The other day I was speaking with somebody about pricing, it’s perhaps one of the most common discussions I have. I had mentioned that I found their pricing a little strange as they used round numbers, and was informed that the business owner didn’t like to use odd numbers in their pricing and in particular, didn’t like using the number 9. The reason this is strange is that 60% of all prices end in a 9, 30% in a 5, 7.5% in a 0 and the rest make up the 100%.
All of this got me to thinking about Charm pricing, first and foremost, a wide body of research has confirmed that the magic of nines, or charm pricing, is due to the fact that consumers read from left to right with precipitously decreasing attention. This means that consumers assimilate £4.99 as £4 rather than £5 and £497,500 as £400,000 rather than £500,000.
Sound crazy? As humans, we are pain-avoiders who experience less “pain in paying” those prices that start with a lower initial digit. The lower the price for an item, the lazier consumers get. Emphasising that first digit just works well enough for us. Many businesses offer their products or services at seemingly “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.
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.
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!”).
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! One theory is that charm prices convey the message that the price has been discounted.
It’s not all charming.
This said, using nines across the board doesn’t work for all brands. Now that many customers are used to odd pricing, some restaurants and high-end retailers psychologically-price in even numbers in an attempt to reinforce their brand image of quality and sophistication. Nordstrom’s a high-end American department store makes a point of not using charm prices. They mean to say that “We’re not Walmart”, come here for quality and expect to pay for it. Some department store in America has adopted 99-cent endings for only reduced items.
How to price.
Be open to change and improvement. Be open to progression, When pricing your services, consider offering a few price points and end them with a nine for good measure. You may find that your most popular service is the one priced right in the middle. Don’t feel as though you’re trapped once you choose your prices. You can always switch them if they’re not giving you the response you’re looking for. Be open to change and improvement. Be open to progression. That’s when you’ll find success and reach your business goal.
Have a read of my previous blogs on pricing and as a special offer download my Step by Step Strategy to increasing your prices (without losing any customers) Click here for access. This is just one of many step by step strategies that members of my business success club get exclusive access to. Check out the club here, and as a special offer in January enjoy 30 days membership for Just £4.99 using offer code JAN2018 (Normal price £39 per month).
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