Why pay more?
January 21st, 2008 by Andy Didyk
A recent study completed by the Social Science Research Network confirms another quirk of human behavior that is sure to get marketers’ attention. Evidently, if something is priced with an exact dollar amount (e.g., $1174 vs $1100), people are much less likely to debate the price. Indeed, the study found that if the price were “precise”, retailers and sellers could raise the price and people would be more likely to pay it without debating than if a round number were selected instead. People will actually pay more and ask fewer questions if the price isn’t a round number!
This, however, is my favorite part of the study (which, by the way, could benefit greatly from a table of contents and a better layout…ahh..science):
“These results have important substantive implications for buyers and sellers (and their agents). Buyers (and their agents) should be more cautious in their price magnitude judgments in light of our results. Sellers (and their agents) can strategically “precise up†their prices, i.e. choose a higher precise price rather than a lower round price.”
Behold the power of the information age. This is one case where knowing more will really pay off. I know that I certainly won’t look at a price of $150 the same way again.
High-five to these guys for bringing the study to my attention. Thanks!
This entry was posted on Monday, January 21st, 2008 at 5:12 pm and is filed under communication, consumerism, design, marketing, user experience. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
February 12th, 2008 at 11:35 am
You know you’re gonna make the David Baker mad w/ posts like this!!!
Big round numbers rule in professional services–otherwise you’ll be expected to breakdown how you arrived at the precise cost.
Catch 22 isn’t it…
February 12th, 2008 at 11:44 am
Ha! I know what you mean. However, I recently switched my strategy to using a precise costing for proposals, and I’m actually having far less pushback than when I used big round numbers. I think that folks like David are on the right track, but that his advice on positioning the price to the customer had a lot more impact than just throwing a round number their way.
Using both strategies has been great, because I have the confidence in presenting price from the Baker school of thought (“this is how much it is, we use a formula to come up with it, and no, I will not break it out for you”), combined with the precise number that makes people not ask further questions. The better qualified customers that I’m working with don’t ask for breakouts, they just talk value. Of course, there are always exceptions =).