Just-below pricing, or 99-cent endings, is a common marketing tool used to attract customers looking to get the best bang for their buck. But a Rutgers-Camden professor and pricing expert said that, in some cases, a penny saved doesn’t always translate into a penny earned for retailers.
“The difference between a good product and a poor product in the consumers’ eyes could come down to that penny,” says Robert Schindler, a professor of marketing at the Rutgers School of Business–Camden. “When consumers care more about product quality than price, just-below pricing has been found to actually hurt retail sales.”
Schindler, one of the world’s leading pricing scholars, is conducting a meta-analysis of the effect 99-cent price endings have on consumers. For years, he has studied the marketing strategy behind pricing an item at, say, $29.99 instead of $30. The penny may not seem like much, but people actually perceive a big difference in price and think they’re getting a bargain.
The illusion, Schindler said, isn’t the last number on the price tag. It’s the first number.
“People focus more on the left-most digit,” said Schindler, who reviewed about 100 different studies in performing his meta-analysis. “Just-below pricing certainly makes it seem like the price is less than it actually is. It gives an image of being a bargain or a discount.”
Schindler said most people won’t perceive a big difference in price between a $20 item and a $25 item. But by dropping the price of each item by one cent, “something that costs $19.99 is considered much less expensive when compared with something priced $24.99.”
But while just-below pricing has been effective in increasing sales, Schindler has found that it can also work against retailers.
“On the other side, it can give the image that an item is of low or questionable quality,” he said.
Schindler said most people are more concerned about quality over price when buying luxury products, services or making risky purchases.
“Retailers don’t want those items to come across as cheap,” Schindler said. “For example, if you’re going to do some work on a person’s house, you wouldn’t want your price to reflect that you might do a poor job. In that case, the customer is concerned about quality, and I would suggest not using 99-cent endings. It’s better to be straightforward when selling that kind of product.”
Schindler was awarded the Lifetime Achievement Award in Pricing Research at the conference, which was held in New York. He teaches “Principles of Marketing,” “Pricing Strategies,” and “Consumer Analysis” at the Rutgers School of Business–Camden.