Marketers really love setting a price below a round number. You know, like $19.95.
If you look at a car yard you’ll see vehicles, for example, priced at $49,990. As if saving that extra $10 is going to make or break your bank account. Still, it lures us in.
We call these types of numbers, charm prices.
Charm prices are a funny beast. And I say that because there is another hidden factor – the number of syllables.
Why would that affect anything?
When we encounter stimuli with many syllables, we need more mental resources to process them.
And that principle applies to numbers.
If we use a LARGER amount of mental resources to process a number, we FALSELY infer that the size must be LARGER. The flipside is more important: people perceive prices to be smaller when they contain fewer syllables.
But Tim! When I see a price, I don’t say it out loud. I just read it.
Same here. But according to research…that doesn’t matter. When you read a price in written form, your brain nonconsciously encodes the auditory version. You don’t even need to verbalize the price in your mind — your brain encodes it either way.
Still skeptical?
Coulter et al. (2012) found a positive relationship between syllabic length and perceived magnitude. Even if two prices have the same written length (e.g., $27.82 vs. $28.16), people perceive the phonetically longer price to be higher in magnitude.
$27.82 has 7 syllables. Whereas, $28.16 has 5 syllables. In the study, people preferred the higher price because of its perceived phonetic length.
Interesting, hey?
Now, if you’ve known me for any length of time you’ll know I’ve been making websites for over 20 years. That’s a long time, and in that time I’ve come across more than one pricing page. Surprising, I know!
Anyway, on the subject of charm pricing, I could talk until the cows come home.
But, these “charm prices” aren’t always effective.
Introducing “Just-Above Pricing”
A recent study (Kim, Malkoc, & Goodman, 2022) found that “Just-Above Pricing” (e.g., $20.05) can be very effective to encourage a customer to spend more to upgrade their purchase.
Spend more you say? Well, now, that’s worth listening to, wouldn’t you agree?
Here’s how the study went… In the study, researchers sold coffee:
- Small Coffee: $0.95
- Large Coffee: $1.20
Customers preferred the small coffee because it seemed like a better deal. But then researchers added $0.05 to each price:
- Small Coffee: $1.00
- Large Coffee: $1.25
In this new arrangement, customers preferred the large coffee. Even though the large coffee was still $0.25 more expensive, it seemed like a better deal because both coffees were above $1.
Round numbers are thresholds that influence our spending.
Now, suppose that you see a $49.95 garden tool. Your budget was $50, so you proceed to the checkout. But hmm, the total (with tax) is now $54.95.
It’s only $4.95 more, right? So you still plan to buy it.
However, look closely: You’re now prepared to spend above $50. If you see a superior tool for $65, you’re more likely to buy this upgraded version instead of the $49.95 tool.
Once you pass a round number, like $50, new expenditures feel less distinguishable (and thus less painful).
That same effect could happen with:
- $500 flight
- $5,000 deposit
- $50,000 car
The Takeaway: Be careful when you pass round prices. It will become easier to spend more money.
Why Round Numbers Influence Spending
Humans used sensory concepts to expand their knowledge into abstract domains. Consider the idea of physical containment:
- Sensory: My phone is in my pocket.
- Abstract: I live in Australia.
When you imagine a geographic region, your brain constructs this mental image with the sensory concept of physical containment. And this effect influences your perception and behavior:
- Geography. You perceive a natural disaster (e.g., cyclone) to be less threatening when it’s located in an adjacent region (Mishra & Mishra, 2010). The trajectory seems less capable of penetrating a geographic border because your brain conceptualizes a geographic container as a physical container. This can occur even within the same state. For example, I live in South East QLD, and when there is a cyclone in Far North QLD I am less concerned. FNQ appears to be contained and separate from SEQ, even if it’s by the way we describe the different parts of the state.
- Time. A 5-day deadline seems farther away if the final date is located in the following week or month (Tu & Soman, 2014).
- Round Numbers. Stock prices tend to increase if they begin the day above a round number (e.g., $20.05; Johnson, Johnson, & Shanthikumar, 2007). Passing a round price (e.g., $20) feels like passing a rigid threshold. It feels easier to keep progressing, yet harder to go back.
So as you see, the subject of pricing is a lot more complex than one might think. You can throw a price out and some will buy, but if you want to make the price attractive you need to look a bit deeper.
I can help you with your pricing page. I can make it attractive to customers without you having to learn all this. Imagine having all this knowledge (and more) but you don’t have to know it! Instead, you just get the benefit, that sounds desirable.