This article on 9-ending pricing follows on from my earlier piece on odd & even/0 & 5 ending pricing. I have to admit that it was somewhat a strategic move as we often believe that 9-ending prices are more common, well at least they seem to be!
The following is a summary of findings from reading marketing and psychological research into 9-ending pricing. The findings are summarised to give guidance to business owners before they implement
So why 9-ending pricing?
Anderson & Simester (2003) indicated that 9-ending pricing has an 80 year history. In fact, Guéguen & Leoherel (2001) state that it was originally introduced to manipulate the staff rather than the consumer. They state that 9-ending pricing was introduced so that sales staff would have to open the till and offer change, rather than pocketing the entire proceeds of a sale. So it’s interesting to thing how now it’s become a way to ‘convince’ consumers that a particular product is worth buying.
Here’s how it works.
Choi, Lee, & Ji (2012) documented three ways that the 9-ending wields its power over consumers: left to right processing (truncation), perceived gain, and price image.
Left to right processing
While only applicable where prices are, culturally, read left to right – this seems to be one of the most commonly quoted reasons for using 9-ending pricing. Choi, Lee, & Ji described it as when we only recognised the left most numbers and forget those on the right. This is also called truncation, as the price is truncated (cut short).
This is an adaptation of the left to right processing, in so far that the price is perceived as being a 0-ending number with a small gain. In this instance a price of $19 999, would be perceived by the customer as $20 000 with a $1 gain. This is probably the most commonly believed scenario in 9-ending pricing.
This is where the 9-ending price is perceived as being cheaper than the competitor’s price and that it is a discounted (sales) price. While Choi, Lee, & Ji gave these definitions, Schindler (2006) discovered that although 9-ending was perceived as being cheaper, it was more often not the case. Schindler also found that 9-ending prices (and 98) were believed, by consumers, as not having been increased recently.
All in all, Choi, Lee, & Ji found that regardless of the mechanism, when it matches the consumer’s motivation to purchase, consumers committed more of the price to memory & had better recall (price recall was the focus of the paper).
9-ending products are cheaper
So let’s start with the elephant in the room. We all believe that if we market our products with a 9-ending, the customers will believe it’s cheaper and will flock to buy it. Right? Well, in reality it’s more like a ‘yes & no’ or a ‘depends’ (oh how I love that word).
So while we set the prices with the belief that clients will drop off the end numbers and see it as being the cheapest product around, the reality is a bit different. So it won’t surprise you that Schindler found that although 99-ending prices were believed as being the cheapest around, in fact they often weren’t. That said, they also found that the 99-ending was related (significant positive correlation) to a low price appeal in consumers.
Guéguen & Legoherel found that if an odd number (9 for example) followed a round number (0) then consumers believed that they were receiving a bigger discount. They also found that the perceived discount increased as the price increased. However, the effect stopped once the price reached FF 100. (This study was done in France prior to the introduction of the Euro) Similarly, Bizer & Schindler (2005) found that 9-ending prices meant that consumers estimated that they could buy more of an item than was actually possible. Perhaps we just don’t like our 9-times tables!
Similarly Schindler found that both 98 and 99 price endings were perceived by customers as having not recently been increased. While not necessary an indication of being cheaper, believing that a price hasn’t recently been increased should leave us feeling that we are ‘getting a bargain’ or ‘cheaper price’.
How 9-endings effect perception of quality
In my previous piece I went into deeper detail as to how this works. It’s interesting and worthwhile to note that Anderson & Simester found that the higher the price, the higher the perception of quality.
How is consumer motivation effects the appeal of 9-ending pricing?
Bizer & Schindler had a good overarching finding that if a consumer is not motivated to pay much attention to the price, then they are more likely to drop off the end numbers. So this is more likely when we really don’t have to think too much about the purchase. (They used the examples of toothpaste & paper towel)
Choi, Lee, & Ji had a similar finding that when the store’s message fits with the consumer’s focus then the consumer sees it as being relevant and will remember more of the price. So, if a consumer is motivated by quality and presented with a low-price 9-ending item, they won’t remember the price as well as if they were loriginally looking for a cheap item.
Schindler suggested that store managers add meaning (and motivation) by adding claims with the prices & this helps to reinforce the consumer’s belief that the 9-ending price is cheaper. They continue that the perceived discount, reinforced by the other visual merchandising cues, are often relied upon as the primary way to grab the consumer’s attention and that consumers are then learning to associate 9-ending prices with low price (because of the merchandising). While I think most businesses believe that this is one of the major mechanisms, there actually isn’t any proof of this and it removes the effect of the consumer’s underlying motivation to purchase in the first place.
Implications of this research into 9-ending pricing
In fact, Anderson & Simester believed that there was a real risk that the over use of 9-ending pricing will make it less effective as customers are less likely to believe that the item is actually low priced. While I tend to agree, 80 years of use seems to contradict this.
Bizer & Schindller quoted an interesting finding from Gedenk & Sattler (1999) that for the drop off effect to be profitable, only 3% of items actually needed to use the principle. So to some degree it seems that businesses are actually overusing the 9-ending pricing to attract appropriately motivated clients. (Though I seriously doubt that they are properly considering the motivation of their customers)
However, Anderson & Simester offered the following practical advice:
If a product had a 9-ending price and was paired with a ‘Sale’ & a ‘New’ merchandising prompt, sales increased by 3.9%.
If a product had a 9-ending price and was paired with a ‘New’ merchandising prompt, sales increased by 8.5%.
It seems that while getting a bargain is a good motivator, FOMO is a better motivator.