2021-09-05

Price tags ending in “.99” can sometimes be counterproductive to sellers

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Price tags ending in “.99” can sometimes be counterproductive to sellers

The lead author of this study, Junha Kim, a PhD student in marketing at the Fisher School of Business at Ohio State University, said that this makes the product itself look The very cheap price also makes the transition to high-end products seem too expensive.

“From $19.99 to $25 seems to cost more than from $20 to $26, although it is actually less,” King said. “Crossing this integer threshold is a big difference for consumers.”

King conducted this study with Joseph Goodman and Celin Malcock, both of Ohio Associate Professor of Marketing in the State. Their research was published in the Journal of Consumer Research on August 26, 2021.

Will you upgrade to a larger cup of coffee? Goodman said that in seven different experiments, from coffee and facial masks to streaming media services, to cars and apartments, this threshold crossing effect was established.

“We found that this effect is effective in both experience and products. He said: “Its reproducibility is very consistent. In a field study, researchers set up coffee stalls on the Ohio State University campus for two days, rotating prices regularly. About half of the time, they offer a small cup of coffee “just under” 95 cents, or a large upgrade for $1.20. In order to choose the upgrade option, the customer must cross the integer limit of $1.

About every hour, they changed the price of a small cup of coffee to $1 and increased the price of a large cup of coffee by 5 cents to $1.25.

Although the big cup is now more expensive than before, so is the small cup. The point is that both prices are on the same side of the $1 border, and the researchers predict that this will make customers more likely to choose to upgrade.

How did customers react? When they don’t have to cross the integer boundary to upgrade ($1 to $1.25), 56% of people upgrade to the big cup. But only 29% of people upgraded when the price of the small cup was just under 95 cents, and they had to cross the $1 threshold to buy the big cup.

“In other words, when the price of a large cup of coffee was objectively more expensive than before ($1.25 vs. US$1.2), we sold more large cups of coffee,” Malkoc said. “It is surprising that raising the price-from $1.2 to $1.25-actually increased sales. This proves how strong this effect is.”

The results of the study show that this The effect is also applicable to large-scale procurement processes with multiple upgrade options. In a laboratory study, when the base price was slightly higher than a whole number rather than slightly lower than a whole number, college students were more likely to say that they would choose a more expensive car and apartment option. This includes situations where participants have multiple upgrade options to choose from.

Kim said these findings are very consistent with studies that have found threshold crossing effects in other parts of life.

“Research shows that crossing state boundaries can make destinations look farther,” King said. “It is across this threshold that the difference is made. In our research, integers are like state boundaries, magnifying people’s perception of price differences.”

Goodman explained that this One reason this effect is so effective is that people often do not have a good idea of ​​the “correct” price of a product or service. Therefore, consumers will look for some background to help understand whether the things they are buying are expensive or cheap.

“For many of the things we buy, the price is perceptual. We have a sense of whether the price is appropriate,” Goodman said. “In our research, people often say that when the basic price is higher than the whole number, the upgrade purchase seems to be less expensive, although objectively it is more expensive.”

There are some cases where the threshold crossover effect is not will happen. One is the small price difference for expensive items. It also doesn’t work for those who are familiar with the prices of products or services–for example, those who regularly book hotels.

People who are familiar with prices will not be affected because they do not rely on their own perception, like many participants in this study, Malkoc said. “As consumers, we need to realize that our perceptions are often flawed. We need to rely on actual numbers, not just our perception of numbers.”