Why do prices end in 9, or 7, or 5? But nearly never 0
Published: Thu, 04/13/17
Ever wonder why prices for the things you buy nearly almost always end in 9 or 7 or 5 but nearly never 0?
The theory is that 1.99 seems more like 1 than 2.
Huh?
That's crazy, right? I mean, 1.99 is less than 2 but way more than 1. And people are rational, right?
NOPE.
People are NOT rational. In fact, they are more irrational than rational, IMHO.
Just look at the choices we make. They almost all are based -- at least in some part -- on emotional factors.
And when emotional factors are inconsequential (and, by the way, the never are), price becomes a HUGE determining force.
Perhaps the most significant determining force.
When somebody sees 1.99, they DO round up to 2. You may read elsewhere that they round down to 1. But they don't.
Here's why:
(Take taxation out of the equation for just a moment. In fact, when you bring taxes into the picture, my argument is even more compelling.)
(And take into consideration only cash transactions. Because credit or debit largely makes fractional pricing irrelevant, and makes our irrationality even more pronounced.)
So...
You see something for 1.99. You know you need 2 dollars to buy it.
Only a fool would think he could offer a dollar for a 1.99 item to a store merchant and the merchant would accept it. That's just silly.
Now, contrast that with something that is 2.03. You need 3 dollars to pay for it, or some change. And nobody carries around pocket change any more :)
Is the item for 2.03 better than the one for 1.99? Maybe. Who knows? But when you don't know, most people will jump to two conclusions:
- It's better or
- It's not
If it's not better, then I go with 1.99. Duh.
Lower prices will always perform better, all other things equal. (That's an infamous phrase conjured up by economists. It's nearly NEVER the case. SOME THING is always unequal - quality, color, texture, appearance, packaging, etc.)
There have been studies that show sale prices that don't end in 9 work better than lower prices that end in 8 or 7 or 6...you get the picture.
Why?
Because of perceived value.
The higher regular price sets the consumer up to think it's better. And oh, it's on sale? Winner!
What does all this mean?
Nothing, really.
God, don't you hate me for making you read all that?
Seriously, it does matter.
It matters "bigly" to large businesses with tons of transactional business.
But to small time operators like you and me (sorry if you're a bigshot but really cool that you're reading this), it may not make a heap of difference. I know fellow entrepreneurs who sell really well with prices ending in 0, 7, 9, 5...
I will admit I don't see a lot of 94 dollar offers...but what if somebody tried that?
Honestly, my gut tells me 95 would work better than 94. But you never know until you try it.
And that's the rub. And why a ton of this pricing stuff is just conjecture.
The big kids can test pricing extensively. Think Wal-mart and Amazon.
But when you sell 1000 copies of something (or far less, which is the case for the vast majority of us), it's really difficult to determine with any confidence that your pricing affected anything. It's just too small a sample size.
Hope this helps you a bit in deciding how to price your own offers.
Thanks for reading. Talk soon.
Bill
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