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MidwestLandlord

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@Vigilante mentioned in this thread how he set the price for his new book, and mentioned price points in consumer psychology: Vigilante's Book "Vigilant Kids" Step by Step

I used to consult for a major fastfood chain, and was responsible for pricing with all new franchisee's in the USA. Figure I'd share the knowledge. Of course, I use all this in my B&M too. I assume most of this knowledge would also work for ecom, and I know for a fact they work with selling services as well.

Caution: Long post!

What is a price point?

A price point is just that, the retail price. However, a price point is much more than just the sale price, and there are several strategies you can use when pricing to create the effect you want.

1) Charm Pricing

Charm pricing (also called psychological pricing) is using the specific digits of the price to affect the consumer, and sales, in the way that you wish.

a. Ending pricing.
This is where the price ends in either a '9' or a '5'
Several studies have shown that ending prices in a '9' has resulted in increased sales volume of up to 60.7% compared to evenly priced products. This is why you see $19.99, instead of $20.00

Prices ending in '5' are less common, but have also shown to have positive impacts on sales in the +30% range, again compared to even prices. Obviously, the "best practice" is that if you can price it ending in '5', you can price it ending in '9' and increase your margin with no negative impact.

(Fun Fact: this is why gasoline is priced in the USA with tenths of a cent in the price. $2.299 seems cheaper than $2.30. Also, gas stations used to compete using lower tenths of a cent, like .498 per gallon instead of .499)

Example: A product with a $5 cost and you are after a 50% margin. An exact 50% margin would be $10.00. In this case you would price at $9.99 (seems much cheaper, no?)

b. Dollar Digit
Charm pricing also involves excluding odd numbers in the DOLLAR digit of your price. The theory is that consumers are turned off by odd prices in the dollar digit, and you should hit an even dollar whenever possible (far from a hard and fast rule though)

Example: Instead of pricing an item at $13.99 (an odd '3' in the price) you'd price at either $12.99 or $14.99

2) Price Limits ("that's too expensive!")
This of course depends on what you sell. However, there are several "limits" that consumers will be hesitant to purchase if your price crosses, and your price should be set below or above these limits to account for them.

Common limits are: .50, $1, $5, $7, $10, $13, $15, $20, (every $5 thereafter)
After that, major ones are at $50, $100, $500, $1000

Example: A product with a $6.50 cost and you are after a 50% margin. At margin, your price would be $13.00. $12.99 would work well here as it keeps you under the $13 limit, ends in '9' and has an even dollar digit. Another option if you feel the market would support it is to go to $14.99. This is just like the $12.99, but falls just under the next mental "that's too expensive!" price limit.

As a very soft rule: If they will pay $13.99 (odd dollar), they'd pay $14.99
If they'd pay $15.99 (odd dollar), they'd pay $16.99

3) Decoy Pricing (I use this OFTEN)

This is where you use 2-3 products at different prices, to intentionally drive sales for a certain product.

Example: I'll use Vodka, as Vodka is all pretty much the same...but has multiple price points.

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99

In this example ^^, most people will buy the cheaper option as it is below the $10 mental limit and is cheaper than the only other option. But what if the mid-tier has better margin and you want to sell more?

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99
The good stuff: $19.99

With this example ^^, what mental effect will these prices have on the consumer? The first two Vodka's are exactly the same as the first example after-all...

The result will likely be that most people will purchase the mid-tier Vodka. Why?

1) The cheap Vodka now looks low quality compared to the other two. "I deserve better than that!"

2) The mid-tier Vodka is under a lower mental price barrier compared to the higher priced Vodka. "That's a good deal!"

3) The good stuff looks rather expensive, as it is above the mental price limits of the mid-tier Vodka and the cheap Vodka. "Ohhh that's too much...maybe after my next paycheck!"

You sell more of the product you want to sell, and the others are directing the consumer in the direction you want!

Keep in mind this all applies whether you are the one selecting brands to sell and pricing them (like me), or if you are the brand owner and need an MSRP, or are deciding on pricing compared to the competition for direct sales.

If there's any interest in this, I can cover other strategies I often use(d) like:

Skimming
High-low
Penetration pricing
Price discrimination
Yield management pricing
 

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Locomote

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@Vigilante mentioned in this thread how he set the price for his new book, and mentioned price points in consumer psychology: Vigilante's Book "Vigilant Kids" Step by Step

I used to consult for a major fastfood chain, and was responsible for pricing with all new franchisee's in the USA. Figure I'd share the knowledge. Of course, I use all this in my B&M too. I assume most of this knowledge would also work for ecom, and I know for a fact they work with selling services as well.

Caution: Long post!

What is a price point?

A price point is just that, the retail price. However, a price point is much more than just the sale price, and there are several strategies you can use when pricing to create the effect you want.

1) Charm Pricing

Charm pricing (also called psychological pricing) is using the specific digits of the price to affect the consumer, and sales, in the way that you wish.

a. Ending pricing.
This is where the price ends in either a '9' or a '5'
Several studies have shown that ending prices in a '9' has resulted in increased sales volume of up to 60.7% compared to evenly priced products. This is why you see $19.99, instead of $20.00

Prices ending in '5' are less common, but have also shown to have positive impacts on sales in the +30% range, again compared to even prices. Obviously, the "best practice" is that if you can price it ending in '5', you can price it ending in '9' and increase your margin with no negative impact.

(Fun Fact: this is why gasoline is priced in the USA with tenths of a cent in the price. $2.299 seems cheaper than $2.30. Also, gas stations used to compete using lower tenths of a cent, like .498 per gallon instead of .499)

Example: A product with a $5 cost and you are after a 50% margin. An exact 50% margin would be $10.00. In this case you would price at $9.99 (seems much cheaper, no?)

b. Dollar Digit
Charm pricing also involves excluding odd numbers in the DOLLAR digit of your price. The theory is that consumers are turned off by odd prices in the dollar digit, and you should hit an even dollar whenever possible (far from a hard and fast rule though)

Example: Instead of pricing an item at $13.99 (an odd '3' in the price) you'd price at either $12.99 or $14.99

2) Price Limits ("that's too expensive!")
This of course depends on what you sell. However, there are several "limits" that consumers will be hesitant to purchase if your price crosses, and your price should be set below or above these limits to account for them.

Common limits are: .50, $1, $5, $7, $10, $13, $15, $20, (every $5 thereafter)
After that, major ones are at $50, $100, $500, $1000

Example: A product with a $6.50 cost and you are after a 50% margin. At margin, your price would be $13.00. $12.99 would work well here as it keeps you under the $13 limit, ends in '9' and has an even dollar digit. Another option if you feel the market would support it is to go to $14.99. This is just like the $12.99, but falls just under the next mental "that's too expensive!" price limit.

As a very soft rule: If they will pay $13.99 (odd dollar), they'd pay $14.99
If they'd pay $15.99 (odd dollar), they'd pay $16.99

3) Decoy Pricing (I use this OFTEN)

This is where you use 2-3 products at different prices, to intentionally drive sales for a certain product.

Example: I'll use Vodka, as Vodka is all pretty much the same...but has multiple price points.

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99

In this example ^^, most people will buy the cheaper option as it is below the $10 mental limit and is cheaper than the only other option. But what if the mid-tier has better margin and you want to sell more?

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99
The good stuff: $19.99

With this example ^^, what mental effect will these prices have on the consumer? The first two Vodka's are exactly the same as the first example after-all...

The result will likely be that most people will purchase the mid-tier Vodka. Why?

1) The cheap Vodka now looks low quality compared to the other two. "I deserve better than that!"

2) The mid-tier Vodka is under a lower mental price barrier compared to the higher priced Vodka. "That's a good deal!"

3) The good stuff looks rather expensive, as it is above the mental price limits of the mid-tier Vodka and the cheap Vodka. "Ohhh that's too much...maybe after my next paycheck!"

You sell more of the product you want to sell, and the others are directing the consumer in the direction you want!

Keep in mind this all applies whether you are the one selecting brands to sell and pricing them (like me), or if you are the brand owner and need an MSRP, or are deciding on pricing compared to the competition for direct sales.

If there's any interest in this, I can cover other strategies I often use(d) like:

Skimming
High-low
Penetration pricing
Price discrimination
Yield management pricing
Exactly what I needed to read right now! Thank you!
 
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MidwestLandlord

MidwestLandlord

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More on Charm Pricing:

The tenths of a dollar digit can be manipulated to drive sales, effect perception of values, and adjust for mental limits in what people will pay.

This is especially true, in my opinion and experience, with products under $20

Remember, people are more likely to buy with pricing involving even numbers. So in my business, I have many products that sell for cheap, and taking whole dollar increases or decreases is not practical. So I often end up with pricing in-between two dollar points.

I always make sure the the tenths of a dollar digit is even, and I always round up.

Example:

To make margin on a product, I need to sell it for at least $4.35

I don't want to go to $4.29, as that is less than my margin.

I don't want to just round up to $4.39, as this has an odd '3' in the price.

So in this example, I would go to $4.49 as that gives me even numbers, and if they will pay $4.39, they will not hesitate to pay $4.49

Now, in this low price range, the $4.50 would be a mental limit (remember 50 cent as a mental limit in my long post above?), so I would NOT go to $4.69 or $4.89 (and I would never go to $4.59 or $4.79 either)

Make sense?
 

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If there's any interest in this, I can cover other strategies I often use(d) like:

Skimming
High-low
Penetration pricing
Price discrimination
Yield management pricing
Interested.
 

Scot

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Great post! Pricing isn't even something I'm thinking about yet but I know it's going to be a challenge. Thank you for this thread. It's bookmarked and rep+ is on its way.
 

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Cheap Vodka: $9.99
Mid-tier Vodka: $14.99
The good stuff: $19.99
Really wish I had known this a long time ago. Learned it by putting product on the shelf and being baffled at why it wouldn't move at a lower price point.

Rep++ - for all the noobs out there, @MidwestLandlord just gave you a free lesson that other people have paid tens of thousands in lost sales to learn. Read this shit.
 
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MidwestLandlord

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Great post! Pricing isn't even something I'm thinking about yet but I know it's going to be a challenge. Thank you for this thread. It's bookmarked and rep+ is on its way.
Hope it helps when the time comes. Thanks for the reps!

I've got lots more to cover, but not gonna type it out on my phone lol
 
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MidwestLandlord

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Really wish I had known this a long time ago. Learned it by putting product on the shelf and being baffled at why it wouldn't move at a lower price point.

Rep++ - for all the noobs out there, @MidwestLandlord just gave you a free lesson that other people have paid tens of thousands in lost sales to learn. Read this shit.
Thanks for the reps!

Ever notice that the cheaper vodka is also in plastic bottles and not glass?

Is that to lower cost, or to manipulate your perception of its value and get you to buy the more expensive vodka?
 

G-Man

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This is an interesting thing - @MidwestLandlord, because you are on a different side of the table than me on this. I would be the guy selling to you, and you calling the shot of which slot the product ends up in.

Have you come up with a way to measure tag effect? To clarify, when retailers put us on deal, we are pretty convinced that the sales bump isn't the lower price point, it's from the tag making the customer aware the product exists (it's a new product in a planogram that's a sea of staples).

I'd be interested to know if anyone's found a way to test that hypothesis, or if merchandisers have a metric for this effect.
 

ddzc

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@Vigilante mentioned in this thread how he set the price for his new book, and mentioned price points in consumer psychology: Vigilante's Book "Vigilant Kids" Step by Step

I used to consult for a major fastfood chain, and was responsible for pricing with all new franchisee's in the USA. Figure I'd share the knowledge. Of course, I use all this in my B&M too. I assume most of this knowledge would also work for ecom, and I know for a fact they work with selling services as well.

Caution: Long post!

What is a price point?

A price point is just that, the retail price. However, a price point is much more than just the sale price, and there are several strategies you can use when pricing to create the effect you want.

1) Charm Pricing

Charm pricing (also called psychological pricing) is using the specific digits of the price to affect the consumer, and sales, in the way that you wish.

a. Ending pricing.
This is where the price ends in either a '9' or a '5'
Several studies have shown that ending prices in a '9' has resulted in increased sales volume of up to 60.7% compared to evenly priced products. This is why you see $19.99, instead of $20.00

Prices ending in '5' are less common, but have also shown to have positive impacts on sales in the +30% range, again compared to even prices. Obviously, the "best practice" is that if you can price it ending in '5', you can price it ending in '9' and increase your margin with no negative impact.

(Fun Fact: this is why gasoline is priced in the USA with tenths of a cent in the price. $2.299 seems cheaper than $2.30. Also, gas stations used to compete using lower tenths of a cent, like .498 per gallon instead of .499)

Example: A product with a $5 cost and you are after a 50% margin. An exact 50% margin would be $10.00. In this case you would price at $9.99 (seems much cheaper, no?)

b. Dollar Digit
Charm pricing also involves excluding odd numbers in the DOLLAR digit of your price. The theory is that consumers are turned off by odd prices in the dollar digit, and you should hit an even dollar whenever possible (far from a hard and fast rule though)

Example: Instead of pricing an item at $13.99 (an odd '3' in the price) you'd price at either $12.99 or $14.99

2) Price Limits ("that's too expensive!")
This of course depends on what you sell. However, there are several "limits" that consumers will be hesitant to purchase if your price crosses, and your price should be set below or above these limits to account for them.

Common limits are: .50, $1, $5, $7, $10, $13, $15, $20, (every $5 thereafter)
After that, major ones are at $50, $100, $500, $1000

Example: A product with a $6.50 cost and you are after a 50% margin. At margin, your price would be $13.00. $12.99 would work well here as it keeps you under the $13 limit, ends in '9' and has an even dollar digit. Another option if you feel the market would support it is to go to $14.99. This is just like the $12.99, but falls just under the next mental "that's too expensive!" price limit.

As a very soft rule: If they will pay $13.99 (odd dollar), they'd pay $14.99
If they'd pay $15.99 (odd dollar), they'd pay $16.99

3) Decoy Pricing (I use this OFTEN)

This is where you use 2-3 products at different prices, to intentionally drive sales for a certain product.

Example: I'll use Vodka, as Vodka is all pretty much the same...but has multiple price points.

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99

In this example ^^, most people will buy the cheaper option as it is below the $10 mental limit and is cheaper than the only other option. But what if the mid-tier has better margin and you want to sell more?

Cheap Vodka: $9.99
Mid-tier Vodka: $14.99
The good stuff: $19.99

With this example ^^, what mental effect will these prices have on the consumer? The first two Vodka's are exactly the same as the first example after-all...

The result will likely be that most people will purchase the mid-tier Vodka. Why?

1) The cheap Vodka now looks low quality compared to the other two. "I deserve better than that!"

2) The mid-tier Vodka is under a lower mental price barrier compared to the higher priced Vodka. "That's a good deal!"

3) The good stuff looks rather expensive, as it is above the mental price limits of the mid-tier Vodka and the cheap Vodka. "Ohhh that's too much...maybe after my next paycheck!"

You sell more of the product you want to sell, and the others are directing the consumer in the direction you want!

Keep in mind this all applies whether you are the one selecting brands to sell and pricing them (like me), or if you are the brand owner and need an MSRP, or are deciding on pricing compared to the competition for direct sales.

If there's any interest in this, I can cover other strategies I often use(d) like:

Skimming
High-low
Penetration pricing
Price discrimination
Yield management pricing
REP+

How ironic, I was just updating all of my pricing and came here to take a break and found this thread!

Solid advice! Thanks bud.
 

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Argue

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Hey @MidwestLandlord,

Thank you for posting this thread. I needed this guide.

Yesterday, I posted an ad on letgo listing a watch for sale. In the first hour, I got 100+ views but no one contacted me.

I think the reason I got no offers was because of my pricing. I listed the watch for $550.
1. All odd numbers. Price ended with '0'.
2. Customers perceived number too high.
3. Lacked the digit 9 in my price.
So this morning, I changed the price ($499.95):


After the change, three buyers contacted me. A few buyers might not be many but this stuff works! :thumbsup:
 

cmor16

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Have you come up with a way to measure tag effect? To clarify, when retailers put us on deal, we are pretty convinced that the sales bump isn't the lower price point, it's from the tag making the customer aware the product exists (it's a new product in a planogram that's a sea of staples).

I'd be interested to know if anyone's found a way to test that hypothesis, or if merchandisers have a metric for this effect.
I work directly with category managers for a large grocery retailer and I can tell you that the tag is very effective at driving sales. A lot of times we don't even change the price, we just feature it in the flyer and give it a special tag. Offering deeper discounts will move more units but this works if you can't afford the investment.
 

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Bump. Bump!!!
Reps+!
I used to think that prices were just costs + profit. Now I understand there's a bit of strategy behind it.
Seriously, all Fastlaners should read this thread, because all of us are going to offer something with a price on it to the market.
I think price setting can be a potential landmine. Do it wrong, and the Fastlane equation is screwed.
Thanks @MidwestLandlord. Your posts on retail should make you the go-to guy on TFLF for that.
 

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You should try $549.99? Or $549.95?
PsychMology.

2) Price Limits ("that's too expensive!")
This of course depends on what you sell. However, there are several "limits" that consumers will be hesitant to purchase if your price crosses, and your price should be set below or above these limits to account for them.

Common limits are: .50, $1, $5, $7, $10, $13, $15, $20, (every $5 thereafter)
After that, major ones are at $50, $100, $500, $1000
 

Argue

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You should try $549.99? Or $549.95?
I could but I like what @MidwestLandlord said here:
b. Dollar Digit
Charm pricing also involves excluding odd numbers in the DOLLAR digit of your price. The theory is that consumers are turned off by odd prices in the dollar digit, and you should hit an even dollar whenever possible (far from a hard and fast rule though)

Example: Instead of pricing an item at $13.99 (an odd '3' in the price) you'd price at either $12.99 or $14.99
 

Ultra Magnus

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I also sent you rep, these are very interesting points that I will test in my own prices. Since I already have some clients, I now find myself feeling some resistance towards changing my prices without a good reason (don't want the folks who already have my stuff thinking "hey, I got ripped off, it's 20 bucks cheaper now!").

But I had the idea yesterday to do a kind of "as you like it" promo, where instead of selling only sets of products, I'd give shoppers the option to choose whatever they like. This would be a great opportunity to put some of your tips to the test.

I also calculated the rep dollars to even out your total, and it failed since you got more from someone else :)
 

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Thank you for this.

I for sure would like to know more about the other topics you mentioned
 

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I was wondering how relevant this type of pricing is with items that are either a heavier investment, tend to require more thought -- i.e more central and less peripheral processing -- or are products that solve significant problems and happened to be looking at a page for google wifi:

Google Store - Pixel, Chromecast and more

Even they are employing these strategies... $129 for a single unit, +$170 to bring the price to "$299" for three.

Question answered.
 

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Great thread.

Whats your thoughts on a $1000 product?
 

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MidwestLandlord

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Have you come up with a way to measure tag effect? .
I just wing it.

I use neon pink shelf tags in place of the normal white tags for new products.

I think that 99% of the work is just getting your market to realize the product is there.

The prior efforts:

Filling a need
Producing a quality product
Marketing
Packaging
Presentation
Placement
Etc

...is what sells the product, your price point just needs to not convince them otherwise.

Unless your marketing plan is based on price (good luck), then the goal of the price point is not to sell the product, but to not KILL the sale.
 
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MidwestLandlord

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I was wondering how relevant this type of pricing is with items that are either a heavier investment, tend to require more thought -- i.e more central and less peripheral processing -- or are products that solve significant problems and happened to be looking at a page for google wifi:

Google Store - Pixel, Chromecast and more

Even they are employing these strategies... $129 for a single unit, +$170 to bring the price to "$299" for three.

Question answered.
You'll see it everywhere now.

Houses listed at $299,900

Cars listed at $49,900

Etc...
 

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Loved your post. I'd give you rep but I'm on my phone too. [emoji16] I had heard about this year's ago but never could track down the details. Now I totally want to go to all my print-on-demand sites and change my pricing. Interestingly some set all prices rounded to the dollar.
 

SquatchMan

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Thanks for the reps!

Ever notice that the cheaper vodka is also in plastic bottles and not glass?

Is that to lower cost, or to manipulate your perception of its value and get you to buy the more expensive vodka?
Damn you're good. I knew about three tier pricing, but not the quality aspect. To answer your hypothetical question, my guess is both.

McDonalds does a similar thing now that I think about it. They use paper containers for the small fry and cardboard for the medium and large.
 
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MidwestLandlord

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Great thread.

Whats your thoughts on a $1000 product?
How far down the pricing rabbit hole do ya wanna go?

Short answer: $999

Long answer:

I'll have to dig up the studies I used when consulting that showed all this.

There are 3 theories that would help at this price range.

1) We read left to right

$999 instead of $1000

In studies, subjects were asked the price of something they had just purchased moments ago. They couldn't remember. What they did remember was the FIRST digit of the price (and sometimes the second). So a $9.99 item was remembered as $9

So the point of Charm Pricing is NOT to end the price in a '9', but to reduce the first digit. Essentially, you are "sneaking in" the other 99 cents (or dollars)

The theory is that since we read left to right, the first digit is what triggers an emotional reaction in our brain. The brain tends to "gloss over" the rest of the digits after that. (this is why the digits after the decimal are often in smaller print in ads, to help the brain ignore it)

2) We have 5 fingers on each hand

This theory states that since we are born with 5 fingers on each hand, and as children use our fingers to learn how to count, that the brain places emotional significance on "5's" and "10's"

So we read a price from left to right, which creates an emotional reaction. The brain also places special significance on "5's" and "10's", creating an even stronger emotional reaction if that is the digit we first read.

3) Number of digits

First study: Had subjects read 2 cards. Both were approximately the same price, but one had cents added to it...resulting in 5 digits instead of 3. Later the subjects were asked if the first or second card had a higher price. The overwhelming majority could remember which card was higher, but not the actual price. Researchers believe this means that the brain created an emotional reaction to the number of digits, and not the price itself.

Example:
Card one: $999.99
Card two: $999

They could remember that card one was more expensive, due to 5 digits.

Second study: Had subjects read 2 cards. Both were prices, both had 3 digits, but one was significantly higher in price. Then they were asked later if the first or second card was a higher price. They couldn't remember. The researchers believe this to mean that the brain has an emotional reaction to the number of digits in the price, and not necessarily the price itself.

Example:

Card one: $9.99
Card two: $999

Subjects could not remember which card was higher, implying that the larger valued price did not make a significant emotional impact compared to the lower price, because they are both 3 digits. (I know, I thought it was bullshit too, but it seems to work IRL)

Logically of course, we know one price is higher than the other. However, we humans are much more instinctual and emotional than we like to admit.

Also, it seems to be more and more common now that retailers are selling products over $100 without any "cents" attached to it.

$149
vs
$149.99

Bottom line:

$999

Less digits and avoids the mental price sensitivity limit of $1000
 

DronePilot

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Damn you're good. I knew about three tier pricing, but not the quality aspect. To answer your hypothetical question, my guess is both.

McDonalds does a similar thing now that I think about it. They use paper containers for the small fry and cardboard for the medium and large.
I am proof that this works. I never get a small fry from McDonalds because I hate the paper.
 

rollerskates

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Interesting thread! And thanks! Rep $ sent. I have been pricing my products for close to 10 years, and I never use $13.00--too scary! I've been hesitant to use less than whole dollar pricing, because things that end in .99 scream "THIS IS A CHEAP KMART PRODUCT", but I think I may just consider prices ending in .95, which I hadn't thought about prior.

.95 seems classier than .99 :p
 

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