Many of the prices in the examples so far have ended in 99 or 999 or 2999 or 499.
Does this really matter?
We all know that lots of products, from the Mc Donalds Burger to Maruthi Car you buy, are priced with a 99 and so on ending.
Sometimes even a Rs9,40,000 car is priced at Rs. Rs9,39,999. Surely this must make a big difference to sales? The research literature says yes, but there are conflicting stories about how the practice originated and why it works. One story that goes around is that this originated not to increase sales, but to protect shops against misappropriation by their staff. If a customer paid Rs100 for a Rs 99 item, the cashier would have to open the till to make change. In order to do so, they would be required to ring up the sale, preventing them from pocketing the rupee. There is little evidence for this story, but it has the appeal of sounding plausible. A more convincing psychological explanation is that people group prices into rough bands and apply very crude pattern-matching rules to make their decisions easier.
Therefore a Rs99 sandwich falls into the ‘2 digit band, while a Rs 103 sandwich would be placed in the 3 digit band and might be subconsciously excluded from the buyer’s consideration. Supporting this, one experiment by Robert Schindler asked people to compare two products priced at $20 and $25; the difference in value was perceived as small. When the prices were reduced by one cent to $19.99 and $24.99, the difference was perceived as much greater and people were much more likely to choose the cheaper option. There is some support for this in the evidence that people can subconsciously recognize a number without knowingly registering it.
An amusing example is an experiment by Katherine Hahn at Michigan Business School. She presented subjects with two very similar options, for instance two erasers which were almost identical except for a few random marks or a corner that had been rubbed off. Unprompted, people were equally likely to choose either option. But when the two erasers were placed on either side of a large number 9, people were much more likely to choose the one on the right. When the number was 1, they chose the eraser on the left. Nothing else was changed except the number – and the hypothesis is that people subconsciously map the world onto a left-to-right one-to-10 number line, with digits providing cues for us to look left or right on this line.
It is not known whether the effect is reversed in cultures where the language is written from right to left! Overall, experience suggests that 99p price points do work. When your product is likely to be compared with a competitor’s, cutting that extra penny off the price could make people more likely to buy it. When the customer is choosing between different options within your product range (such as on a menu in a restaurant) the 99p may be more likely to bias them to pick one of your cheaper options, which could be counterproductive.