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Price Psychology – When 99c Earns More Than R1

The case for the 99 effect versus round-number prices: how is your pricing reinforcing or weakening your product positioning?

Price Psychology – When 99c Earns More Than R1

When you’re shopping and you see prices ending in 9s, like 49.99 or 1,999.99, do you also round up to the next round number? Do you also enjoy a brief moment of smug satisfaction that you weren’t fooled by the retailer’s pricing mind-trick?

I often feel irritated and mis-trustful of retailers who use charm pricing – reducing the left digit by 1 – especially for higher-priced products. I wish they’d just use a round number when there’s basically no difference between 10,000 and 9,999.99, instead of forcing me to make micro “corrections”.

Except, depending on what you’re selling, rounding your prices is not always a good thing. There’s a case for the 99 effect and there’s a place for convenient, rounded prices.

Even for high-priced items, decrementing the first digit by 1 still has an unconscious effect in the buyer’s mind. Although R199.99 is as good as R200.00, our minds instantly and subconsciously get attached to the smaller first digit.

Despite the mental maths of rounding up, the lower first digit takes hold before we’ve even finished reading the rest of the price. Irrational as it is, R199.99 feels closer to R100 than R200, and it’s this feeling that persists despite the rational correction.

Charm pricing also creates a psychological sense of uniqueness, raising the perceived value of the product. This could be reinforced literally by adjusting the cents across different product lines. E.g. instead of prices ending in only 99, vary them to 98, 95 or 90.

Gumroad, an e-commerce retailer, A-B tested  several products at alternate price points to prove this. In some cases, products priced at 1c less achieved over double the conversion rates as the same product at its rounded price. For example, products priced at $2 earned a 2.39% conversion rate (users who bought it as a percent of users who viewed the product), whereas the same products priced at $1.99 enjoyed a 5.2% conversion. That 1c discount made a massive difference in turnover.

But there might be times where the 99 effect could work against you.

If you’re selling anything positioned as luxury or high quality, a rounded price is more likely to strengthen this positioning. Have you noticed how top-end restaurants, hotels and boutique retailers list their rates in whole numbers, often using only even numbers?

The rib eye steak is R148, not R147.95 or R149.90. The oyster starter is R18 per oyster, not R17.99 (assuming the establishment even lists its prices!)

Prestige pricing – whole, rounded numbers – makes it easier to convey the price and create a sense of quality. With less attention on price, the value to be perceived lies in other attributes.

But even luxury brands might need to use charm pricing. If you’re going to run a discount promotion, your sales tactic should switch from fancy pricing (round numbers) to value (99 effect). E.g. a half-price sale shouldn’t cut your R200 list price to R100, but to R99.99.

How are you using your prices to reinforce your buyer’s perception of value for money, or quality and prestige? Does your pricing support your intended product positioning?