As is often the case with good questions, the answer is: it depends. Is your goal to sell more of this item, or entice shoppers to upgrade? The right answer? It depends.
Great point. In my years in retail, there was a time when the price endings were used as an ad hoc attribute so our weekly sales reports could be sorted. Not sure anyone else remembers that anymore. This is a very insightful finding. It would be interesting to find out the effect of the price difference 99 cents vs. I agree, the study only looked at part of the equation.
It would be more compelling to see this test done over a longer period of time and also track the volume sold. I still follow old school retail standards: Prices ending in. I will agree that once you break a price point you take the risk of the customer not buying the item.
As I said, I love this topic — lots of different ways to slice the bread. Okay, here is a story my friend and fellow analyst now retired told me.
It started as a shrink prevention measure. Does it work? In my mind, I always just round up. The item is 99 cents? And the 97 cent ending that Georganne mentioned was used by some chains so that sales associates could quickly identify markdowns, not shoppers. Does it juice some people? Who knew? Georganne, great perspective based on your over 30 years of ground level retail experience.
Right on! Williams Sonoma only had two models, and the lower-priced one sold better. Williams Sonoma introduced a top tier option, and then the sales of the now mid-tier model took off exponentially because it looked like a better value. Then the newspaper owner had barrels of pennies shipped in from Philadelphia to provide the circulation of change.
At the same time, distant merchants began shipping their products to the Windy City via the new railroads, giving the local stores competition. But those Chicago store owners noticed that the odd pricing helped them undercut these new competitors. Prices ending in 99 cents are powerful because we are conditioned to think 99 cents is a bargain, no matter how small the saving. Meaning — higher prices ending in a "9" will actually outperform lower prices — on the very same product. Ron Johnson's claim to fame was that he had created Apple's retail stores for Steve Jobs.
He spent 12 years at Apple, revolutionized what a computer store could be, and generated a billion dollars of revenue in only two years. Johnson had a vision for the store: he wanted to eliminate the "game" of retail pricing. He felt that shoppers, namely women, were confused by the almost sales JC Penney was offering every year.
He felt sale prices were just a tired scheme where regular prices were artificially inflated, just so they could be slashed down to sale prices. He believed couponing didn't just discount the product, it discounted the brand. Johnson felt there was a disease in the pricing, and that disease was spreading. And that's why JC Penney was ailing. The store would drop prices by about 40 per cent and offer those low prices everyday in round figures.
They would also eliminate coupons, and only have 12 sales a year instead of It was a radical change of direction, not just for —year old JC Penney, but for any major discount retailer.
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The anchoring effect For some products, customers have certain price points in mind. The endowment effect The willingness to pay for services or products that customers already own in a perceived or factual way is higher than for services or products that they have to actively acquire. The value effect Now imagine you are on a beach on a hot day and want a beer.
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