.99-ending prices: Are they really as effective as we assume?
There has been a long-standing debate among researchers regarding what makes prices ending in .99 so attractive to consumers. Some argue that consumers tend to focus on the left digits, rounding the .99 down (e.g., viewing $18.99 as $18). Others say that consumers pay attention to the .99, rounding the price to its nearest whole number, perceiving the small difference as a discount, or even associating the .99 ending with an “on sale” or low-price appeal (e.g., viewing $18.99 as $19).
I recently addressed this debate using cutting-edge biometric research technology. Using eye-tracking and facial expression analysis, three laboratory experiments, and an analysis of a large regional grocery store’s pricing and sales data, I found that both accounts are true. Not all consumers mentally process 99-ending prices the same way, and thus not all 99-ending prices are created equal. There are two types of .99-ending prices, and consumers respond more favorably to one or the other. The key is predicting which consumers will respond more favorably to which type of 99-ending prices, and why.
My full findings are published in the Journal of Consumer Research, but three key takeaways for retailers are:
1. Consumers respond more favorably to prices that they mentally encode as a “fluent number”
Fluency refers to the ease with which a stimulus (e.g., a number) is processed by the brain. Building on prior research, I found that consumers respond more favorably to certain prices because they contain or border “fluent numbers.” The consumer finds these numbers familiar and easy to decipher because they have been practiced in childhood arithmetic education, they inherently exclude prime numbers, and because of the natural frequency with which they are encountered in daily life. Examples of fluent numbers include 16, 18 and 20 (in contrast to 13, 17 and 19, which are less fluent).
2. Highly numerate consumers tend to round 99-ending prices up, while less numerate consumers tend to drop the .99, focusing only on the left digits
The results of one eye tracking experiment show that less numerate individuals – those less comfortable with numbers – looked primarily at the left digits of prices, while highly numerate individuals – those more comfortable with numbers – focused on the whole price. Highly numerate consumers spent more time looking at the right digits of prices than less numerate consumers. As a result, highly numerate consumers responded more favorably to 99-ending prices that border a fluent number (e.g., $17.99, $19.99), while less numerate consumers responded more favorably to 99-ending prices that contain fluent left-digits (e.g., $16.99 or $18.99)
3. Managers can customize their prices based on consumer numeracy (using average education level as a reasonable proxy) to maximize consumer price response
To optimize prices for highly numerate individuals, managers should price objects at 99-ending prices that border fluent numbers. To optimize prices for less numerate individuals, managers should price objects at 99-ending prices that contain fluent left digits.
For example, if a retailer determined the average willingness to pay for a product to be around $17, they could optimize the price for less numerate consumers by charging $16.99, while highly numerate individuals would respond more favorably to $17.99. Conversely, if the average willingness to pay was determined to be around $18, less numerate consumers would respond most favorably to $18.99, while highly numerate consumers would respond most favorably to $17.99.
Note: A fluent base price like $18.99 that is preferred by less numerate consumers can be higher or lower than a fluent neighbor price, such as $17.99 or $19.99, that is preferred by highly numerate consumers.