DISCUSSION
Ending prices that end in 99 cents
Written by RetailWire Staff
Retailers might want to rethink doing away with prices that end with “.99” if they believe the results of new research from researchers at The Ohio State University’s Fisher College of Business.
The study found that setting prices “just below” round numbers (i.e., $19.95, $19.97 or $19.99 instead of $20) can make consumers less likely to spend to upgrade to a more expensive version or size of the product or service.
In a coffee stand experiment done on campus, the researchers changed prices hourly, offering a small coffee for 95 cents, or a larger cup for $1.20. Every other hour they would change the offering to $1 for a small cup or a larger cup for $1.25, so both sizes of coffee cost more. When using the latter pricing scheme, 56 percent of customers upgraded to the larger size, versus 29 percent who did so with the first pricing scheme.
The researchers concluded that while the just-below price makes a product seem like a bargain, it also makes the step up to the premium product seem too expensive.
“Going from $19.99 to $25 may seem like it will cost more than going from $20 to $26, even though it is actually less,” lead author doctoral student Junha Kim said in a statement. “Crossing that round number threshold makes a big difference for consumers.”
Students in a lab study were also more likely to choose a costlier car or apartment options when base prices were just above round numbers, rather than just below.
The study appears to indicate a shortcoming in the theory around charm pricing, or psychological pricing, that holds that goods priced using odd numbers (e.g., $4.99, $4.97 or $4.95 instead of $5.00) are perceived to pack greater value than ones priced with a round number.
The Ohio State University’s research found that the threshold-crossing effect does not occur when there are small price differences on expensive products or when people are familiar with price levels, such as travelers who book hotels regularly.
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