Price rounding, secret numbers and irrational shopping


$1 coin and pink coin purse

How can minor pricing tweaks affect your shoppers’ behaviour? wonders Mal Scrymgeour

Rounding: The other day, the more attractive half of our relationship arrived home in a flurry of bags and a non-stop flow of excited commentary on how much money she’d “saved”.

I was delighted to learn this. Even happier when I learnt she had just saved us $300.

Remarkably, when I asked for the cold hard cash she had saved, it wasn’t forthcoming. In her case, it became obvious that in order to “save” $300 she had spent—sorry I stand corrected—invested $1,000.

That’s not a saving at all. It’s called paying less. She still doesn’t understand it. Out of all this, I did learn one thing: it seems women “save money” when they shop.

Men, of course, have a different way of viewing this same issue.

Men enjoy the idea of a discount. It’s all very exciting to secure a discount.

Men also have the sneaky habit of “rounding down”. It shows how masculine, strong and cunning you are to be able to secure a lower price than everyone else.

For example, a buddy of mine just bought new golf clubs. He claimed they cost him $3,000. When I asked him what he actually paid, it was $3,999.

In the simple act of a conversation he had somehow managed to drop nearly 25% of the price off. 25% is a very serious piece of rounding down! In fact, it’s a very impressive delusion.

All this confusion is known as price rounding, or psychological pricing. It’s controversial to say the least but there are some rules that are agreed. 

  1. People tend to anchor numerical differences on the left-most digits, a behavioural phenomenon referred to as the “left-digit anchoring effect.” In effect what this suggests is that people perceive the difference between 2.99 and 4.00 to be closer to 2.01 than to 1.01 because their judgments are anchored on the left-most digit. We saw this with my buddy and his golf clubs. He wasn’t rounding down, he was suffering from left digit anchoring effect.
  2. Consumers ignore the least significant digits rather than do the proper rounding. Even though the “cents” are seen and not totally ignored, they may subconsciously be partially ignored. It has been suggested that this effect may be enhanced when the cents are printed smaller (for example, $9.99).
  3. When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by a larger group of potential purchasers.
  4. Now that many customers are used to odd pricing, some restaurants and high-end retailers psychologically-price in even numbers in an attempt to reinforce their brand image of quality and sophistication. With other retailers, they have adopted usual price endings because consumers have become so used to 5s and 9s.

 

Recently, and somewhat annoyingly, I paid $200 (a nice round number) to discover the “secret number in retail”.

I admit, the website sucked me in. I can save you the money by telling you here.

The secret number in retail, apparently, is 8. Research from the USA Supermarkets showed that by having the number 8 as your last digit on Known Value Items (KVI) lines you sell around 10% more items.

For example; rather than selling at $10.00 or $9.99, the price should be $9.98. I have evidence that it works in pharmacy, but a number of clients have tried it without a negative response. It’s an example of the psychology of pricing in action.

So what should you do?

Let’s not over complicate things. Decide on your price rounding strategy: 0c, 5c, 9c or whatever it may be.

For KVIs you might decide to rethink this and think carefully about whether a 0c, 5, 9c or even an 8c might communicate the strategy you are trying to deliver.

It is surprising what a small tweak to price endings can make to how consumers feel about your business.

It also shows how irrational we can be as shoppers. Just like my other half.

 

Mal Scrymgeour is the founder of retail consultancy Zumo Retail Ltd.

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