It’s got to that time of year in retail where thought has well and truly turned to life after the 25th of December – Sale Time! The noise, the chaos, the long shifts, the hundreds of customers, all because people (including myself) want to grab a bargain. It makes you wonder how motivating price has to be in order for customers to be willing to embrace the craziness when they could still be tucked up in their reindeer onesie eating a (perhaps slightly stale) mince pie.
Price is useful to consumers in lots of ways including in that it can help assess perceived quality of a product, can have an impact on the customer decision making process, and can set price reference points. Yet since I was little I have always wondered why prices often end in a nine. To me it just seemed to make everything more complicated (especially when I would run my own post office/supermarket/sweet shop as it made counting change a lot harder!) and hence it is this aspect of price this blog post is going to focus on.
The number nine is the most frequently used numerical digit in a price tag. Yet ‘the power of nine’ price research has shown that nine-ending prices do, generally, increase sales when compared to the same product listed with a rounded price, by up to 24%. Additionally they encourage customers to buy more expensive goods and more goods then they were initially planning (for a review see here).
The reason most commonly cited reason in consumer research for the use of nine-ending prices is because they are interpreted as a lower price as people mentally round down. Hence if something was on sale for £8.99 customers would interpret it as on sale for £8 instead of £9. Researchers believe this is because in majority of the world people read from left to right hence pay more attention to information on the left. This theory was supported by an American experiment where participants were asked to view images of products each with a price also included in the image. This price was either an even, rounded price (e.g. $20) or was one or two cents cheaper (e.g. $19.99 or $19.98). Participants were exposed to all types of pricing strategies for a variety of products before being tested for recall of the product’s process two days later. The results showed that participants were more accurate at remembering the even rounded prices for products. Additionally, when the price had been shown as being nine or eight ending, participants were more likely to round down recalling the product as cheaper than it actually was.
However an additional theory is that customers will associate a certain price with a certain context hence nine-ending prices have come to mean ‘sale’. Therefore customers think they are getting more of a deal though they may still perceive the product’s quality as higher than the price it is currently selling at. This was backed up in a study in 1997 where researchers observed that, in sale advertisements, there was a higher number of nine-ending prices than in regular advertisements.
Additionally the 1997 study found that the nine-ending price effect can be eradicated, or enhanced, during sale periods. The researchers, Schindler and Kirby, found this by firstly testing whether participants brought more of the same item if it was listed at selling at ‘$39’ or at ‘$40 down from $48’. The obvious sale price ($40 down from $48) encouraged more people to buy probably due to its apparent anchoring point (the before sale price). However when the ‘power of nine’ and the ‘power of sale’ were used cohesively, the researchers found that customers were even more likely to purchase an item i.e when something was listed at ‘$39 down from $48’. A different study also found that a nine-ending price, in a sale setting, was perceived by customers to be a greater discount than an even, rounded up product price. Hence it seems that if, as a business, you know a product will be going on sale for a round value you will probably gain more from lowering the product price to a nine-ending figure, than you would lose out on a few pounds by lowering the price.
However these studies are relatively outdated and there is no new evidence to suggest that a nine-ending price still indicates ‘sale’ or ‘cheap’ in consumers’ minds. Additionally, even though 99p stores are now commonplace on most British high streets, not all cheap and cheerful shops use a 99p pricing strategy with some even priding themselves on their round-pound value (e.g. Iceland). Contemporary research has also found that nine-ended prices are not used as often on the internet probably due to the lower search costs involved for consumers meaning they are more attentive to prices. Additionally nine-ending prices have undoubtedly been useful in the supermarket price wars – yes our product is cheaper, even if it’s only by a penny.
Personally I am happy where I work sticks to round, even prices mainly because maths isn’t my strongest point and under stressful conditions (i.e. sale time at 6am on Boxing day!) counting change accurately can be difficult. However I’m sure the act of giving change provides not only a ‘gift’ back to the consumer, but a reason for the customer to stay around for a little longer at the till point allowing even more time to establish a customer relationship.
To conclude here is the song that inspired this blogs title. Additionally here is a rather amusing news article about how there are so many 99p and £1 stores in the town of Ipswich that they had a price war slashing their wares to as low as 93p!