For marketers and pricing managers, the benefits of odd price endings have long seemed like a given. According to a frequently confirmed theory, because consumers (in Western markets) read prices from left to right, and they have limited cognitive capacity, they read a price of $19.99 as equivalent to $19, rather than as $20. The lower price should evoke more purchases, so a substantial number of businesses rely heavily on this pricing strategy. But new research challenges this foundational premise, as least in certain situations. The novel evidence indicates that odd prices might undermine marketers’ efforts to get people to move up to a more expensive version of the products for sale. For example, when experimenting with a small and large coffee, priced at either $.99 and $1.20 or else $1 and $1.25, the researchers found that more people upgraded to the larger, more expensive coffee in the latter situation—despite the larger price difference. The coffee experiment took place in the field, with real customers. But the researchers also replicated their findings with far more expensive product offerings, such as cars and apartments, in laboratory experiments. The researchers offer an explanation for their findings, by arguing that the gap between prices seems larger when they feature odd numbers. That is, the difference between $19.99 and $25 seems like it is greater than the one between $20 and $26, regardless of the objective value. Such insights offer more nuanced insights for pricing managers. They might still want to enjoy some of the long-established benefits of odd number pricing if they are simply trying to make a sale. But if the overall strategic goal is to get consumers to trade up, they might need to reconsider.

Source: Al McClain, “Ending Prices that End in 99 Cents,” Retail Wire, September 1, 2021