A lot of items are marked a nickel less the whole number. Or big ticket items are marked $5 less than the next $100 (like a car for $13,995).
So are their peer reviewed cites for the efficacy of such pricing ? Any test data for testing this against a control ?
I wonder if this will get you close enough:
ETA: or this:
Yes thank you. That is exactly the information I was looking for.
And here’s one I found from Cornell, though I don’t know if it’s peer reviewed.
Easy-read summary here, with links: Psychological pricing - Wikipedia
I was just going to link to that Wiki page.
There may be a few peer reviewed white papers there, but a lot of marketing trends don’t lend themselves to the necessity of being scientifically and expensively researched and reviewed. Statistics is one the main things that drives marketing. Something new is tried, ending prices in 98, 97, 79, etc. and doesn’t need [scientific review] to determine what works best. Statistical sales trends provides the necessary info.
What do you think scientific review is? Someone at the companies are running those statistical analyses, and writing reports for their bosses to read. They might or might not publish, but they’re still scientific studies.
Reference 20:
Adams, Cecil (21 February 1992). “Why do prices end in .99?”. The Straight Dope .
After quizzing the (far more knowledgeable on this topic) peanut gallery, recommended fields and associated journal topics include:
Applied psychology
Economic psychology
Market research
Consumer research
Lots of stuff with choice/decision in the title (this included a lengthy description of something called conjoint analysis, although that seems to be more about feature/attribute preference than just price)
So apparently people get PhDs in this stuff.
My daughter did. Look also for the field of Judgment Decision Making, which studies how people make decisions. This topic falls under it. People in this area love to get lots of data from companies which can be analyzed looking for these effects which can lead to experiments.
I don’t know about others, but our supermarket seems to vary the way pricing is described in countless ways, and I can only imagine that they have statisticians looking at the results. For instance, and I think we’ve covered this before, do 5 for $5 sales move more product than just pricing something at $1?
I am shocked to find out that items with a lower price actually do outsell the same items with a higher price.
Which was never under question here. If you need that explained, we can go into more detail.
Yes, of course any incremental decrease in the price will result in an increase in sales. The premise, however, is that a decrease in price that changes the most-significant-digit results in a significantly higher increase in sales than one that does not change the most-significant-digit. That is to say, dropping the price from $5 to $4.95 makes more difference than dropping it from $5.05 to $5, or from $4.95 to $4.90 .
There has been research that shows that relative savings are more significant than absolute savings. People would be more willing to drive to get a reduction on a product from $50 to $40 than from $500 to $490, for instance. If a reduction from $5 to $4.95 makes us anchor on the 4, we might consider it a bigger savings than it is.
Did you read the Kent Hendricks link above? One study showed that:
So dresses that cost $39 outsold dresses that cost $34!
I read the first study, but not the rest. Do any specifically address the difference between .99 and .95 prices? It seems based on the anchor effect and similar forces that .99 is clearly the optimal price if we can assume that the sales volumes for .95 and .99 are comparable. Is that the case?
Does the science treat a $199 and a $1.99 price equally as effective relative to $200 and $2 respectively?
Slightly related phenomena but Uber found out that people were more likely to take a ride at 2.1x surge than 2.0x surge.
That’s not what it says. It says that the prices ending in 9 earned more revenue, not that they sold more. Presumably, there were more sales of $34 dresses than of $39 dresses, but not enough more to overcome the greater per-dress revenue from the more expensive dresses.
You don’t need to presume anything. There is a table of results in the article.
$34 dresses sold = 16
$39 dresses sold = 21
I wonder if the opposite is true as well, that is to say people are willing to pay a small amount more to upgrade to a better product, relative to the cost of the product.
Anecdote time (we’ve had enough academic responses to the OP to share anecdotes now, right?). A couple of years ago I was shopping for a flight to visit family for Christmas. Flying into a small airport during the peak holiday travel season can get expensive – the absolute cheapest flight I could find was something like $889, and that had two really long layovers. A flight with an actual convenient schedule was more like $1010. My initial reaction was “OMG, the convenient flight is over a thousand dollars”. Then I thought about it more and realized the actual price difference between the cheap flight and the convenient flight was “only” a little over $120. I decided I was willing to pay an extra $120 for the convenience, and booked the convenient flight.
The thing is, I’m sure in the past I’ve booked less convenient flights to save a similar amount, when the fares were something like $299 versus $419.