Can I get that for $9.99, please?

Can I get that for $9.99, please?

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.

About Naomi Niles

My passion is helping organizations and small businesses fulfill their mission by connecting with their customers in a more meaningful way. I love to make and improve things. Cheese lover. Cilantro hater.

18 Comments

  1. Amy Martin

    Good stuff. Thanks for being so open about your process Naomi.

    My experience with pricing has been, budget burns. For some reason people disrespect budget options. I am not sure why because I myself love feeling I’ve gotten a bargain.

    I have found my best clients, the most faithful and respectful and appreciative, have been on expensive projects.

    The clients who are, ahem, less than a good fit, shall we say? Always the budget ones. Ev-er-y-time.

    Love the new look here!

    1. Naomi Niles

      Hi Amy!

      That’s the exact same experience that we had the first years we started our web design business. We felt really under-appreciated and most of the time, clients weren’t happy either.

      The higher we priced, the better clients we got and busier we got too, ironically. Just like you mention.

      For something like custom design, it’s so important to focus on the fact that it’s a valuable service and not a commodity.

      I think budget options really work best for things like products and very specific packages that don’t involve a lot of service.

  2. @TheGirlPie

    Swell post, looking forward to more comments and discussion/findings, etc.

    Remember, the .97 thing is still brand new and fresh to the rest of the world, we’re an insulated little bubble here… when I first saw it on Ittybiz, maybe 2 – 3 years ago, I saw the fab appeal. (Personally always hated the .99, I grew up thinking it felt “cheap” not “bargain” and resented “them” thinking they could trick me into thinking 9.99 was not 10.00!) So when I suggest the .97 out in the real world, even to bloggers, it’s new and still works.

    ALSO — I took a tip from my days in the restaurant biz (okay, yes, as a waitress, fine), and found it cited elsewhere some years ago, but I list my rate/prices (I forget it now, but there’s some word that’s better to use, for the buyer’s psychology) like this:
    no “$” sign
    no cents
    just an elegant decimal point.

    Greatest Service of Your Life … 900.
    Shortcut to Get Brilliance …… 70.
    Quickie Cheatsheet …………. 120.
    Blowjob … oh wait, that’s not on my rate sheet!

    Whatever, for some reason it works for me.

    I had a costly package that some not-yet-clients were reluctant to spend for, so I offered a package of 1/3 the goods for 2/3 the fee, and those sold much better, AND brought them back for the fuller higher-priced package once they’d gotten hooked.

    Keep ups posted — but the .99? Ugh. Anyone selling their brain power deserves to price it as far differently from the .99 Cent Store as possible ~!

    Rock on,
    ~GirlPie

    1. Naomi Niles

      First off, does anyone else wish GirlPie had her own blog besides me? It’s pretty much a must to read her comments. If you can find her, heh heh.

      @GirlPie – Those are excellent tips, thank you!

      That’s a great point about being in our own micro bubble. We probably get tired of things way before the general population does.

      That’s interesting that both you and Manuel mentioned restaurant menu pricing because I also saw several articles last year about it and thought they were compelling.

      Manuel mentioned the one on the NYTimes. I’ll see if I can find the the others.

      Ok, here are ones I remember reading:
      http://www.neurosciencemarketing.com/blog/articles/neuro-menus-and-restaurant-psychology.htm
      http://www.neurosciencemarketing.com/blog/articles/pricing-lessons-from-restaurants.htm

      I thought I read another that was an answer to the NY Times article, but I can’t find it now.

      Anyway, excellent stuff. (I am so interested in your shortcut to get brilliance service. Only 70!? What a steal!)

  3. reese

    Oh my, Naomi, I just love this blog.

    You can tell your heart is in it, you know? The conversations are funny and wise and interesting, and I’m so very glad you have this space.

    Now about pricing. @Girlpie brought up some excellent points about .99 being in the arena of cheap. I’ve had that perception, too.

    I also psychologically feel like a dolt pricing something at $397 but I’ve never rolled my eyes at someone else doing it (who I buy from). I’m always leery of drinking the marketing medicine myself, but it works so well for others. Go figure.

    Your point about anchoring is one of the best I’ve read about pricing, how it aligns your product into a particular category. Brilliant :)

    1. Naomi Niles

      @Reese – How lovely are you?! Thank you!!

      I’m so glad to have this space now too. Feels much more me. You should have seen me smiling earlier about this excellent conversation going down here in the comments. Koldo caught me and said, “Ah hah, now that’s what you enjoy, isn’t it?” with a wink. Hee hee.

      I don’t know why I never thought about .99 being in the cheap arena, but it definitely make sense.

      As far as marketing goes, I really think its something that needs to be understood by people rather than copied just because someone else is doing it. What I mean is, that it in itself isn’t inherently one thing or another. It’s how we use it and why that matters.

      Anyway, I’m feeling myself going off on another tangent. Hate to abuse everyone’s comment notification generosity!

      I spyed on twitter that you have 2 new surprises tomorrow. Woo hoo for you! :)

      1. reese

        Maybe 99 cents reminds us of wal-mart? Just a thought.

        Your Kaldo story really brought to mind Peace Train.

        “Well I’ve been smiling lately…thinking about good things to come. And I believe this could be, something good has begun…”
        :) :) :)

        1. David Doolin

          There’s a flip side to $1 products: they might actually be worth a dollar!

          I’m facing this conundrum myself. I have a suite of “whitepapers I’ve written encoding best practices for blog, WordPress, related stuff. All these weight in at 2-5 pages of dense, but accurate and precise material.

          Given what I can buy at the bookstore on, say, programming, $1 is just the right price. The material and value are perfectly matched.

          The perception is probably that it’s cheap junk.

  4. Mike Korner

    1) Nice article Naomi. Thank you!

    2a) Regarding whether it’s illegal to do price testing on an exact same product: Amazon does it all the time. I often get different prices for a given product on different computers. I’m not saying that proves anything. Just reporting the observation :)
    2b) Regarding whether it’s illegal to do price testing on an exact same product: So if I’m a member of your VIP club you can’t give me a discount?
    2c) I think there is more to the story than we’ve heard so far.

    3) The software pricing guide in the article you referenced is great. Wish I had it a few years ago when I was rolling the dice :)

    1. Naomi Niles

      Hi Mike!

      Thanks for your thoughtful comments. You have really good points.

      It’s true that Amazon is known for changing its prices constantly. And they’re known for testing everything on their site, a lot.

      The only thing I wonder about though if theoretically, if you’re split testing a price, two customers can order the same exact product at the same exact time.

      Does that really matter though? I don’t know!

      I still need to do more research about this subject, but I suspect that there are no solid laws about this. Just like lots of other things regarding the nets. I’m sure you’re right about there being more to the story. :)

  5. David Doolin

    “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?”

    You have me right here. Opinion has so little to do with it. If it works, it works. If it doesn’t, it doesn’t. And who could say why in either case?

    1. Naomi Niles

      “If it works, it works. If it doesn’t, it doesn’t. And who could say why in either case?”

      Ha, so very true. I can tell you, we’ve ran several tests where the outcome made little sense at all. Sometimes you just don’t know. I love whichtestwon.com for that reason. Lots of times, it’s common sense. But, other times it’s anyone’s guess, as uncomfortable as that is.

  6. Linda

    Thanks for the interesting article, Naomi. And I’m lovin’ some of the more colorful comments, btw.

    I tend to like clean numbers, so rather than $19.99, I prefer $20.00.On the other hand, I don’t want to get caught with my non-psychology pants down b/c I didn’t pay attention to what consumers want.

    I agree with Reese, .99 makes me think of Wal-Mart. 70 makes me think clean, not-ambivalent, more classy. What really bothers me for some reason is .98…

    Buyer’s psychology is very interesting. I’m reminded that I have a book at home about this topic. I think it’s called “Buy,” or something similar. Well, dust if off tonight…

    TY for the reminder, and congratulations on your new biz venture:).

    1. Naomi Niles

      Hey Linda – My BFF ;-)

      Thanks for adding your thoughts. It’s fascinating how we all think about pricing. I think it has a lot to do with what our first experience with it was and that sets how we feel about it later.

      Can’t wait to hear what you think about Buy.ology.

      Thanks for the congrats!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>