The story goes that back in the days when everyone paid cash shop keepers would price all of their products with 99p on the end. They did this knowing that most customers would pay with a higher amount and expect their 1p change. This meant that shop staff would have to ring up the sale on the shops till in order to get that 1p change for the customer making the transaction recordable on the till roll and reducing stealing from staff pocketing the money the customer paid.
However true or not this old story is, it’s interesting to think about how products are priced on websites; whether prices ending in 99p have any psychological effect on customers, and whether prices ending in 00 offer a better customer experience.
Pricing products with 99p on the end can have the effect of making customers think they are getting a better deal as it keeps a product below certain thresholds. 19.99 seems a lot less than 20.00. This comes from the denominations of our notes and even though it is only 1p different, pricing something at 20.01 would seem disportionately higher than being below that threshold.
Pricing products with .00 seems like it would be better for customers as it would make adding up their order total easier. But of course the basket page on the site does this for them, so are there any advantages to pricing with .00? It could reduce the number of characters in a price as if a product is 39.00 then 39 might be just as good, but John Lewis prices most of its products with .00 on the end. I wonder if it’s something they’ve tested.
What about pricing ending in 47p or 28p or any other number? Pricing on marketplaces like Ebay and Amazon often uses other numbers as it can affect the ranking of the product and make or break a sale for price sensitive customers. But retailers websites don’t do this. More often than not their pricing reflects the pricing in store which usually ends in .99 or .00.
So, you have a product that is performing well, and following customer feedback you think you can make some changes and develop a new improved product.
The new improved version is a bit more complex so it costs a bit more to produce but customers like it and it starts to out-perform the original product. Overall, sales are up, but of course they are now spread over two products. That’s twice the storage costs, twice the merchandising time, etc.
Customer feedback suggests further improvements and so version three of the product gets developed with increased complexity and consequently reduced margin. Again, sales increase a bit as the product better meets customer needs but margin and costs make the new products less profitable than the original.