can create long-term challenges. Your first price becomes the historical anchor.
Charm Pricing vs Round Pricing
Charm pricing uses numbers like $997 or $9.99. It leverages left-digit bias. The brain reads $997 as “nine hundred something” instead of “a thousand.”
Round pricing uses clean numbers like $1,000 or $5,000.
Charm pricing signals optimization.
Round pricing signals authority.
If your business model relies on scale and high volume, charm pricing may support conversion.
If your business is boutique, relationship-based, or premium, round pricing often communicates confidence and stability.
Neither is wrong. They serve different strategies.
The Decoy Effect
Three-tier pricing works because humans prefer moderate decisions.
With two options, customers face a binary decision: yes or no.
With three options, they can choose.
Most people gravitate toward the middle option. It feels safe. It feels intelligent. It avoids regret.
The key is structuring tiers so they build on each other, not compete.
Pricing With Intention
You don’t need to manipulate your customers.
But you do need to understand how the brain interprets numbers.
Pricing isn’t just arithmetic.
It’s perception.
And when you set your prices with clarity about what you’re signaling, you build a stronger, more aligned business.