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While I was walking down a road in West London the other day, I passed a number of bargain stores, including Poundland (everything is priced at £1.00), a 99p Store (everything is £0.99) and even a new 97p Store (you guessed it: everything is £0.97 -- and not a penny more).
Conventional wisdom behind retailers’ pricing strategies holds that the attractiveness of a $19.95 product over one sold at $20.00 is worth more than the $0.05 difference in price. In the academic literature, this is known as the left-digit effect, and marketers often price products slightly below a round number in the hope of selling more products.
Sometimes, however, rounded numbers seem superior. Rounded numbers are more prototypical, compared to the more “factual” appearing non-rounded numbers. Rounded numbers can be processed fluently, whereas non-rounded numbers are a bit more difficult to process.
New research by Monica Wadhwa and Kuangjie Zhang, about to be published in the Journal of Consumer Research, shows that products with rounded prices (e.g., $30.00) are evaluated more favorably if a consumer’s purchase decision is driven by feelings. Products with non-rounded prices (e.g. $31.20) are evaluated more favorably if the decision is driven by cognition (rational thought).
In one of their experiments, participants were faced with a buying scenario that involved a camera purchase for either a family vacation (a hedonic, more feeling-based consumption goal) or a class project (a utilitarian or more cognition-based consumption goal). They were given a description of the camera, which was priced either at $100.00 or $101.53. They were also given sample pictures to look at. Results showed that participants rated the sample pictures’ quality more highly in the rounded price condition than in the non-rounded price condition when buying a camera for a family vacation. The opposite occurred when the same pictures were rated for a camera to be purchased for a class project.
Another test either put participants under cognitive load for the duration of the product evaluation task (they had to memorize a string of seven letters) or left them in a state of non-constrained memory (they had to memorize only one letter). They then had to indicate the likelihood of buying binoculars with either a rounded price ($80.00) or a non-rounded price ($81.43). In the condition with constrained processing resources, purchase intention was higher for the pair of binoculars when it was priced at a rounded price (vs. non-rounded price). When resources were unconstrained, participants indicated higher purchase intention the same product with a non-rounded price (vs. rounded price).
Finally, an experiment that used a priming manipulation had participants first answer five questions that required them to report their feelings (e.g., “When you hear the word ‘baby,’ what do you feel?”) or five questions that involved more deliberate thought (e.g., “If an object travels at 5 feet per minute, then by your calculations how many feet will it travel in 360 seconds?”). They were then asked about the likelihood that they would buy the binoculars. Researchers also measured the subjective experience of the purchase having “felt right” and the perceived ease of processing the product information. As expected, participants in the feeling-prime condition were more favorable towards the rounded price, compared to the non-rounded price. The opposite results occurred in the cognition prime condition. Those in the feeling-prime condition also reported an enhanced sense of “feeling right” when the rounded as opposed to non-rounded price was used, whereas those in the cognition-prime condition tended to indicate that the non-rounded price felt right.
There are lots of interesting implications for Wadhwa and Zhang’s research for people who work in marketing. For example, a product that is inherently hedonic (e.g., a LED television) might benefit from a rounded price. A utilitiarian product (e.g., dish washer), on the other hand, might gain from non-rounded prices.
If the rounded price effect turns out to be robust, clever retailers might also adapt their prices to the context in which products are sold. For example, they might use rounded prices in convenience store or gas station locations, where people are more likely to be under time pressure, and non-rounded prices in other locations. Online retailers could use historical or in-the-moment behavioral data collected from customers (e.g., based on browsing patterns) that indicate a tendency to make more deliberate (vs. impulsive or time-constrained) decisions and dynamically adapt pricing.
But, as the authors of this research acknowledge, more work will be needed to investigate the extent to which the rounded price effect would apply to prices with different complexity and magnitude, such as a $30,000.00 vs. $31,547.00 car or $0.97 vs. $1.00 candy bar. Let’s see what future investigations come up with. Given that bargain-hunting is often driven by feelings, it may turn out that prices at Poundland have the edge over those at its cheaper rivals, the 99p and 97p stores.
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Reference:
Wadhwa, M., & Zhang, K. (2014). This number just feels right: The impact of roundedness of price numbers on product evaluations. Journal of Consumer Research. DOI: http://www.jstor.org/stable/10.1086/678484.
