The Psychology Behind The Sweet Spots Of Pricing

From Fast Company:

Thanks to the likes of Louis C.K., Aziz Ansari, and the brains who created Google Wallet, $5 is the new 99 cents. It’s funny what makes customers loosen their purse strings.

Have you ever noticed how some stores mark the price of their goods with a “$” sign, while others don’t? This is not by accident. It fact, the decision to include that little symbol (or not) makes a big difference.

Over the past few years, pricing analysis specialists have determined that it’s far more effective to price goods without the iconic dollar symbol. It seems that when a currency sign appears with the price, we automatically connect it to our very own hip pockets or purses–and what is or isn’t inside there–leading us to believe the item in question is more expensive than it actually is.

Researchers at Cornell University tested this idea at St. Andrew’s Café, part of the Culinary Institute of America in Hyde Park, New York. There they offered three types of menus. The first had the price listed with a dollar sign in front of the numerals; the second had the price without a dollar sign; and the third had the price with the word “dollar” spelled out.

They determined that when the prices were listed with the dollar sign, customers spent less. Conversely, when the dollar sign was absent, they tended to spend more. In other words, they were quicker to fork over their cash if the item was listed as “5.00” as opposed to “$5.00.” (And $5 is an important amount, as we will soon see.) Even when the word “dollar” was spelled out, it triggered the “pain-of-paying” response.

This means that $5 isn’t always $5 in our emotional thinking. Similarly, if an old sales gimmick is to be believed, 1 cent can be worth a lot more than 1 cent. We’ve all seen signs selling items for, say, $4.99, rather than $5.00. That’s because we tend to think of $4.99 as being more closely related to $4 than $5.

Professor Robert Schindler, a marketing professor at Rutgers Business School, conducted a study of a women’s clothing retailer. He found that the 1 cent difference between prices ending in .99 and .00 had “a considerable effect on sales,” with items whose prices ended with .99 far outselling those ending with .00.

Continue reading at Fast Company