The Game of Pricing: How the Number 9 Affects Purchase Behavior

The concept of charm prices

We see countless “charm” prices daily. There’s no real consensus about how this came to be, though a few different apocryphal stories exist. Still, there is little disagreement with the idea that charm prices convey value and motivate customers, ultimately increasing sales.

“One reason charm pricing works lies in the ‘left-digit effect,’” said Riani Kenyon, Anthropologist & Behavioural Analyst at Canvas8. “Since we read numbers from left to right, the first digit has an outsized impact on our perception.”

For example, the left-digit effect makes $79.99 feel closer to $70 than $80. However, we academically understand it is virtually the same thing as $80. That feeling is sometimes enough to convince a shopper to make a purchase.

Research backs up how powerful charm pricing can actually be. In one famous study, three different versions of the same mail-order catalog were printed; each version showed the same shirt at a different price. The shirt sold better at $39 than at $44. This result is not surprising because it illustrates the law of demand: As the price goes down, demand goes up.

However, the shirt also sold better at $39 than at $34. This illustrates that charm prices have an impactful effect and can undermine even our most basic expectations about the effect of price on demand.

When charm prices don’t work

Many people say that they don’t like nonround charm prices, and research supports this. When pumping gas, nobody tries to stop at $29.99. They try to get to a nice, round number like $30.

The same is true when it comes to high-end luxury goods. This target demographic generally isn’t looking to get the best deal but instead a premium product. This is known as “prestige pricing.”

“The number 9 works especially well for everyday items and impulse buys. People associate it with discounts and value,” said Raviraj Hegde, SVP of Growth and Marketing at DonorBox. “However, prestige pricing, which involves rounding up to clean, whole numbers like $50 or $100, works better in the case of luxury and premium products. It gives a sense of quality and exclusivity, which charm pricing doesn’t.”

Context is key when choosing between charm pricing and prestige pricing — you have to know your audience. In 2012, ousted CEO Ron Johnson tried to do away with charm pricing as part of an effort to revamp JCPenney, possibly attempting to elevate the prestige of the brand. However, the changes were not well-received; they resulted in damage to JCPenney’s brand, which is often associated with clearance sales and affordable products relative to competitors like Macy’s.

Charm pricing vs. prestige pricing

Charm pricing uses prices ending in the digit 9. Interestingly, studies have shown that ending prices in other odd numbers, such as 7 and 5, can work too.

Consumers associate prices ending with an odd number with a lower overall price than one ending in an even number. So, charm pricing is used when targeting consumers looking for value.

Source: Temu

In contrast, prestige pricing seeks to avoid the taint of anything associated with bargain hunting. Luxury goods are often priced ending in even digits. Whole numbers convey that price is not a salient issue compared to other criteria like product quality and social status.

“Charm pricing is less feasible in the sale of prestige goods or services where both trust and status play the major role,” said Hegde. “Other very realistic factors that play to your pricing strategy will have to include your audience, product positioning and prices from competition. Adjust prices to reflect market trend changes, increased costs or changing customer behavior.”

Source: Porsche

The perceived value when pricing

So, should all prices end in the number 9? Research has demonstrated that charm prices powerfully imply value. Customers are more likely to perceive the price as being lower and representing a discount. That being said, charm prices say something very different about quality.

Upscale retailers know this and use it to their advantage. If you look at the price tags from a high-end department store, you’ll see that they’re almost always rounded. These stores aren’t selling value; they’re selling quality and luxury. Rounded numbers convey quality, luxury and are used almost exclusively in settings where quality is of utmost importance.

But when these luxury items are marked down for sale, nonrounded and charm numbers come back into play. The high-end shirt that normally sells for $400 is marked down 50 percent and sold at $199.99. As soon as you put an item on sale, you are selling value over quality, and luxury retailers are eager to tap the power of charm pricing.

“Continuously analyze sales data and feedback for an understanding of how your pricing is helping or hurting conversions,” Hegde said. “It’s all about finding a balance between perceived value and profitability.”

The use case for rounded and nonrounded pricing

When is each pricing model most effective? Round numbers are more fluently processed and encourage a reliance on feelings. Meanwhile, nonrounded numbers are not as easily processed, creating a reliance on cognition. This means you must understand consumer emotions when creating a pricing strategy. For example, if someone wants to buy a nice handbag as a reward for getting a bonus, round numbers are best. But, if the decision is driven by cognition, such as a thought process of “I should buy this because it’s a good deal,” charm prices are better.

Consider the implications for a florist or caterer submitting quotes for a wedding. If they’re dealing with the couple and their family members, decisions will likely be emotional in nature and they should use rounded numbers when pricing. In contrast, if they’re quoting on a convention dinner or fundraising gala while dealing with an event planner, things are very different. This purchasing decision would likely be more intellectual in nature, and they would be better off using nonrounded prices.

At the end of the day, pricing comes down to identifying your target customer.

Jacob Bierer-Nielsen contributed to this article.