Tuesday, July 24, 2012

Expect Exceptions to 99-Ending Pricing

Knowing when general rules fail to hold gives you a retailer’s edge. For instance, what are the exceptions to setting prices that end in a 99? $3.99 looks significantly better to the consumer than $4.00. $499.00 will look more attractive to the shopper than $500.00 and will not look less attractive than $495.00, according to research on typical consumers.
     Over the years, exceptions to this “99 Ending Rule” have been discovered. New study findings from Auburn University suggest another one: If you find it’s in your best interest and in the best interest of the consumers to guide them toward a particular item, price that item to end in 99 and price the most likely alternatives to end in 00. This will make the 99-ending price look substantially more attractive than it would otherwise.
     The effect holds even if the 99-ending price is above the comparison prices.
     One application of this is when you’d like the shopper to purchase your luxury-quality private label house brand item, which is priced at more than a set of national brands. You’d price the private label item to end in 99 and price the national brand items to end in 00.
     Add this to other exceptions from 99-ending pricing:
  • Gift items. The purchaser would feel cheap spending $12.99 instead of $13.00. 
  • Indulgences. The same logic applies. When a consumer feels like splurging on herself, she doesn’t want to attend to the difference between 99 and 100. 
  • Business-to-business sales. You’ll probably be negotiating discounts based on the total size of a business order, the likelihood and likely size of future orders, and special requests made by the purchasing agent. But begin with whole-dollar pricing to make multiple quantity calculations easier. Business buyers don’t often get an urge to splurge, and even when they do, they try to tamp it down. 
  • Upgrades. A customer is more likely to choose the more expensive alternative if the prices for the two are presented as round prices instead of as just-below prices. So if the prices on the bin tags are $19.99 and $29.99, a good-better ad would list side-by-side the features of each version that are likely to be important to the purchaser and then end with, “All this for less than $20” and “All this for less than $30.” In the store, the salesperson says, “For only $10 more, here are the additional features you’d get.” 
For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Watch Ron Johnson 
Roll Those Price Quote Wheels-Within-Wheels 
Round Prices to Whole Dollars for Better-Best

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