The Rule of 9s: Will Charm Pricing Work for Your Business?

What is charm pricing?

Charm pricing is the idea that the way you price a product affects its sales and that figures ending in an odd number — such as five, seven or nine — will sell better than others. A wide body of research has confirmed that this effect occurs because consumers read from left to right with precipitously decreasing attention. This means that people interpret $4.99 as $4 rather than $5, and $497,500 as $400,000 rather than $500,000.

This might sound absurd, but humans are pain avoiders — and prices that start with a lower initial digit feel better than higher ones. The lower the price of a service or an item, the lazier consumers get. Emphasizing the first digit works for all sorts of businesses. 

What is the rule of nines?

The rule of nines is a popular method of charm pricing to increase sales. This method uses a nine, usually at the end of the price, to help sell a product. Think about that sale price of $49.99. This price is seen as $49, not $50 and, as a result, is more attractive to customers. However, nine is just one of the numbers used in charm pricing — for instance, fives and sevens are frequently used as well. Charm pricing is effective for products and services for which people want the best possible deal. 

Marketers refer to prices containing the number nine or other odd numbers as precision prices. Think of big-box stores where lots of products are priced at $9.97 or $14.99. Every person walking into Walmart is there primarily to save money. The lower the price looks, the less “pain in paying” is involved. 

What types of customers like charm pricing?

Whether charm pricing will work depends on the type of customers you target and their motivations. 

Bargain-driven buyers

Customers who are looking for the best deal on a product or service are bargain-driven buyers. A person might focus on bargain hunting for certain essentials, such as groceries and household goods. This is the prime target for charm pricing because buyers are looking for the lowest-priced version of what they need. It makes them feel good to get things at the best price. 

As two researchers explain in an article in The Observer, an online magazine produced by the American Psychological Association, people create mental measuring sticks that run in increments away from any opening bid. They walk into a big-box store thinking that a bag of dog food should cost around $20, so if it’s $19.95, they escape the “pain of payment.” They may even get a slight jolt of glee at besting Walmart. The $19.95 price feels like a discount and a win.

This discount thinking can occur on a large scale as well. Consider the housing market. The same researchers examined five years of real estate sales in Alachua County, Florida. The more precisely a seller priced a home (for example, $497,500), the more quickly it sold. Also, initial offers for this charm-priced home were higher than for homes with even prices like $500,000. Home buyers who see a charm price assume the price has already come down a bit and the owners are looking to sell quickly. Buyers’ egos will allow them to make a deal in which they believe they have more power.

Value-driven buyers

Charm pricing works on buyers who are looking for the best deal, but that’s not the top motivator for all buyers. Charm pricing doesn’t work with value-driven buyers. In a seller’s market, homebuyers could be looking to purchase anything in the neighborhood they desire. In that sense, they will be value buyers. 

Value buyers have goals other than finding the lowest price or saving the most money. They desire a product that delivers the most for their status or life goals. Those looking for a home may value the quality of local schools just as much as the price. Particularly if operating in a seller’s market, these buyers will already know the prices of other available homes. To get the home and the premium school, they will be more flexible about the price. Making the smartest deal or getting a discount is not as important for such buyers.

Value buyers can also be found in the clothing market. For example, Ralph Lauren’s and Calvin Klein’s prices are rounded. A dress shirt at these vendors might cost $165, whereas a tie might be priced at $85. The value of the dress shirt goes beyond warmth and discretion. They indicate status, power and achievement. These stores may have a few precision prices, but only on their sales pages, which tend to be hidden. 

In contrast, if you go to Kohl’s and JCPenney’s websites, you will find lots of items priced at $29.99 right on the first page. These buyers often focus closely on price because they prioritize other expenses, such as rent and food. 

Knowing whether your clients are bargain-driven or value-driven is crucial when you’re determining your pricing strategy. Bargain versus value buyers can be a matter of income level, but another dimension buyers should consider is whether their products speak more to emotions or reason.

Emotional buyers

For buyers who are motivated by emotions such as anticipation or excitement, research indicates that rounded numbers create less of an obstacle to purchase. A study published in the Journal of Consumer Research found that this is because rounded numbers are easier to process. Rounded prices support the forward momentum the feelings incite. [Read related article: Your Best Asset: The Power of Customer Loyalty and its Significance]

The study authors used the example of camera buyers. A buyer who’s excited about an upcoming vacation is more willing to spend a rounded number like $350. Someone who needs to buy a camera to document items for a garage sale, on the other hand, is more likely to go for the $297 price. This second buyer is in a more rational, intellectual mode and more focused on the price than the added joy or value the camera will bring. 

Rational buyers

On the other hand, rational buyers impart logic on the sale and will rationalize the better price for the purchase. For example, a rational buyer might see a brand of toothpaste on sale for $4.99, which is less than the $5.25 price of their usual brand of toothpaste. The rational buyer sees the deal that they are getting for a product they already intend to buy, even though it isn’t the same brand. It makes sense to pull the trigger and buy it now. 

The sale makes the obstacle to purchase lower and motivates the consumer to buy now while they can get the most for their money. 

Does charm pricing apply online?

Charm pricing makes the buyer feel as if there is a discount on the product, regardless of whether there really is. This is why many online retailers use charm pricing; the psychology is the same online as it is in a brick-and-mortar store. Customers who are looking for bargains and taking the time to rationalize the sale will be more highly motivated when buying something that ends in a nine, seven or five. 

Take a look at Amazon. Its pricing model is based on offering the lowest possible prices for products. This means that Amazon might change the prices of products daily depending on the volume, in what’s called dynamic pricing. If you look at common Amazon pricing samples, you’ll see that they employ charm pricing on their products.

Erik Wahl contributed to this article.