Question

Topic: E-Marketing

Does A Buck Make A Difference?

Posted by Billd724 on 3/14/2008 at 10:46 AM ET 125 Points
Background:
I know you're familiar with the long-standing practice of charging "$29.99" (vs. $30.00) for an item in a physical retail establishment because the consumer's mind believes, arguably irrationally and emotionally, that $29.99 is somehow a better deal than $30.00.

Well, at least the marginal propensity to consume (I loved economics, what can I say?) an item is, allegedly, higher as the price lowers . . . apparently, even if that difference is negligible.

Question:
In an online environment . . . a website / web page . . . where a SERVICE (not a product) is being offered . . .

Does a slightly different (even negligible) price for a service (e.g. $400 vs. $399) have enough impact on a qualified prospect's propensity to buy . . . to act on an offer . . . that, all other things being equal . . . the prospect is LESS LIKELY to buy the service online?"

I'm having an issue with a client over this and, while I have anecdotal evidence that it matters, I can't argue conclusively that it really DOES matter . . . and, assuming it does . . . is the HIGHER price or the negligibly LOWER price more likely to get a qualified prospect to act on an online offer of a SERVICE vs. a product?

Can anyone offer some enlightenment (OK, that's going too far!) . . . I'll settle for some clear, coherent thinking on this subject! ;-)

Thank you.
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RESPONSES

  • Posted by Billd724 on 3/14/2008 at 11:56 AM Author
    Steve and Gary (OMG . . . you've surfaced! Great to see you!! ;-)

    OK, so let me see if I get this right . . . in an online environment . . . for a service . . . you seem to favor going with a 'rounded up number' . . . as the equity of a fair price outweighs the illusion of a 'better' one -- even if it's negligibly lower.

    That makes sense. Thank you.

    I'l let this question hang for a while longer to see what other thoughts it may attract.

    Gary--
    Nice to see you . . . been a looooong time. You're one of the good guys!

    Bill
  • Posted by saul.dobney on 3/14/2008 at 12:06 PM Accepted
    Looking round at things like conferences, hotels, airlines, webhosting, vacations everyone plays the dollar game. The thing is what have you got to lose? Even customers who know the trick, don't usually penalise suppliers for trying. On the other hand you might not catch the eye if your prices are that little bit higher.

    Also for business-to-business buyers there are often sign-off limits and it's better to be just under than risk being on the mark is just over.
  • Posted by melissa.paulik on 3/14/2008 at 12:31 PM Accepted
    For high ticket services, in a B2B setting, I agree that round numbers are often best.

    If it's a consumer service that could be purchased without too much thought e.g. a satelite TV subscription, I would think the first digit would still make a difference. If your item is priced in the 300-400 dollar range, for this to work it sounds like you need to target a consumer who is somewhat price sensitive, but not enough that they think about it for too long.

    It would be interesting to hear from somebody in this forum who is a pricing professional. They may have advice on how you could test the two.



  • Posted by arthursc on 3/14/2008 at 12:45 PM Accepted
    Years ago, marketing magazine subs via direct mail and later email, I tested the concept, but in a slightly different way--$118 (the standard price) vs $120. $118 won significantly.

    But this is one test of one particular product, and relatively low-ticket as well.

    When I was marketing conferences in the 80's, I tested $399 vs $499--but didn't test $400, or $500. (In this case, $499 won--perceived value, I guess.) We just never questioned the concept, it was so universally used.

    I am still convinced that $xxx.99 or $xxx.95 will generally work better (outside of professional services), at most price points, but has anyone done or know of any recent testing?

  • Posted by Billd724 on 3/14/2008 at 1:37 PM Author
    Arthur --
    You raise (yet) another issue . . . PERCEIVED value and the ability any figure has to communicate VALUE.

    My goodness! Now we're building a functional relationship . . . MPC x Value Perceived = Right Price To Charge . . . Hmmm. this pricing issue could become really abstract really quickly -- as you suggested in your response, Melissa.

    I was going to close this out but it seems we've introduced enough nuances to this pricing issue that I'd like to see if any more insights can be shared on this topic.

    Thank you also to Saul for the suggestion to 'go for it'. I like that, myself! LOL
  • Posted by excellira on 3/14/2008 at 1:51 PM Accepted
    Here is a price point testing research at Marketing Experiments https://www.marketingexperiments.com/improving-website-conversion/price-tes...

    Perceived value is critical to pricing structure. If the price is too low the product is perceived as being valueless. If the pricing is too high their is a dropoff in revenue.

    As is stated in the research above, you must test in order to determine the correct price level.

    -Greg Hill
    Trinity Search Engine Marketing
  • Posted by Inbox_Interactive on 3/14/2008 at 3:03 PM Accepted
    As Greg said, you have to test it.

    It depends on the product or service and your buyer.

    You have to test it out and see if there's a difference in conversions.
  • Posted by Billd724 on 3/14/2008 at 7:21 PM Author
    Greg -
    I found your link to be extremely insightful -- Thank you! It confirms much of what I've thought and illuminates the issue of pricing and perception of value quite well.

    Paul --
    Amen on the need to test, test, test . . . preaching to the choir, here!

    Jon --
    You make a very valid point about the '9s' perception / association with 'cheap' products and services. I am going to argue to avoid the 9's in favor of round numbers for this service. Thank you.

    BTW, if anyone would like to learn more about the service this question is connected to feel free to check out www.getnewclientsnow.com
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