"Just-below" pricing, a strategy that positions products at one cent below a round number (e.g., $23.99 instead of $24), is a widely debated topic in marketing.
Recently, a meta-analysis of 69 studies has offered new insights in this field.
Quality Perception and Purchase Intent
Contrary to popular belief, "just-below" pricing does not reduce the perceived quality of a product. In fact, these prices increase purchase intent without negatively impacting how consumers perceive quality.
This finding is relevant because it debunks the notion that lower prices automatically suggest inferior quality. As we have seen many times, it is more complicated than that, and it is a good practice for new brands to adopt a price penetration strategy rather than price skimming.
The Power of Price Psychology
When we see a "just-below" price, we tend to perceive a discount, even if minimal. This phenomenon is explained by the fact that, although price is a quality indicator, its importance as a quality signal has diminished over time. Consumers are increasingly savvy.
Moreover, we tend to focus on the first digits of a price, rounding down (for example, $14.99 is perceived as closer to $14 than to $15).
Strategic Application
The use of "just-below" prices should be strategic, meaning planned deliberately and with intelligence.
If, for example, all products have this type of pricing, its effectiveness diminishes. This practice is more effective when highlighting specific items or during promotions and sales, showing the original price alongside the "just-below" discounted price.
As emerging from much scientific evidence, humans are more sensitive to comparisons than to absolute terms.
The "Guru" Price
The use of a price ending in the number 7, so widespread in guru communities, instead of the more common 9, can be a marketing strategy based on several psychological considerations:
- Uniqueness and Attention: Prices ending in 7 are less common and can attract consumer attention, standing out from the crowd.
- Perception of a Deal: Some consumers may perceive prices ending in 7 as more original or as special offers, thus increasing interest in the product.
- A/B Testing: Companies can use prices ending in 7 to test consumer reactions to different price points in A/B studies.
However, the effectiveness of this strategy depends on the specific market context and target customers. We advise against applying it always and almost randomly.
There are in fact no definitive studies demonstrating the universal effectiveness of prices ending in 7 compared to those ending in 9. Therefore, it is important to consider the context and behavior of your target audience when choosing this pricing strategy.
Product and Consumer Considerations
It is also important to consider the type of product and consumer purchasing behavior.
For example, for impulse or emotion-based purchases, rounded prices may be more suitable. Furthermore, the research found no significant differences between hedonic products (e.g., perfumes) and utilitarian ones (e.g., DIY tools), but further studies could provide more specific details.
Implications
This research gives entrepreneurs an additional weapon in their arsenal of pricing strategies. It demonstrates the importance of understanding the subtle psychology behind price perception and underscores the need for a more measured and strategic approach to pricing, rather than adopting a one-size-fits-all strategy for all products.
In conclusion, while the "just-below" pricing strategy has long been debated, recent findings indicate that, when used correctly, it can increase sales without damaging quality perception. These insights open new avenues for data- and evidence-based marketing strategies, enabling marketers to refine their techniques and maximize the effectiveness of their pricing campaigns.