Pricing strategy

Does the old x.99 cents versus $1.00 pricing strategy really work anymore?

Chris Owens

March 9th, 2016

In thinking about pricing for our upcoming mobile app subscription, I'm wondering if marketers out there find that making pricing something at let's say $14.99 is still better than $15.00. Does that psychological pricing tactic really work or matter anymore, or is it just practiced as a carry-over from earlier times?

Personally, I find round numbers more clean to think about and are more appealing to me, but I'm not sure if I'm in the minority here.

Anyone have any current marketing studies or experience on this?

Chris

Kevin Cain

March 9th, 2016

In reading other abstracts on the topic, it seems that the $X9 or $XX.99 is a cue for value, or low-cost. So, if your strategy is to appeal to the value-driven consumer (high price-elasticity of demand, e.g. Walmart), use a 9. If you are using a differentiated strategy for your product or service (e.g. high-quality, affluent target consumer), you may want to avoid the perception that you have a low price point and use whole numbers.
For example, doing a comparison of their online catalogs reveals that Burberry ("luxury" brand) uses whole numbers and Tommy Hilfiger ("value" brand) uses $X9 and $XX.99.

Rodrigo Vaca Product & Marketing

March 9th, 2016

Chris -

I'd say it depends. Does $X.99 still work? At Target and Walmart, I'm sure it still does. In fact I was reading (sorry, missing the source here) that consumers view X.95 and X.99 pricing differently. So I do think this stuff matters.

For technology businesses, I think that might be less relevant - and the current trend is to have whole numbers at more natural price points ($15, $20). This is just my observation and there are plenty of counter-examples, but I do certainly see a trend towards whole prices.

The question is - your mobile app subscription - WHO does it target? If it targets say, people in a professional setting, then I'd vote for whole numbers. If it is a consumer magazine subscription, then maybe explore the $x.99 approach.

Kevin Cain

March 9th, 2016

From Bizer & Schindler (2005) in Psychology & Marketing:
Research has suggested that pricing products at one cent below a whole number (e.g., $4.99 instead of $5.00) can be an effective method for increasing purchases. Although many reasons for this have been suggested, a commonly proposed explanation is that consumers tend to drop off, or pay less attention to, the rightmost two digits. This drop-off mechanism has garnered much indirect support, but only limited research has been conducted to directly test it. In this study, respondents provided estimates of how many products they could purchase for $73. Analyses indicated that respondents thought they could buy significantly more products priced with 99 endings than products with comparable 00-ending prices. Follow-up analyses showed that (a) errors made by respondents showed a pattern consistent with a dropoff mechanism, and (b) motivation to carefully provide quantity estimates moderated the effect. The study therefore provides rare direct evidence that the drop-off mechanism may contribute to the effectiveness of 9-ending pricing. 

Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

March 10th, 2016

No it is not just psychology, it is the way search queries are written.  If the very top of my budget is $15, I won't choose the" $15 and up" selection, I will choose the "under $15" selection. The $14,99 price will be shown and the $15 won't. Same thing if I write "<$15" instead of "<=$15".

Buyer's minds are busy thinking about product benefits, not whether to include the equal to case. Since they don't pay attention, you need to think about things like this for them.  So even though they might prefer reading $15 to $14,99, if the search engine doesn't show the simpler alternative their expressed preference docent matter - their purchase behavior does.


Mike Masello

March 11th, 2016

Pricing psychology is worth consideration.  A few years back I was working at a company and we AB tested pricing at xx.95 vs xx.99.  The thinking was it made no difference and we were leaving a few cents on the table.  If I recall, the results suggested there was less than a 5% chance xx.99 could depress conversion.  The company decided to move forward with the small risk.

Personally, I feel a whole number has a warmer feel, more neighborly.  It depends on the product and market as some others have suggested.

Hamid Saify

March 11th, 2016

Great feedback above and certainly depends on the product. Think it matters greatly in CPG - where prices differences between competitors is often in pennies, so seeing a smaller first number makes a huge impact. 

In my experience, 89, 94, 97, 98 have had the best performance. 

Simon Bone Founder At Zoom Labs

April 10th, 2016

I believe the original idea of .99 pricing was to force staff to run transactions through cash registers - because it forces them to give change