Why you spend more when prices end in .99 - Kent Hendricks
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I once worked at a company that priced everything with a .95 ending. The bestselling software package was $999.95. Add-on products were $9.95, or $19.95, or $49.95. Everything ended with a .95. It had been this way for more than twenty years.
One day, one of the VPs suggested we change all prices to end in .99. The rationale was that raising prices from .95-endings to .99-endings would net an extra four cents for every transaction.
But would that really happen? According to traditional economics, no. That’s because traditional economics predicts that raising a price results in fewer units—and fewer units, even at a higher price, means less revenue.
Flash forward a few years. Different company, same question. We’re sitting around a conference table discussing pricing strategy for an upcoming product. The VP leading the meeting smacks our competitor’s catalog onto the table. As we review our competitor’s products, we notice they price some of their products with .99-endings and others with .00-endings.
Why? Did they know something we didn’t? Do .99-ending prices make more money—but only some of the time?
To answer these questions, we need to take a deep dive into how the mind perceives numbers—and how that affects consumer behavior.
3 ways .99-ending prices affect your spending habits
1. .99-ending prices make you spend more money
In one of the first-ever studies on 9-ending prices, a national mail order company sent out their catalog to three group of people. Each group got a slightly different version of the catalog.
The first group saw 9-ending prices for the four dresses, such as $39.
The second group saw prices that were $5 more—$44 instead of $39.
The third group saw prices that were $5 less—or $34 instead of $39.
These tests were run with four dresses at four prices: $39, $49, $59, $69.
The group that saw the 9-ending prices purchase more dresses and spent more money. The 9-ending prices earned 48% more revenue over prices that were $5 more, and 53% more revenue over prices that were $5 less.
Prices
Item<br>9-ending prices<br>$5 less<br>$5 more
Dress #1<br>$ 39.00<br>$ 34.00<br>$ 44.00
Dress #2<br>$ 49.00<br>$ 44.00<br>$ 54.00
Dress #3<br>$ 59.00<br>$ 54.00<br>$ 64.00
Dress #4<br>$ 79.00<br>$ 74.00<br>$ 84.00
Units purchased
Item<br>9-ending prices<br>$5 less<br>$5 more
Dress #1<br>21<br>16<br>17
Dress #2<br>14<br>10
Dress #3
Dress #4<br>24<br>12<br>15
TOTAL<br>66<br>43<br>48
Revenue
Item<br>9-ending prices<br>$5 less<br>$5 more
Dress #1<br>$ 819.00<br>$748.00<br>$ 544.00
Dress #2<br>$686.00<br>$352.00<br>$ 540.00
Dress #3<br>$413.00<br>$ 378.00<br>$ 384.00
Dress #4<br>$1,896.00<br>$1,008.00<br>$ 1,110.00
TOTAL<br>$3,814.00<br>$2,486.00<br>$ 2,578.00
9-ending: +53%<br>9-ending: +48%
9-ending prices led to a 48% more revenue, even when the price was higher.
A second study tried the same thing, but with a much larger sample size. In this study, catalogs promoting 169 items were sent to two groups of 45,000 people. One group saw .00-endings and the other group saw .99-endings. The group that saw the .99-ending prices spent 8% more .
2. .99-ending prices make you more likely to spend money
In another study, conducted in France, researchers watched people buying cheese at a grocery store. They changed the prices of the cheese at 2-hour intervals and watched how people responded. First, they priced cheeses with .99-ending prices. Two hours later, they switched the prices to .00-ending prices.
They ran the experiment for two days. During this time, 241 people bought cheese. When they saw .00-ending prices, they bought cheese 44.1% of the time. But when they saw .99-ending prices, they bought cheese 51.2% of the time.
This study not only confirmed that .99-ending prices lead to more revenue, but they are also more likely to trigger a sale.
That’s not all. Experimenters also learned that the overall transaction amount went up when customers bought cheeses with .99-ending prices. For .00-ending prices, the mean purchase amount was €5.08, but with .99-ending prices, the mean purchase amount was €6.53.
This study revealed that .99-ending prices leads consumers to miscalculate their overall spend.
3. .99-ending prices make it harder to keep track of what you spend
In another study, researchers split people into two groups, and gave each group $73 and a list of products to buy.
The first group saw products with .00-ending prices, such as $3.00. This group bought an average of 23.9 items and spent $71.70 of the $73. They spent less than they intended.
But the story was different for the second group. When the researchers dropped prices by one cent—from $3.00 to $2.99, for example—this group bought an average of 25.21 items and spent $75.38.
Dropping the price by one cent led to an increase in sales of 5.1%.
The second group, which saw .99-ending prices couldn’t budget as well as the first group. As we’ve seen, .99-ending prices makes it more likely you will spend money and that you will spent more...