Egill Arnarsson

Psychological pricing or price ending is a marketing practice based on the theory that certain prices have a psychological impact. The retail prices are often expressed as "odd prices": a little less than a round number, e.g. $19.99 or £2.98. Consumers tend to perceive “odd prices” as being significantly lower than they actually are, tending to round to the next lowest monetary unit. Thus, prices such as $1.99 is associated with spending $1 rather than $2.[1] The theory that drives this is that lower pricing such as this institutes greater demand than if consumers were perfectly rational. Psychological pricing is one cause of price points.
Psychological pricing is defined as a pricing approach that considers the psychology of prices and not simply the economics, the price is used to say something about the product. Human psychology dictates that we compare prices of everything that we buy. Marketers make use of this tendency by adopting reference pricing. However, the important question is what you compare the prices of the products that you intend to buy with. With this idea, Apple applies psychological pricing.
The higher prices of Apple's products compared to its competitors triggers signals to consumers; exclusivity, high-quality, uniqueness, coolness factor, etc. They also incorporate psychological pricing in a different way. As stated previously, the different variations of the iPod Touch retail at different price points. While applying product-line pricing, I also believe this strategy also urges its consumers to step up to the next model and pay more for a higher model. For example, the $399 iPod touch yields the best value because the price per GB is $6.23 ($399/64) while the $199 yields a price per GB of $24.88 ($199/8). These cues could lead to a purchasing decision that a customer did not anticipate (i.e wanting to purchase the 16gb initially, but ended up purchasing the 32gb or 64gb model). Customer will think that instead of purchase the 16Gb, why