$40.00 can outsell $39.72

consider prestige pricing strategies

Recent research found that 60% of retailers view higher margins as a top priority. This may not be surprising for retailers, or perhaps any business, given how tight margins are in 2018 and the direct relationship between margins and profitability. The question remains, however, how do businesses increase their margins? One option is to cut costs and another is to increase prices. This is the second of five thoughts addressing the latter.

Most marketers and, I suspect, most consumers are familiar with pricing strategies built around the number ‘9’. Many products are sold for 99 cents, $9.99, $99.00, or $999.00 etc. The fact is, there is also a truck-load of research to suggest that the use of the number ‘9’ in prices in this way works. It does make people view a good or service as being cheaper. Due to some unconscious quirk of the human mind, while we cognitively understand that there is little difference between $9.99 and $10.00, research shows that significantly more units will be purchased at $9.99.

Research completed by Zhang and Wadwa, however, found that rounding prices up can also have a positive impact on a product in terms of its image and the perception of quality. Their findings suggest that products priced at $9.99 are more likely to be seen as discount products while products priced at $10.00 are more likely to be seen as premium.

In one study, these researchers tested three price points on a brand of champagne – $40.28, $40.00 and $39.72. The research found that consumers placed the highest premium on the $40.00 champagne.
This, and other research completed by Zhang and Wadwa, suggests that even, whole numbers ending in ‘00’ are viewed as more prestigious and, therefore, more attractive to people wanting a quality product. In these instances, as with so many others, the price of a product impacts on the perception of quality and rounding the price up can help enhance margins.

This has also been found in the food market where a jar of honey priced at $8.00 is perceived as good value and the same jar of honey priced at $12.00 is viewed as expensive. So far, this is not surprising. But when the same product is priced at $20.00, it is seen as premium. The level of demand varies little between $8.00 and $20.00 – but the margin is very different.

At $20.00 it is, for all intents and purposes, a different product being purchased by a different market. It has been transformed from a commodity into a premium, luxury item

In 2018 – consider prestige pricing strategies.

Every year – put the facts ahead of intuition and guesswork.

Sources of core statisticsAttitude Advisory, Wiser, MYOB, Entrepreneur, Huffpost, Help Scout, INC, Marketing Week, Insight Squared, CXL, WM, Psychology Today, Linked IN, MBA

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