Ask HN: $4.99 VS $5 - Does odd number pricing work?

[Schultzy]

I'm thinking about how to price a project I'm working on and I'm curious to know if anyone has any data from their own experiences to show whether a $.01 price difference really has any impact on conversion rates.

On the one hand, odd number pricing is touted as an effective psychological trick to get consumers to think that the price of a product "isn't really that much."

On the other hand, I personally appreciate the simplicity and honesty of seeing a nice round number.

Does anyone have any data to support one tactic over the other?

[ollierattue]

I have a theory (just a theory) that .99 pricing was introduced to prevent in house employee theft.

If an item costs $10 the till worker can pocket the money without recording the transaction. However if the product costs $9.99 the customer is due 1 cents change so the item has to be checked into the till and the purchase recorded, making an employee theft traceable as the tills will not add up at the end of the day :)

[EvilRyry]

According to my grandmother, Hess (the department store) introduced odd pricing for that very reason when she worked there while in nursing school.

Apparently they had to send the receipt and the money via pneumatic tube back to the office where they would file the receipt, make change, and return it to the register. Customers would wait for their penny, helping to keep the employee from pocketing the cash and destroying the receipt.

[laxk]

Hmm, it turns out that if I give exactly the required amount, I provoke theft? :)

[ayusaf]

I've been wondering the same thing at a very similar price point too. I am thinking about a monthly subscription at either £3.99 or £4.99.

Some quick user feedback over the last 2 weeks, where I showed people a slide about what the service is and then asked them how much they would pay revealed that a subscription of £5 would be too much. Most people who said they would pay replied with 'I would definitely pay £2 of £3 for that'.

Obviously this is only relevant for my startup but I wanted to ask a few people how much they would pay without giving them options.

Now that I have a ballpark figure I'll ask different people how much they would pay, but this time give them options - ie, the £3.99 vs £4 thing.

[Schultzy]

Please let us know what you find.

[showerst]

Sounds like the perfect case for an A/B test.

[Schultzy]

An apparent word of caution though for A/B price tests:

”Amazon has run A/B pricing experiments, and learned the hard way that customers do find out, and are upset about it. So their new policy is: if they run a price experiment, you’ll always get the lowest price in the experiment, when you get to the checkout. (So you might click on something with 5% off - when you get to the checkout, it’ll give it to you for 10% off, because that was the other offer that you didn’t see).” -AndrewMcG

[Schultzy]

I agree. I'm just wondering if anyone has ever done such tests and, if so, what the results were.

[rinkjustice]

It depends on your target demographic, your product, whether you want to convey the message of a "good deal, grab it now" or "this is quality stuff".

One size does not fit all.

[beck5]

I think there is a nice trend online for services charged at a round rate, these aren't impulse purchases. But please post any results if you do an experiment!

[thewordpainter]

I originally remembering hearing about this 'phenomenon' during undergrad. It's a common heuristic that we think the gap is much larger than $.01 when it comes to the $4.99 -> $5.00 jump.

Here's a link to the pretty extensive study that two guys from Cornell published -- Heuristics in numerical cognition: implications for pricing http://forum.johnson.cornell.edu/faculty/mthomas/HeuristicsI...

On a semi-related note, I remember telling all my friends in the music biz how iTunes was making a huge mistake by crossing the $1 threshold when they jumped up from $.99 to $1.29 ... at <$1, fans didn't think too much about the purchase. once they crossed it, it only accelerated the progression of pirating.

[pbhjpbhj]

http://www.neurosciencemarketing.com/blog/articles/neuro-men... - is thin on evidence and designer focussed (summary 9 rather than $8.99) but a good starting point.

--

OT: This is good on setting prices, consumer surplus, etc..

[abbasmehdi]

I've done this analysis but the study overall was faulty and in the end discarded for unrelated reasons, but we found 9.99 is better than 10, but best is 9.95.also that 59 is a bad number. You will get a lot more volume with 29 than with 34.95, or even, get this, 39.95. This was in non technical consumer space.

[curt]

It can be huge depending on your target market and the psychological nature associated with the product. Look at a pricing study it's quite amazing how much a few cents can make a difference. I always do psychological testing (a form of A/B testing) to determine the optimal price.

[taphangum]

See apple's pricing. They seem to take it to the next level with the odd number thing: http://apple.com/