A Penny Saved: Psychological Pricing

http://blog.gumroad.com/post/64417917582/a-penny-saved-psychological-pricing

by sahillavingia • 13 years ago

83 44 13 years ago

blog.gumroad.com

akanet2• 13 years ago

I would love a once-and-for-all answer on this topic. Hell, even a rule of thumb like "If you are positioning your product for the mid to high end market, go with X"

keltex• 13 years ago

That's why A/B testing is always a good idea. Try it both ways and see which converts better.

akanet2• 13 years ago

I'd love to but I don't have enough traffic to conclude this in faster than like, a year.

nether• 13 years ago

I've always noticed higher-end restaurants tend to price everything in whole dollars.

ronaldx• 13 years ago

There's no once-and-for-all answer, but this is what I would go with:

* 99p may fool less numerate customers into believing they are paying less than they are. A fair proportion of the general population are not numerate enough to add £1.99 and £1.99. If these are in your target market and you find that ethically OK, you may be profiting from that. [Edited to add: sum deliberately chosen from experience; coincidentally matches article data]

* "Random" prices such as 86p can give a psychological sense that you have cut off as much as you can (even if you really haven't), attracting savvy shoppers, as long as you have a reasonably trustworthy brand on this point.

* Pricing even a penny or two less than the competition will attract price sensitive customers, particularly online. A lot of the general population are indeed price sensitive and are able to compare prices thanks to the internet. This depends on whether your level of service is perceived as reasonably comparable/fungible.

* Round prices e.g. £100,000 can give a sense of luxury or quality - you are not discounting because you are providing a high value product. Discounting often undermines any perception of quality - it's plausible that you would make fewer sales at £99,999

* a few pence difference is a bigger hit on (much bigger percentage of) your retail profit margin than it is on the customer's pocket. Research shows inconclusive results, and if it's not costing you sales, you should probably not take off the pennies.

It's interesting to compare this to the neighbour thread about developer rates - I doubt there are many developers charging £49.99 per hour [Edited to add: it's not even possible to select that as an option!]

michaelochurch• 13 years ago

That's the Anchoring Effect. It's not just about 3.99 appearing cheaper than 4.00. It appears cheaper than 3.00 because the 9's make the 3 look small.

$3.29 appears especially cheap. The cheapest-looking price point between $3 and $4 is probably $3.19 or $3.29. ($3.09 isn't as cheap-looking, because the '0' adversely anchors the 3.

There is a trade-off in the appearance of simplicity, of course. If you're selling cars, for example, you get more mileage (no pun intended) out of $29,500 than $29,999.99. Restaurant menus are one example of that, wherein whole numbers ending in '8' and '6' seem to be favored (18, 28, 36).

eru2• 13 years ago

That's the Anchoring Effect. It's not just about 3.99 appearing cheaper than 4.00. It appears cheaper than 3.00 because the 9's make the 3 look small.

Compare http://www.economist.com/news/briefing/21588057-scientists-t...

ddlatham• 13 years ago

I love buying when prices are quoted in even amounts, especially if they include the tax. It makes me sad that we humans are so affected by tactics like this and that sellers (rationally) take advantage of them.

anigbrowl• 13 years ago

Me too. I know I'm in the minority with this, but I much prefer to do business (repeatedly) with a firm that isn't employing bullshit tactics. It would be interesting to see a study that reflects the whole cost-per-customer, since resorting to such pricing tricks means you're inevitably attracting consumers who are extremely price driven and who may be harder to upsell or retain.

jmathai• 13 years ago

Interestingly even Apple does this on a not-so-cheap device.

http://store.apple.com/us/iphone

whichdan• 13 years ago

There's a burrito chain in the northeast US called Boloco, and while their prices seem pretty arbitrary, all of the post tax prices are always whole dollar amounts. It's the only place I know of in Boston that does that.

thaumasiotes• 13 years ago

Outside the US, prices are more normal. I suspect that the tax issue in particular reflects the fact that taxes are different in every different city in the US, which makes tax-included prices hard to advertise.

Kiro• 13 years ago

Outside where? In most of Europe this is standard as well.

vacri• 13 years ago

Interestingly, in Australia where taxes are in the sticker price, most retail prices are .99 or .95. When I was in the US, where the taxes mean you have no idea what the checkout price will be, it was weird to see so many prices at .29, 39, .59 and so on.

I assume it was tax-related, because forking over cash and getting shitty amounts of coins back is not something that's common in Australia, but a necessity of the way Americans do retail - and a .99/.95 regime helps avoid that. There's no 'leave a penny/take a penny' tray in Australian retail culture, for example. This reasoning is admittedly idle speculation, IANARetailer.

wtbob• 13 years ago

There's no 'leave a penny/take a penny' tray in Australian retail culture, for example.

There wasn't one when I was a boy in the US, at least not that I remember. I think that they started to be a thing around the time I graduated college, and of course they're now everywhere. Just today I paid for some coffee and got back an integer number of dollars because the clerk made up the cost. Of course, it was in her interest, because I throw change or a dollar into the tip jar when the tab is small enough that the tip is less than a dollar.

Amadou2• 13 years ago

I down-modded you because references to when you were a boy and when you were in college without actual dates are meaningless to everyone else.

logn• 13 years ago

It's tax-related, but also because every state, city, and county can add their own sales taxes, so the only way to advertise prices for a national chain is by excluding sales taxes. As a result most businesses, even just local ones, follow suit. And the taxes can change after any government budget meeting or vote. Plus, many retailers attempt to keep pace with or beat inflation, so prices tend to slowly rise, by pennies at a time.

Theodores• 13 years ago

British supermarkets have plenty of products priced at round pounds, or £x.50. This is particularly the case with BOGOF deals, e.g. two packets of cheese might cost £3 whereas individually they may cost £1.89 each. Why is this?

There are two reasons. The round price is an honest price, nobody has tried to fiddle the price to look less than it is by putting the 99 in there. Secondly, for those shopping to a budget, e.g. not planning to spend more than £20, then it is a lot easier to add up round figures than lots of £x.99's.

The one that I don't understand is £x.95. Why would a retailer want to put (say) a thousand items through the till at £x.95 when they might as well be £x.99? 1000 * 4p is £40. That might not seem a lot of money, however, at minimum wage(!), that is enough for some extra pair of hands on a busy Saturday.

With online retail a lot of websites charge round figures for delivery and services such as gift wrapping. I can see the sense in that, however, it would be good to see an A/B test from a major retailer to see if getting that wrong means more customers bailing out at checkout.

chrismonsanto• 13 years ago

It might be to differentiate from the competition. You might see enough orders from people picking the .95 over the .99 to make a difference.

refurb• 13 years ago

Speaking of "two for $X", i've noticed plenty of shops leave it to the consumer to assume that they have to buy two when in fact the price of one is $X/2.

Safeway does this a lot.

pmahoney• 13 years ago

Back when I worked at Target, it was also this way. As I understood it, the system simply did not allow for a multiple item discount. The "3 for $4" ads did always say, in fine print, something like: unit price $1.33.

What got me was that a 12-pack of certain replacement razors was more expensive than three four-packs. I distinctly remember that one, having done a double take and checking my math with a friend.

dingaling• 13 years ago

Why would a retailer want to put (say) a thousand items through the till at £x.95 when they might as well be £x.99?

For cash-handling shops, with .95 prices there is a higher probability that the final total will end on a 'silver coin' mark, rather than a 'copper'.

Handling copper coins is extremely expensive due to their bulk versus low value. The fewer the better.

mooted1• 13 years ago

I don't know about this. The post compares items where the seller chooses to price at whole numbers versus where the seller chooses to subtract a penny. It seems to me like a more likely explanation is that less savvy sellers who produce lower quality products are more likely to price at whole numbers. A 100% jump in conversion based on a change of 1 penny seems kind of absurd to me.

If anyone has done controlled tests of this effect and seen comparable results, I'd love to hear about it.

ollysb• 13 years ago

As an alternative hypotheses, whole number prices are so rare that they might actually less familiar and it's this that causes the lower conversion rate.

nnnnni• 13 years ago

"geoduck clam", ha.

CyrusL• 13 years ago

I am hesitant about the value of the data in the chart. It sounds like out of all the products sold via Gumroad, the .99 products convert better than the .00 products. Couldn't that just mean that the sellers who use .99 are savvier with pricing and probably also doing other things to market their products better?

Better data would be the same product sold in .99 and .00 versions. I imagine the conversion rate differences wouldn't be so dramatic in that chart.

pbreit• 13 years ago

Good point. I'm sure studies have been done and merchants set such prices accordingly.

This guys appears to have reviewed a number of studies and concurs. BUT...he also thinks that "round" pricing may support luxury branding better. That's partly why you probably can't do simple pricing difference between the same product at the same store.

http://www.sciencedaily.com/releases/2011/09/110906144036.ht...

More about the topic: http://www.quora.com/Pricing/Do-prices-at-99-instead-of-1-00...

adrianbg• 13 years ago

As a consumer I'm pretty aware of this tactic. I probably still fall for it, but I also notice and think better of sellers that don't use it.

Semaphor2• 13 years ago

I always round prices up that end with .9x. On Kickstarter when prices are $79 I count them as $80. Saving me that minor calculation makes me more likely to buy something, it simply removes an annoyance. Is that really un-normal?

sejje• 13 years ago

I'm not sure. I also do this, but maybe something is happening, even to us, subconsciously.

Maybe the effect goes away if we walk away and remember the price as $80, though.

Semaphor2• 13 years ago

I think one effect might be that when you don't look to closely at something, and later remember the price being just what's before the decimal separator.

Kequc• 13 years ago

I find unrounded prices annoying as well because it forces me to perform a number of extra calculations. If I look at for example the price of Github being $7/month I immediately think Thank you.

When I look at the price of a pack of gummy bears and it's $1.96 I am forced to think $2. Then I have to keep in the back of my mind the fact that if I pay with cash I'm getting bad change and then I think what am I going to do with 4 cents?

I may get overly annoyed by this but please list actual prices. $1.96 is $2.

When prices don't include tax I don't bother with the calculation so I don't even know how much it's going to cost. Then I try and spend all the stupid change people keep giving me and people are impatient that I didn't count it ahead of time. You know maybe I would if I had known what the price was going to be even a moment before I was being asked for it. In most cases if it wasn't out of necessity I wouldn't shop at any of these places.

Thrall• 13 years ago

I also round them up, but in doing so, it makes me think about the fact that the price doesn't reflect the 'value' of the product: If they hadn't rounded it to ₤X.99, would it have been more or less? How much of that is profit?…

eru2• 13 years ago

What's wrong with profit? And what does their cost have to do with value?

brianbreslin• 13 years ago

Any idea why Wal-Mart uses .88 in their pricing?

lotyrin• 13 years ago

Some retailers use the last digit to encode information about the price, like whether it's controlled by the manufacturer, whether it's a seasonal price, or whether its been marked for clearance.

Amadou2• 13 years ago

This gave me a great idea for a defensive firefox plugin, maybe even just a greasemonkey script:

Any number that looks like a price (currency sign nearby with a .99) is automatically rounded up to the next integer when displayed in the browser.

djkz• 13 years ago

When I played on World of Warcraft Auction House the main advantage of this tactic was the fact that it placed your items before all evenly priced items. I've exploited that for a while to move large amounts of inventory.

makaed• 13 years ago

"At Gumroad, we’ll stop just shy of letting you charge tenths of cents (come on, gas stations, that’s cheating) or allowing the font on your change to be smaller on-screen."

Does that mean they won't allow it in the future?

A Penny Saved: Psychological Pricing

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