🎓 When $.99 pricing works best

To increase the effectiveness of a .99 pricing strategy by up to 10% (e.g. using $1.99 vs. $2.00), mention the original price on the price tag.                                                                                                                                                                                                                                                                                                                                                                                                                 March 21, 2023 | [Read Online]( When $.99 pricing works best To increase the effectiveness of a .99 pricing strategy by up to 10% (e.g. using $1.99 vs. $2.00), mention the original price on the price tag. [Thomas McKinlay]( [fb]( [tw]( [in]( [email](mailto:?subject=Post%20from%20Ariyh&body=When%20%24.99%20pricing%20works%20best%3A%20To%20increase%20the%20effectiveness%20of%20a%20.99%20pricing%20strategy%20by%20up%20to%2010%25%20%28e.g.%20using%20%241.99%20vs.%20%242.00%29%2C%20mention%20the%20original%20price%20on%20the%20price%20tag.%0A%0Ahttps%3A%2F%2Fariyh.beehiiv.com%2Fp%2Fwhen-99-pricing-works-best) New to [Ariyh](? This is a 3min practical summary of a scientific study 🎓 Join 16,646 evidence-based marketers that grow using science, not opinions 📈 [Subscribe now]( Today’s insight is brought to you by… [Everyone Hates Marketers]( [Learn how to stand out]( You know that making your businesses different is vital — but no one easily explains how to actually do it in practice... Until now. Louis is my go-to for evidence-based advice on positioning and differentiation. [Join his newsletter]( to get one bite-size email per day (Monday to Friday) to help you stand the f*ck out in a no-bull, super-practical way. [Subscribe]( Want to sponsor Ariyh? [Here’s all you need to know](. 📝 Intro It’s time for your annual sale and you’re discounting your prices. You know that it’s the perfect time to use $.99 pricing (because you read that in [Ariyh’s Pricing & Promotions Playbook](, and know all about the latest pricing science 😉). So you put that $400 TV on sale for only $299. But how do you make this new price as attractive as possible, and maximize your sales? Here’s what scientific research from Tilburg, Monash, and Cornell Universities found. P.S.: $.99 pricing (also called ‘Just-below’ pricing) isn’t always the best option, especially when the price has [multiple components]( or when [selling high quality hedonic products]( (e.g. perfumes, flowers or watches). Previous insight: [Suggest product pairings to boost your sales]( (more insights [here]() $.99 Pricing is most effective when you display the original price as a reference Channels: Pricing | Promotions | Discounts For: B2C. Can be tested for B2B Research date: June 2020 📈 Recommendation $.99 pricing (e.g. $0.99 vs $1.00, $49 vs $52) is most effective when you use it in a promotion and show the original price alongside it (e.g. was $9.50, now only $7.99!). The discount will seem larger, so people will be more likely to buy. Especially casual buyers. [Show the original price alongside 99 prices] 🎓 Findings - People see a larger difference between prices like $8.00 vs. $6.99 compared to $8.01 vs. $7.00, even though the price difference is the same. - 0.99 pricing (also known as Just-below pricing) is more effective if people can see the original prices and use them as a reference. - For example, as part of a series of 5 experiments, people were shown: - Jars of jam for either $2.99 (originally priced $4) or for $3.00 (originally priced $4.01) and rated the price as 15% lower when it was $2.99 - A set of twelve prices, with the original and discounted prices either shown together or separately. They perceived the discounts to be higher when the prices were shown together, as compared to separately. - The effect is stronger for casual buyers of a product category (e.g. ketchup, dish detergent) vs regular buyers. 🧠Why it works - When comparing prices, we process them in one of [two ways]( - either by looking at each number digit-by-digit (without rounding) or we round the number in our mind. - When the original and discount prices are listed side-by-side, we compare the prices through the first method. As we [make this comparison](, the difference in the left-most digits stands out to us, making the difference appear larger (e.g. comparing $4.00 vs. $ 2.99, we focus on comparing the 4 and 2). - When the prices aren’t listed together, we judge them [based on our memory]( of one price, so we look at the numbers as a whole (e.g. 2.99 is considered 3), and the ‘.99’ doesn’t matter as much anymore). [Google searches for newsletters are surging, shows the graph]( Newsletter readership is growing fast. It’s a treasure trove of opportunities to get featured. But how do you find the right newsletter? [Reletter]( makes it easy for you. Search [Reletter's database]( of over one million Substack and LinkedIn newsletters. View by topic, subscriber numbers, engagement scores, contact info and lots more. [Try it for free](. This announcement was sponsored. Want your brand here? [Click here](. ✋ Limitations - This research studied people’s perceptions of prices. It did not directly measure changes in behavior (e.g. choices, sales). That weakens the findings. - The experiments focused on grocery items and beverages. The effect may vary for other products. For example, for expensive purchases, people are likely to do more research on price and features rather than impulse buy. So they will round the prices or be more willing to mentally calculate them. - The study focused on numbers smaller than 10. It’s unclear whether the effect also works when the 0.99 pricing reduces a digit that is not the leftmost one (e.g. was $1,700 now $1,399; the 1 which is the digit most to the left remains the same). 🏢 Companies using this - Companies use prices ending in $.99 all the time so that people anchor the price on the left-most digit, making the price seem lower. - Especially during sales or promotions, many brands correctly include the original price to highlight the price difference. For example: - Amazon often uses just-below pricing ($24.99) with reference prices. Best Buy does the same in their “Deal of the Day” on their website. - Fashion retailers such as J.Crew or Zara also price their products on sale using a reference price. - It’s unclear how many marketers understand the [downsides and negative effects of .99 pricing](. On Amazon, four of the top five highest rated coffee makers use $.99 pricing, with two including comparisons against the original price. [Coffee machines on Amazon] ⚡ Steps to implement - If you are discounting a product, end the price in 99 and keep the original price alongside it to highlight the difference. - This works best for customers who don’t use your category regularly, so it would be most effective for introductory offers aimed at new customers. - For regular customers, especially those using your products heavily, this isn’t as effective. For example, this pricing probably won’t have the same effect for subscription renewals or offers on a regularly purchased product (e.g. a Christmas discount giving a special price for December on a monthly service). 🔍 Study type Online experiments and market observation (data from a major supermarket chain) 📖 Research [The Left-Digit Bias: When and Why Are Consumers Penny Wise and Pound Foolish?]( Journal of Marketing Research (June 2020) [Research from the American Marketing Association]( 🏫 Researchers - [Tatiana Sokolova](. Tilburg School of Economics and Management, Tilburg University - [Satheesh Seenivasan](. Monash University - [Manoj Thomas](. S.C. Johnson Graduate School of Management, Cornell University Remember: This is a scientific discovery. In the future it will probably be better understood and could even be proven wrong (that’s [how science works](). It may also not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely. Rate today’s insight to help me make Ariyh's next insights 🎓 even more useful 📈 How was today’s insight? [Loved it]( | [Great]( | [Good]( | [Meh]( | [Bad]( - 📘 Want to optimize your pricing? Get [Ariyh’s Science-based Playbook of Pricing & Promotions]( - 📣 Want to advertise on Ariyh? [Here’s all you need to know]( - 🎓 New to Ariyh? -> Subscribe below or read other [3-min marketing insights]( [Subscribe here]( [tw]( [in]( Update your email preferences or unsubscribe [here]( © Ariyh Plaça de la Universitat 6 Barcelona, Barcelona 08007, Spain [[beehiiv logo]Powered by beehiiv](