Pricer’s Points: Why you spend more when prices end in .99 | Kent Hendricks

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I once worked at a company that priced everything with a .95 ending. The bestselling software package was $999.95. Add-on products were $9.95, or $19.95, or $49.95. Everything ended with a .95. It had been this way for more than twenty years.

One day, one of the VPs suggested we change all prices to end in .99. The rationale was that raising prices from .95-endings to .99-endings would net an extra four cents for every transaction.

But would that really happen? According to traditional economics, no. That’s because traditional economics predicts that raising a price results in fewer units—and fewer units, even at a higher price, means less revenue.

Flash forward a few years. Different company, same question. We’re sitting around a conference table discussing pricing strategy for an upcoming product. The VP leading the meeting smacks our competitor’s catalog onto the table. As we review our competitor’s products, we notice they price some of their products with .99-endings and others with .00-endings.

Why? Did they know something we didn’t? Do .99-ending prices make more money—but only some of the time?

To answer these questions, we need to take a deep dive into how the mind perceives numbers—and how that affects consumer behavior.

On a scale like this, the space between 2.99 and 3.00 is greater than one cent. When you see a price of $2.99, it feels like less than $2.99 because something is warping the scale and affecting your perception of the number. It feels closer to $2.90 or even $2.00.

But why?

What makes our mind perceive the number scale incorrectly? How do .99-endings trick our brains into thinking they’re smaller numbers than they really are—and trick us into spending more?

It would be impossible to give a full account of what’s going on in the brain. But we do know that two key mechanisms are at play: one is the anchor effect, and the other is the left-digit effect.

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Why you spend more when prices end in .99 – Kent Hendricks.

 

Kent Hendricks

Kent Hendricks
Director of Marketing, Online Learning at Zondervan

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