BDC Hamburger Icon

Menu

Close
BDC Logo
Search Icon
Advertising Disclosure
Close
Advertising Disclosure

Business.com aims to help business owners make informed decisions to support and grow their companies. We research and recommend products and services suitable for various business types, investing thousands of hours each year in this process.

As a business, we need to generate revenue to sustain our content. We have financial relationships with some companies we cover, earning commissions when readers purchase from our partners or share information about their needs. These relationships do not dictate our advice and recommendations. Our editorial team independently evaluates and recommends products and services based on their research and expertise. Learn more about our process and partners here.

The Game of Pricing: How the Number 9 Affects Purchase Behavior

What does the number 9 have to do with pricing? A lot. Are you using it right?

author image
Written by: Jennifer Dublino, Senior WriterUpdated Jul 10, 2024
Chad Brooks,Managing Editor
Business.com earns commissions from some listed providers. Editorial Guidelines.
Table Of Contents Icon

Table of Contents

Open row

Almost all marketing revolves around trying to get into customers’ heads. What do they want? How much are they willing to pay for it? Which words or images will increase their purchase intent? How can we create a sense of urgency? 

While we like to think of ourselves as rational beings, humans make decisions frequently, including purchase decisions, based on emotions, assumptions, shortcuts and logical fallacies. When businesses understand what lies behind their target market’s thought processes, they can use this information to increase sales and maximize profits.

Charm pricing is a pricing strategy based on the psychology of choice. We’ll explain why it’s highly effective and share best practices for setting a pricing strategy. 

The concept of charm prices

We see countless “charm” prices (prices that end in the number 9) daily.

There’s no real consensus about how this came to be while a few different apocryphal stories exist. Still, there is little disagreement with the idea that charm prices convey value and motivate customers, ultimately, increasing sales.

Charm prices work because of the “left digit effect,” which proposes that people place more importance on the leftmost digit in a price. Therefore, $79.99 seems closer to $70 than $80. 

In one famous study, three different versions of the same mail-order catalog were printed with each version showed the same shirt at a different price. The shirt sold better at $39 than at $44. This result is not surprising because it illustrates the law of demand: As the price goes down, demand goes up. However, the shirt also sold better at $39 than at $34. This illustrates that charm prices have an impactful effect and can undermine even our most basic expectations about the effect of price on demand.

Did You Know?Did you know
Between 40 and 95 percent of retail prices end in 9. A left-digit bias study shows consumers assume these prices are 15 to 20 cents lower. Prices ending in 9 are, on average, 18 percent higher than prices not ending in 9.

When charm prices don’t work

Many people say that they don’t like nonrounded charm prices and research supports this. When pumping gas, nobody tries to stop at $29.99. They try to get to a nice, round number like $30. But what people like often has minimal impact on what influences them and sellers ignore the power of charm pricing at their peril.

In 2012, ousted CEO Ron Johnson tried to do away with charm pricing as part of an effort to revamp JCPenney. Although getting rid of charm pricing was only part of many more extensive changes to the business’s pricing strategy, the changes were not well-received and the damage was significant.

FYIDid you know
Dynamic pricing is another pricing model. With dynamic pricing, prices adjust continuously in response to real-time supply and demand.

Charm pricing vs. prestige pricing

Charm pricing uses prices ending in the digit 9. Interestingly, studies have shown that ending prices in other odd numbers, such as 7 and 5, can work too. Since consumers associate prices ending with an odd number with a lower overall price than one ending in an even number, 

Since consumers associate prices ending with an odd number with a lower overall price than one ending in an even number, charm pricing is used when targeting consumers looking for value.

person on a floating raft

Source: Temu

In contrast, prestige pricing seeks to avoid the taint of anything associated with bargain hunting. Luxury goods are often priced ending in even digits. Whole numbers convey that price is not a salient issue compared to other criteria like product quality and social status.

TipBottom line
The previously mentioned left-digit bias study showed that raising the price of a product to $5.00 from $4.99 resulted in 4.5 percent fewer sales.
screenshot of a Porche

Source: Porsche

The perceived value when pricing

So, should all prices end in the number 9? Research has demonstrated that charm prices powerfully imply value. Customers are more likely to perceive the price as being lower and representing a discount. That being said, charm prices say something very different about quality.

Upscale retailers know this and use it to their advantage. If you look at the price tags from a high-end department store, you’ll see that they’re almost always rounded. These stores aren’t selling value – they’re selling quality and luxury. Rounded numbers convey quality and luxury and are used almost exclusively in settings where quality is of utmost importance.

But when these luxury items are marked down for sale, nonrounded and charm numbers come back into play. The high-end shirt that normally sells for $400 is marked down 50 percent and sold at $199.99. As soon as you put an item on sale, you are selling value over quality and luxury retailers are eager to tap the power of charm pricing.

TipBottom line
If you need to raise your prices, using charm pricing can help mitigate the drop in demand.

The use case for rounded and nonrounded pricing

When is each pricing model most effective? Round numbers are more fluently processed and encourage reliance on feelings. Meanwhile, nonrounded numbers are not as easily processed, creating a reliance on cognition. This means you must understand consumer emotions when creating a pricing strategy. For example, if someone wants to buy a nice handbag as a reward for getting a bonus, round numbers are best. But if the decision is driven by cognition, such as a thought process of “I should buy this because it’s a good deal,” charm prices are better.

Consider the implications for a florist or caterer submitting quotes for a wedding. If they’re dealing with the couple and their family members, decisions will likely be emotional in nature and they should use rounded numbers when pricing. In contrast, if they’re quoting on a convention dinner or fundraising gala while dealing with an event planner, things are very different. This purchasing decision would likely be more intellectual in nature and they would be better off using nonrounded prices. 

At the end of the day, pricing comes down to identifying your target customer.

Did you find this content helpful?
Verified CheckThank you for your feedback!
author image
Written by: Jennifer Dublino, Senior Writer
Jennifer Dublino is an experienced entrepreneur and astute marketing strategist. With over three decades of industry experience, she has been a guiding force for many businesses, offering invaluable expertise in market research, strategic planning, budget allocation, lead generation and beyond. Earlier in her career, Dublino established, nurtured and successfully sold her own marketing firm. At business.com, Dublino covers customer retention and relationships, pricing strategies and business growth. Dublino, who has a bachelor's degree in business administration and an MBA in marketing and finance, also served as the chief operating officer of the Scent Marketing Institute, showcasing her ability to navigate diverse sectors within the marketing landscape. Over the years, Dublino has amassed a comprehensive understanding of business operations across a wide array of areas, ranging from credit card processing to compensation management. Her insights and expertise have earned her recognition, with her contributions quoted in reputable publications such as Reuters, Adweek, AdAge and others.
BDC Logo

Get Weekly 5-Minute Business Advice

B. newsletter is your digest of bite-sized news, thought & brand leadership, and entertainment. All in one email.

Back to top