Pricing is a fascinating subject. It seems like it’s one of those things that no one can ever pin down. It stumps the best of us. How do you know when the price is right? Well, usually not until you test it on the market (or in a small group first).
So, why all the prices with the .99 at the end?
If you’re like me, you might roll your eyes a little about the .99 at the end of pricing that has been common for years. I mean, who do they think they’re fooling, right? They think we don’t realize that $9.99 is actually $10?
Actually, they do realize this. But, there’s something more subtle at play called anchoring. Basically, when you price a product at $9.99, logically you think it’s $10, but subconsciously, you group it in the same category with other products that cost the $5-$9.99 range. That can be a very effective strategy, especially if your product is in a market where there is a lot of price sensitivity because people are used to purchasing at a specific amount.
Here’s an example for you: How much would you normally pay for a mouse for your computer? If you’re like most people, I’m guessing somewhere between $15-$35. To go near the top end of that, you’d want to price your mouse at $34.99. But, if you needed to go even higher, then you’d really have to differentiate your product and create a really spiffy mouse like Apple did. That’s too much work for most companies since their name is not Apple.
What about all the prices ending in 7, though?
This has become so common, I’ve seen people on twitter cracking jokes about how you have to end your prices with a 7 if you sell info products. Hey, I’ve done it too. It’s my personal magical number (no, really).
Basically, ending prices with a number like 7 makes people do a double-take (or, at least it used to!). It causes more focus because it seems out of place. It seems more tangible. If there’s a more specific number, the people who made this product must have solid reasoning instead of pulling the number out of you-know-where.
Why end in 7 though? Why not 6 or 3 or some other random number? Well, to tell you the truth, I don’t know! Why not test it yourself and try it out though? I don’t see why not. If it works better for you, use it, right?
Services, what about services?
Pricing services is a lot harder than pricing products most of the time. You can’t just look at what your competitors are doing and what the market is like. And competing on price will send you to the poor house quicker than you can say whiplash (unless you live in a place where living expenses are really low).
Plus, there’s this whole thing about perception. If you price too low, it’s bad for your credibility. If you price too high, people may not buy from you unless they can clearly see the value of it.
On our own services page, I priced our services with 99 at the end. It felt right at the time and so far it’s working out fine. But, I wonder if it’s shifting us down into a category and if we’d be better off moving up into the one above. So, I’ll be running split tests on it starting later this week to see what happens.
I’ll share the results when they are conclusive. But for now, I’d like to know what kind of experiences you’ve had with pricing and what you think. Have you noticed significant improvements with small tweaks to your prices?
Update: It’s come to my attention that price testing has legal implications involved. It’s considered illegal to price test on products are services that are the same. So, even though I was planning on rounding our service prices up just $1 to test whole numbers, that may not be such a hot idea.
So, I may not be running the tests unless we offer different packages after all. Sorry to disappoint!
Update 2: Well, the jury is out about whether it’s illegal to do price testing on an exact same product or not. Here is the article I was sent. It states that it’s illegal, but we haven’t found specific laws against it. If you’re considering doing it, consult your lawyer first.
Update 3: Here’s a more detailed article explaining the legalities of price testing written in 2005.