When $.99 pricing works best
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
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📝 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.
🎓 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).
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✋ 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.
⚡ 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)
🏫 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.
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