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The Pricing Power of 9: Does it Work?

Posted by Origins Ecommerce - May 3, 2017 in

Finding the best price for your software product or service is essential to succeed in today’s competitive marketplace. But what price exactly will get the most people to buy?

Many companies offer their products or services at “odd” prices like $4.99 or €24.98. But does lowering your price by even just a little bit from a round number really make that much of a difference? Surprisingly, when it’s time to buy, people can be somewhat irrational and the answer seems to be yes.

 

The '9' Factor

Enter pricing psychology tactic number one. The 9 Factor, otherwise known as charm pricing, is one of the most widely used and oldest pricing practices. Ending prices with .99 or .97, or a little less than a round number, is a market psychology tactic that profoundly affects buying decisions.

Consumers perceive these odd prices as being significantly lower than they actually are, as they tend to round them to the next lowest monetary unit. As consumers, we've been culturally conditioned to associate prices ending in 9 with discounts and better deals. As a result, prices like $1.99 are more associated with spending $1 rather than $2.

The motivation behind this is obvious: to make the price seem lower. But is it effective? Do consumers look at a $99 price point (versus $100) and think it’s a better deal? Somewhat amazingly, research shows that they do. In his book Priceless, William Poundstone dissects eight different studies on the use of charm pricing and found that, on average, they increased sales by 24% versus ’rounded’ price points. Can you imagine increasing your revenue that much!

 

The Sale Price Advantage

A classic example of the power of 9 is an experiment conducted by MIT and the University of Chicago in which a standard women’s clothing item was tested at prices of $34, $39, and $44. To the researchers’ surprise, the item sold best at $39 - even though it was more expensive than one of the other options. Similarly to Poundstone’s findings, this study also found that the prices ending in 9 outperformed lower prices on average by more than 24%.

The number 9 also comes out on top when it is used in combination with a sale price. When the number 9 was included with a discounted price, it again outperformed lower price points (for example, “Was $60, now only $49!” outperformed “Was $60, now only $45!”).

 

Left-Digit Effect

Savvy merchants also get help from the pricing perceptions of consumers themselves. The typical consumer reads numbers from left to right, which is called the left-digit effect. When buyers do this, they interpret a $7.99 price as $7 - especially if they are scanning quickly. This makes the price seem lower, and thus more affordable and appealing. Not surprisingly, when it’s perceived as such, a sale is much more likely to happen.

 

Apply and Try

When finding the perfect price for your product, it’s also important to consider how your customers view prices, especially ones that end in the number 9. Charm pricing can have a significant impact on your sales and even the most sophisticated brands use it.

Keep in mind that charm pricing works best in price-conscious markets, which can include everything from household cleaners to software. To optimize your price, consider this pricing technique when developing an ecommerce pricing strategy and then test with your target market.

About the Author

Origins Ecommerce

We love sharing our expertise in online payments and helping our customers succeed. From the technical team to our customer service team, everyone at Origins Ecommerce is ready to support your success. Our goal is to reduce your expenses and risks while optimizing your revenue, by managing your online payments for you. The Origins Ecommerce payment solution is there to keep your payments in motion, so you don’t have to.
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