This is a very insightful finding. It would be interesting to find out the effect of the price difference 99 cents vs. I agree, the study only looked at part of the equation. It would be more compelling to see this test done over a longer period of time and also track the volume sold. I still follow old school retail standards: Prices ending in. I will agree that once you break a price point you take the risk of the customer not buying the item. As I said, I love this topic — lots of different ways to slice the bread.
Okay, here is a story my friend and fellow analyst now retired told me. It started as a shrink prevention measure. Does it work? In my mind, I always just round up. The item is 99 cents? And the 97 cent ending that Georganne mentioned was used by some chains so that sales associates could quickly identify markdowns, not shoppers. Does it juice some people? Who knew? Georganne, great perspective based on your over 30 years of ground level retail experience.
Right on! Williams Sonoma only had two models, and the lower-priced one sold better. Williams Sonoma introduced a top tier option, and then the sales of the now mid-tier model took off exponentially because it looked like a better value. They tend to think that a rational process is involved in the pricing and go with the pricing.
In the earlier days, competitors in commodity products tried to gain more market share by pricing a penny or two lower than their competitors. Various researches indicate that customers are swayed more by the most significant first digits of a price tag and sometimes by the last digit. In one research done in , they found that 90 per cent of the prices end with either nine or five.
However, as customers are subconsciously getting used to these odd prices, other companies, such as Walmart, favour more pricing ending with. These answers all come from quora. The 99 price ending became a regular pricing hack even after the cash registers got much more sophisticated to ensure proper deposit of the cash. If I were to answer why do prices end in 99, and why did the 99 pricing phenomena pick up so much, then here would be the simplest answer to it:. Because we are human beings and we are not rational.
Prices ending in 99 is more about psychology and less about marketing or pricing mathematics. The 99 price ending is so effective because of what we call the left digit effect. The way we look at a price is from left to right. And therefore, the impact of the left-most digit, in this case, 4, is the highest. This makes you as a buyer perceive that the price is in the s and not Now, basis the logic behind pricing a product with a 99, it is also possible to use a 5 ending or a 7 ending pricing instead of 9.
Let me tell you, this works on the same psychology as the 99 price ending. Here's the 5-ending pricing of Bluehost, the web hosting where my blog resides. So, if you see a price ending with 5 or 7, or any odd number for that matter, you can safely assume that this is got to do with the left digit effect that I talked about i. While it is great to work with heuristics that seem to work really well, it is crucial for a manager like you to be backing your decisions with data.
What I have spoken about above is the managerial implication of a small change. But, let's look at some academic validation for it which will help us understand why do prices end with 99 and why it makes complete sense to do it. Comparisons of prices at major department stores reveal that this is common, particularly for apparel," wrote Eric Anderson, professor of marketing at Northwestern University's Kellogg School of Management, and Duncan Simester, professor of management science at M.
For instance, the clothing stores J. Crew and Ralph Lauren typically price regular merchandise in whole dollar amounts and stick cent endings on discounted items. These retailers purposely avoid ending their regular prices in.
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