For many years, sellers have been ending prices with .99 to motivate consumers to buy their products as the value seems lower. However, a study by the Ohio State University (OSU) has shown that the move makes buyers less likely to upgrade to a product at a higher price as it seems too expensive.
According to Juhna Kim, a study author and doctoral student in marketing at Ohio State’s Fisher College of Business, buyers might think that going from $19.99 to $25 will be more expensive than going from $20 to $26, even though it costs less.
These findings applied to many products such as apartments, cars, streaming services, face masks and coffee.
How the researchers conducted the experiment
In a two-day experiment to investigate this, the researchers set up a coffee stand with rotating prices. Sometimes, they would put a just below price of 95 cents for the coffee and gave buyers an option to upgrade to $1.20. Other times they sold the coffee at $1 and gave an option to upgrade to one for $1.25.
According to their predictions, more people upgraded from a $1 to a $1.25 (56%) cup of coffee than those that upgraded from the just below pricing (29%).
A study co-author, Selin Malkoc, who is also an associate professor of marketing at OSU, adds that they seemed to sell more of the larger coffee at the time of the day when it became more expensive.
The researchers conducted another experiment that gave people different options to upgrade apartments and cars for different prices. They found that the participants were more likely to pay for an expensive apartment or car if the price was a round number than a just below price.
Just below proving doesn’t always apply
Kim explains that crossing the just below price makes the price difference seem more significant to consumers. However, crossing this threshold does not always apply. People who are aware of the correct prices, for example, people who regularly book hotel rooms, are rarely fooled by this perception.
Malkoc warns that buyers need to be aware that their perception can be flawed. To avoid this, people should use the actual numbers instead of their perception of their numbers.
