The magic numbers

99cents_is_better_thumbnail(http://cdn.designinstruct.com/files/459-product_pricing_99_is_better/99cents_is_better_thumbnail.png)

 

When I see a price ending by -9 or -95 or -9 I feel quite comfortable buying but when it comes to 10 or 20 I usually think more about buying a product. Ah, the magic of numbers!


I know that there is something about that in my mind but I am not sure exactly what is it. I did some experiments on myself, when I see a comfortable price let’s say 9.95£, I try to imagine it with a price like 10£… and instantly, I feel that the difference in price 5p as much higher! It is only 5 p difference but the effect on me is quite powerful.

The “99 ending effect” referred as underestimation mechanism, (Alpert, 1971) it seems as well that we have the tendency to pay less attention to the price rightmost digits, our brain not willing to make too much effort processing only so much information (Hinrichs, J. V., et al, 1982)
With more recent studies, a more precise understanding has been developed, it has been showed that 99-ending prices works better with low involved shoppers, lower educated with low income or on young people while the magnitude of its effect is affected by the brand positioning and the price level of the product category. If consumers see a product category as non pleasurable they will be more sensitive to the 99 endings but if feelings or hedonic involvement are present they will be much less influenced by the 99-endings (Gaston-Breton, C., 2011 pp. 21-22).

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The more we are in a hurry, the more the involvement is utilitarian over hedonic, the more we can fall into the 99-ending trap and it seems that the majority of restaurant manager are aware of that or at least believe in the 99-ending efficiency (Mangelsdorf, M.E., 2011)

If I am happy buying a snack bar for 1.99£ if I want a high end product, it is a different story. If the product has a round price I might perceive some extra value in it, in my head it resonates a bit like if this high end product is so good that it does not require any marketing trick to be sold it must be really good! Another fact is, if I see two product side by side exhibiting one 99-ending price and on the other one a round price, I might see even more positively the 99-ending price and overestimating the economy realized if I buy it.

 

99 ending(http://1.bp.blogspot.com/-RR0ZuCqAGlg/UB28i9gX1KI/AAAAAAAAAng/tzGPlgrTskk/s1600/Fotolia_26890711_XS.jpg)

Alpert, 1971 in Robert M. S. and Thomas M.K. (1996) pp. 188 Increase Consumer Sales Response though Use of 99-ending prices 
and Hinrichs, J. V.,Berie, J. L., & Mosel, M. K in Robert M. S. and Thomas M.K. (1996) pp.188:http://camden-sbc.rutgers.edu/facultystaff/research/schindler/Schindler%20%26%20Kibarian%20%281996%29.pdf

Gaston-Breton, C., (2011) Consumer Preferences for 99-ending prices: The mediating role of price consciousness. pp: 21-22t:http://e-archivo.uc3m.es/bitstream/handle/10016/10707/wb110503.pdf;jsessionid=DC29F330478863148B2816AE4FF6BC03?sequence=1

Mangelsdorf, M.E., 2011 The big difference a penny make. MIT Sloan management review.:http://sloanreview.mit.edu/article/the-big-difference-a-penny-makes/

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3 thoughts on “The magic numbers

  1. I must fit a bit in the low income category, for me the strongest part is the retail context, it affects a lot my perceptions.
    If I buy an expresso at a coffee shop for example I expect to have it at .95 or .75 ending and I am not sure I would go there very often if the price is round, at the same time when I am in Paris (where everything is quite expensive), for the same kind of coffee I am usually willing to pay more without further consideration if the place looks good or comfortable.

    The other thing is that all those prices are bit confusing in my head, I am quite sure that I messed up a few times ending up buying a more expensive product just because I didn’t synthesize the price very well.. tired, in a hurry.. with many numbers like 6,96/9,69 77,97/79,77 and 69,99/96,99. It is like if the numbers a trying to mess up with every single part of my brain!

    The multiple study made by Manoj, T., et al. (2010) has found that precise prices are judged to be smaller than round prices within the same magnitude (in the study participants judged 395.000$ to be higher than 395.425$), they also showed that home buyers are willing to pay more for a house if precise prices are used by the seller. They found that precision (in condition of uncertainty) have a greater effect on price magnitude judgement and that the precision effect could be less powerful, if before the experience the pattern of roundness and precision in numbers was manipulated.

    I feel better now and I am sure we haven’t discover all the mechanism behind those 99-ending numbers…

    Manoj, T., Simon D.H., Kadiyali, V., (2010) Cornell University. http://forum.johnson.cornell.edu/faculty/mthomas/PricePrecisionEffect.pdf

  2. Along with the invention of the till a new breed of crime was born. When people paid with exact change, the deprived and under appreciated cashier would simply pocket the money and the good would go down as waste, loss or stolen. So, by adjusting all the prices down a penny the cashier is therefore required to open the till to give the customer their change. Thinks like housing prices where this can be used very effectively.

    Contrasting the .99 trend, pound land through it out the window and were incredibly successful. Part of their success is due to their ability to capitalise on just noticeable differences (Stern). You see a loaf of bread for £1 you think bargain, what you didn’t see is that it’s 600g not 800 grams and you can get two 800g loaves for £2 in Tesco.

    http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9543609/How-Poundland-makes-its-millions.html

    Stern, M. K., & Johnson, J. H. (2010). Just noticeable difference. Corsini Encyclopedia of Psychology.

  3. I feel exactly the same. When i see a price such as 9.99 i feel much more happy to purchase it rather than if it was £10. Also for a weird reason i think “owww that 1p can go in my penny jar”
    Dave is right that when you go to pound land you instantly feel that you are getting a bargain when in-fact the sizes are completely different and you can usually get better deals in the likes of Tesco and Asda.
    I remember when I was studying business studies at A-Level my teacher told me that she knew a girl that worked for Avon. Avon had the .99 strategy but this girl somehow using a great pitch got them to round all their prices up a penny. Avon made a fortune and she was given a job quite high up. They found that the 1p increase didn’t effect their consumers choices to buy.
    However, this is a very interesting blog, well done x

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