The Rule of 9's: Will Charm Pricing Work for Your Business?

Business.com / Starting a Business / Last Modified: February 22, 2017

Don’t leave your pricing strategy to guesswork. "Charm" pricing has been proven to lift sales, but will it work for you? Read on to learn.

While many Americans lobby for the discontinuation of the penny entirely, 99 cent stores have sprouted up like Starbucks.

With hundreds more 99-cent-type stores slated to open this year, it’s clear U.S. consumers resonate with the prospect of saving.

Using nines in pricing (also called “charm pricing”) has long been an effective tactic to prompt consumers to buy.

We’ve been conditioned to regard the presence of nines as a discount and seeing them excites us. Many vendors put nines to good use, but will 99 cent pricing win the most revenue for your business?

Related Article: Surefire Signs Your Sales Strategy is a Success

While the first vendor just may have just stumbled on the power of the 99 cent incentive, actual science has studied why and where it’s most effective. The “psychology of numbers” is a robust field in both math and social science departments of many universities. Across the board, they agree that it works . . . in the right situations.

First and foremost, a wide body of research has confirmed that the magic of nines, or charm pricing, is due to the fact that consumers read from left to right with precipitously decreasing attention. This means that consumers assimilate $4.99 as $4 rather than $5 and $497,500 as $400,000 rather than $500,000.

Sound crazy? Humans are pain-avoiders who experience less “pain in paying” those prices that start with a lower initial digit. The lower the price for an item, the lazier consumers get. Emphasizing that first digit just works well enough for us. This said, using nines across the board doesn’t work for all brands.

Are Your Customers Value Driven or Bargain Driven?

Before we press on, readers should know that marketers term prices containing the number nine or other odd numbers, “precision” prices. Think of big box stores where lots of products are $9.97 or $14.99. Every person walking into Walmart is there primarily to save money. The lower the price looks, the lower “pain in paying” involved.  

Why?

As two researchers first explain in the journal, Psychological Science, people create mental measuring sticks that run in increments away from any opening bid. They walk into a big box store thinking that a bag of dog food should cost around $20.00, so if It’s $19.95, they escape the “pain of payment.” They may even get a slight jolt of glee at vanquishing Walmart. The $19.95 price feels like a discount and a win.

This discount thinking can occur on a large scale as well. Consider the housing market. Researchers examined five years of real estate sales in Alachua County, Florida.

The more precisely a seller listed a home (say $497,500), the more quickly it sold. Also, initial offers for this “charm” priced home were higher than for homes with prices like $500,000. Home buyers seeing a charm price assume the price has already down come a bit and the sellers are looking to sell quickly. Buyers’ egos will allow them to make a deal in which they believe they have more power.

But buyers aren’t always looking for deals. In a sellers’ market, home buyers could be looking to buy anything, anything, in the neighborhood they desire. In that sense, they will be value buyers.  Value buyers have goals other than the lowest price or saving the most money. They desire a product that delivers the most for their status or life goals. Those looking for a home may value the school quality just as much as the price. Particularly in a sellers’ market, buyers will already know prices of other homes available. In order to get the home and the premium school, they will put their egos second. Making the smartest deal or getting a discount drops in importance for value buyers.

Value buyers can also be found in clothing. Brooks Brothers, JCrew and Anne Taylor’s prices are “rounded.” A dress shirt at these vendors can be 165.00; ties are priced at $85.00 and up. The value of the dress shirt goes beyond warmth and discretion. They indicate status, power and achievement. These stores may have some precision prices, but only on their sales pages, which tend to be more hidden. Go to Kohl’s or JC Penny and you find lots of 29.99 and lower items right on the first page. Kohl’s and JC Penny  buyers, with lower incomes, focus closely on price. Survival takes precedence over ego for these buyers. They must pay rent and buy food as well as clothe themselves. In other words, while of course they feel excited when something flatters their figure or coloring, their brains can override these feelings when they look at the price tag. Knowing whether your clients are bargain driven or value driven goes is critical when determining your pricing strategy.

Are Your Clients Emotional or Rational Buyers?

Bargain vs. value buyers speak to income level. Another dimension buyers should consider whether their products speak more to emotions or reason.

For buyers motivated by emotions like anticipation or excitement, research indicates that rounded numbers create less of an obstacle to purchase. A study published in the Journal of Consumer Research found that this is due to the fact that rounded numbers are processed more easily. Rounded prices support the forward momentum the feelings incite.

The study authors used the example of camera buyers. The buyer who is excited about an upcoming trip is more willing to spend a rounded number like $350. The camera buyer who needs to buy a camera to document items for an estate sale, on the other hand, is more likely to go for the $297 price. This second buyer is simply in a more rational, intellectual mode, more focused on price than the added joy or value the camera will bring.  

Related Article: Motivated to Sell: Proven Sales Compensation Strategies

The Right Pricing Strategy Supports Long-Term Business Success

Don’t leave your pricing strategy to guesswork. Particularly when services and products are bundled, pricing can get complex. Ensuring the services aspect remains profitable is critical.

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