Customers Hate How Businesses Set Prices. Here’s the New Psychology of Pricing

There is no more challenging aspect of marketing than pricing. It defines value and positions companies and their products vis-à-vis their competitors. The advent of AI and technology itself has exacerbated the complexity by allowing for universal knowledge of competitive pricing and fostering pricing on-the-fly based on real-time supply and demand. It’s great for profitability when done correctly but also harbors confusion and distrust among buyers. Here’s some great tips on how to manage pricing today.

FROM INC MAGAZINE / BY ALISON J. STEIN

Dynamic pricing and greedflation: Customers don’t trust what things cost in our algorithmic age. How businesses can win the pricing game without sparking a backlash.

Stephanie Wein had bad news to break to her customers. Pinup Coffee was raising prices by as much as 14 percent.

This was a big deal. She’d founded Pinup to offer Virginia Beach high-end specialty coffee at an affordable price. In four years, she’d built a home-roasting venture into a multi-location retail and wholesale operation, with $1 million in revenue and 400 percent annualized growth.

Now, in March 2025, she was about to test whether any of that could survive.

As she drafted an email to her mailing list, she couldn’t see how Pinup’s growth could continue. For months, problems had cascaded. Global coffee prices stalled at historic highs, making beans a lucrative target for hijackers and running up her freight insurance. Tariffs loomed. Other costs kept climbing: cups, bags, everything.

“I wasn’t going to jump the gun on a price increase. I wanted to make sure it was the right choice,” she says. “I was risking losing customers, both new and returning.”

But with no relief in sight and a business to sustain, the moment had come: After carefully crafting her message—which included a way to lock in a lower price—she sent the message and braced for impact.

She couldn’t believe what happened next. In the quarter following the price hike, order volume jumped 94 percent. Revenue grew 43 percent. Instead of sinking her company, the price increase became her most effective business strategy yet.

But things could have easily gone another direction. Starbucks quietly raised its prices at around the same time as Pinup Coffee. In contrast, the industry behemoth got expletive-laden backlash online and no improvement in its already slumping numbers. In fact, sales per store dropped 2 percent in that quarter compared to the previous year.  

Since 2021, consumers have become increasingly frustrated with rising prices. At the same time, pricing has become exponentially more complex, with pressures like constant algorithm-driven price changes, unpredictable government policies, and increasingly AI-armed buyers. 

Lessons in buyer psychology can help you understand how customers judge fairness, when good intentions can trigger brutal backlash, and how some key details may justify a higher price. These insights can help you get it right when you need to adjust your prices.

Explain Your Pricing Strategy

“Coffee is changing,” Wein began her nearly 1,000-word heartfelt missive to customers of Pinup Coffee. She meticulously detailed the industry’s challenging circumstances, including numbers that she characterized as approximate even when expressed to the second decimal place. (Seemingly, no one at Starbucks corporate sent the kind of email to its customers that Wein did to hers.)

In the postscript, she mentioned the company’s existing subscription program as a way to lock in the pre-increase price.  The program is structured loosely; customers are not locked in for a set amount of time, they set their own delivery frequency and pay per delivery. But on a monthly basis, it helps to forecast demand, plan inventory and provide stability, she says: “If everything else just disappeared all of a sudden for some reason, we know we can at least count on our subscription sales for the following month.”

Over the next six weeks, subscriptions jumped an unprecedented 35 percent. And the promotion went over well even when customers didn’t take her up on it. One customer’s reply: “Thanks for the subscription offer, but no thanks. If you’re paying full price, I’ll pay full price.”

Why You Raise Prices Is Just as Important as the When

How buyers see a company’s market position shapes how they react to price increases. The “little guy” dealing with price increases for reasons that seem totally out of its control can garner sympathy, a Journal of Retailing study found. But it’s apparently hard for consumers to believe that any circumstances are outside of a powerful company’s influence. Consumers expect big companies to take the hit. (And file class action lawsuits when they allegedly manipulate pricing.)

Underdog indulgence has limits, however. Companies who raise prices in response to surging demand are likely to be perceived as exploitative price gougers, regardless of perceived market power, the study found. And that’s even if a company is genuinely responding to market forces.

Timing matters too: Companies that unsustainably absorb tariffs, for example, but are forced to raise prices later often find buyers no longer connect the two, says Jeet Mukherjee, chief strategy officer at Holden Advisors, a pricing consultancy. “It leaves a bad taste,” he says. “For customers, pricing is really about fairness.” And it doesn’t matter whether that assessment is accurate. “Human perception is like nine-tenths of a law,” he quips. What a customer thinks about your motivation is more important than any factual counterargument.

Use Dynamic Pricing Very Carefully

Dynamic pricing—prices adjusted by algorithm—takes buyers’ minds to dark places, says Mukherjee. From its ancestral home in the travel industry, dynamic pricing is now a factor in almost every industry. “It’s unavoidable,” he says. “If I’m offering one price to everybody, sometimes I’m overpriced, sometimes I’m underpriced. Companies need to be able to throttle prices up or down.”

There are real benefits when dynamic pricing adjusts downward, he argues. A clearance sale is a classic low-fi example.

But when prices swing in unexpected industries, it creates images of a profiteer gleefully charging hurricane survivors $100 for a bottle of water.

Once again, a major corporation is the object lesson. In 2024, Wendy’s announced a dynamic pricing strategy that called to mind Uber’s surge pricing model. Calls for boycotts followed, and prompted rival Burger King to launch a mocking counter-campaign dubbed “No Urge to Surge.” Wendy’s quickly reframed: This was actually extra discounts and deals during slow parts of the day.

The moral here is in the reframe. Communicating the benefits-off-peak discounts, flexible payment plans-can help you avoid the business end of a hashtag. “Communication is a vital part of pricing,” says Mukherjee. “The best product in the world won’t succeed if you can’t communicate about its value to your market.”

Promote Your Value, Including Your Imperfections

Brands that fall short on value perception—how much benefit customers think they’re getting for their dollar—lost billions to higher-value competitors over the past three years, Deloitte found. “If consumers can’t easily discern the true value they’re getting for their dollar, they’ll look elsewhere,” says Ed Johnson, partner of retail and consumer products at Deloitte Consulting.

While price plays a big part in value perception, other factors account for 40 percent, Deloitte found. Those vary by context, according to a meta-analysis of nearly 700 studies in the Journal of Service Research. Ethics, aesthetics, and even spiritual factors of a purchase can boost willingness to pay, while mental effort and perceived risk diminish it. The single most powerful driver is self-esteem—how good the purchase makes someone feel about themselves—and the biggest drag is security risk.

On the other hand, some factors that used to be positives have flipped.

Take uniformity. Once a sign of quality, today it often reads as sterile sameness, according to a recent Harris Poll report. In luxury travel, for instance, 72 percent of consumers say they won’t pay for luxury accommodations that “look the same as everything else.”  To justify premium pricing, Harris suggests deliberately incorporating “human cues,” such as a slight delay, handwritten notes, or other carefully considered imperfections. 

Consider Adding Friction to the Sales Process

Of course, not every customer knows exactly what they value. It’s an opportunity to help them see it your way—if you can stomach slowing down the sale to educate.

This is Wayne Smith’s go-to strategy. “We’re putting a lot of friction into the buying process,” says the founder and president of Vertex Innovations, a Littleton, Colorado-based project management firm for the construction industry. He insists on live conversations and reviews of proposals with prospective clients. He’ll drop any prospect who insists on handling everything over email, rather than on Zoom or telephone. He already considers it a compromise to not meet in person.

This isn’t just cussedness; after 23 years and more than 30,000 projects, he genuinely doesn’t think his company can price a project correctly over email.

For example, recently Vertex bid on a software deployment project for a construction company. The potential client had struggled with the platform for six months, yet the deal kept stalling. Smith insisted on a call, and that’s when he found the problem. The client had repeatedly failed to hire someone to lead the launch. Smith pivoted from an implementation proposal to staffing—and promptly booked the business. It was a quarter-million-dollar deal, with more projects on the horizon. “I wouldn’t have got there if we hadn’t walked through that,” he says.

Inserting friction into the sales process can be a perverse but powerful signifier of a premium product, according to a report in MIT Sloan Management Review. But deploy this strategy with caution. Adding friction to the process of buying something like a Ferrari or a Birkin bag makes sense: The hoops are a part of the snob appeal. But adding it to something genuinely basic just drives people to competitors.

That distinction is also central to Smith’s thinking. “We’re not the cheapest company in town; we’re known for quality,” he says. It’s also about protecting his brand. “If we can’t get the information we need for the proposal, then we can’t be successful,” he says. “It’s bad money and bad business to take that kind of a project, no matter how much I want to sell.”