Is cheaper always better? Why you should rethink your pricing strategy

charm priceWe see them all the time. A discounted shirt for £19, a sandwich for £3.95, a coffee for £2.99. These are known as charm prices – prices with numbers ending in 9, 99, 98 and 95. The principle is that we associate prices ending in the number 9 with sale items and discounted pricing.

There has been a good deal of research investigating if charm pricing really does impact the items consumers choose to buy.  In his book Priceless, William Poundstone dissects 8 different studies on the use of charm prices and found that, on average, they increased sales by 24% versus their nearby, ‘rounded’ price points.

An example of one of these studies is the experiment carried out by MIT and the University of Chicago in which a standard women’s dress was tested at the prices of $34, $39, and $44. To the researchers’ surprise, the item sold best at $39, even more than at the $34 price point. Using the charm pricing marketing principle, the conclusion that can be drawn from this study is that customers believed the dress to be discounted when priced at $39 and probably worth more than that amount originally. Both this and the fact that discounts are generally perceived as a temporary offer that may not be available later meant that customers were more likely to want to buy it to take advantage of the sale.

When thinking of pricing your product or service, you may want to consider charm pricing. It has certainly been shown to drive consumer behaviour. However, especially when dealing with B2B sales, it may not always drive consumer behaviour in your favour. This is because while charm prices influenced consumers in the study of the pricing of a regular dress because the pricing made customers believe that it was a discounted item, you may not wish to position your product or service as a low-cost option. If you instead wish to position what you are selling as the highest quality on the market rather than the lowest cost you will want to avoid charm pricing as not to risk appearing like a discount company.

Consider the message you want to give to customers and the media before adjusting your price list. If you are planning on beating out your competitors on price, then you have seen the research above that proves you should give charm pricing a go.   If instead you want to compete on quality it may be best to avoid charm pricing to give your brand a more upmarket feel…
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