99 vs 97 – Can You Help?

Costco price tag

Here is a recent question by email.

Thanks Mark for great blog and insightful book. I’m currently working my way through a Kindle edition, learned a lot about pricing that’s for sure and will definitely recommend to clients. One thing I didn’t see you talk about on your blog is the 9 vs 7 pricing gimmick. In the real world, most prices will end with a 9 or 5 occasionally (9.99, 99, etc.). But, online and especially with info products, there has been a trend to end price with a 7. For example, most ebooks and programs are 17, 27, 47, 67, 97, and so on. What’s your expert opinion on this? Have you seen any credible research that clearly shows which one is better? I know why we use 9.99 instead of a 10, but how effective is 7? Thanks a lot!

This question hits me close to home, particularly because my dissertation was on why firms use 99 cents as their price endings.  Although I’ve blogged on this before, here is a quick review.

The driving factor behind the effectiveness of 99 cents is that was are bad or lazy subtractors.  For example, a product that normally sells for $400 on sale for $299 feels like a much better deal than a product that normally sells for $399 on sale for $299.  The same happens when people are choosing between our product and a competitors.

That driving factor has led products that end in 99 to look to people like a good price.  The opposite of that is we have learned to associate prices that end in 00 with higher quality.

However, none of that answers the question posed above.  And unfortunately I don’t know the answer.  First, after searching on Amazon and iTunes, I still found that most prices end in 9 rather than 7.  Please feel free to share sites with prices that predominately end in 7.

I searched the academic literature and didn’t find anything either.  If you know of something, please share.

I found a couple discussion sites on software on this topic, and the conclusion was you should A/B test it to see which works for you.  In other words, there wasn’t a conclusion.

Don’t forget that many retailers use the right hand digit of a price to indicate the state of the product.  For example, Costco uses prices that end in 7 to indicate that the price has been marked down from the regular price (which ends in 9).  Gap and Old Navy use prices that end in 7 to indicate they are the final markdown, the lowest price they will go.  This means to me that they don’t think any psychological effect is very big, so they use the digit for internal communications.

At this point, I’m not satisfied with any answer.  If you have an answer, or evidence, or research, please share it.  We would all like to know.

 

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