There is a popular misconception that the dominance of prices ending in ‘9’ is driven by a desire to appear to just below a key price point. I.e. £99.99 seems significantly cheaper than saying £100. In reality this is simply a throwback to the days when we all paid in cash and no one bothered keeping receipts because we couldn’t take anything back. Retailers had a problem that a customer wanting to buy an item costing say £20, would pay in notes, and not wait around for their receipt, and sadly not all those £20 notes made it into the till. So prices were set at the largest amount that required the shop assistant to give change. In fact prior to the withdrawal of the coin in 1984, the price would have been £19.99 ½. Whilst for many of us the idea of waiting patiently to collect ½ p or 1p change seems ridiculous, there was no doubt that people did exactly that. Ending prices with a 9 was in fact simply a cash control measure not some clever psychology at play. The prevalence of ‘9’ is now based on our familiarity with it and the consequent acceptance that it is probably a “correct” price.
So how important is the final number on the price tag?
Consider what you might score if asked to grade something on a scale of 1 to 10. Ignoring genuine dissatisfaction or delight scores, the vast majority would give a 7. Their fear is that a 6 or below prompts the question “what did we do wrong” and an 8 or 9 may prompt a question “tell us what you really liked”. 7 out of 10 is simply a non-confrontational score. The number has therefore attracted a level of acceptability in many situations. It is also a positive number in Chinese culture, and has attracted a “lucky” tag in western culture as a result.
One business adopted the policy of ending every quoted price with a 7. Even what would have been £10,000 became £10,007. They saw a significant increase in conversion rates over the following year.
Conversely, if you set ‘round sum’ prices, the assumption is that these have been rounded up and that there may be room for negotiation. This is true of the headline price, £10 or £100, but much more important in business to business organisations offering discounts of 10%, 20% or 30%, as it prompts the supplementary question of “can’t you go a bit further”. Just think how you would respond differently if told the price of an item was £100 or told that it was £101.67? What if you were offered a discount of 20% compared with a suggestion of 19.87%. The sheer accuracy of the numbers leads to a belief that they have been carefully calculated and are therefore ‘right’, leading to far less debate about further reductions.
You may think this is all nonsense and that buyers are more concerned with the amounts that they pay than they are with the actual numbers that make up that price. A study in the US arranged for a major catalogue company to print three different versions of the same catalogue, and distribute them randomly among its customers. They tested a number of items with the same approach. In one version of the catalogue an item was priced at say $44, in another at $49 and in the third at $54. The text, image and all other details were identical. What they found was that the volume sold at $44 and at $54 was almost identical. i.e. the cheaper price didn’t sell any more than the higher one. Interesting in itself. More interesting was that the $49 priced item sold 50% more than the volumes at the other prices. Their conclusion, which is noted above, is that people ‘believed’ the price ending with the 9. Perhaps what would have been more interesting would have been to run 10 different versions ending in a number from 0 to 9 and see if the ‘7’ sold more than the ‘9’ or perhaps that ‘3’ had the largest impact on volumes?
So what number should you use? Well the US University concluded it should be a 9, but then they only compared this with two prices both ending in a 4. The case study business concluded that a 7 had a significant impact. What is certain is that when prices end in a 0, and are seem as “rounded”, the customer feels the price has been made up, and they either don’t buy or they want to argue for a bit more off.
My advice to any business is be as specific as you can in both the headline price and discount structures you use. I would end all prices with a 3, 7 or 9, but I would probably use all three and see if any of them was marginally better than the other.
Peter Hill
Author Pricing for Profit