Fractional Pricing – The "9.99" Psychological Pricing Strategy
The “9” marketing trick is called fractional pricing, or, charm prices and that is when prices end in such digits: 95, 97, 98 or 99. In our minds, what matters isn’t the fact that they are huge numbers or the last numbers before the next whole number point (100), the catch is because these numbers have only two digits, whereas if rounded up to the next whole number point, there are three digits.
And because of how our minds process numbers, we tend to look at numbers from left to right in most cases (including countries where things are read the other way around), as if we were reading text, the term for this action is coined as the “left-digit effect”.
In a typical consumer’s mind, $0.99 or $0.97 will appear lower than $1, which is $1.00, it will appear lower because it is literally lower, but in reality, it will cause a psychological impact into our brains that it is a great discount or there are big savings even though the real difference is only down by a few pennies, and $1.00 will be perceived as a lot higher despite its real value.
Why does this happen?
As I have said, there is this natural tendency of how we look at numbers, the “left-digit effect” as well as the new digit when rounded up. However, there is another factor that contributes to the result of charm prices, namely our “memory processing time”, you see, both of the factors are directly related to our thinking, which proves it involves psychology in whether to or not to purchase a particular product.
The two factors are:
#1) Left-digit effect
#2) Memory processing time
So what has memory processing time got to with a consumer’s decision-making? When we start thinking whether a particular price is reasonable or not, it is obvious that we can still see the cents on the right despite the left-digit effect, so in order to maintain that “it-looks-cheap” appearance to our goods, marketing experts have come up with a solution if used it can maximize conversion rates and increase sales up to 9-24%, of course, along with the original concept.
That is by printing the cents out in a smaller size than the other units, and this has been test-proven and it works, in fact, places such as Australia has already utilized this technique and ever since, the amount of sales were never lower. Reason:
Physical magnitude is related to numerical magnitude.
Nonetheless, no matter what type of psychological pricing strategies you use, it definitely won’t skyrocket your sales but improve your rates up to a maximum of 1/3 of your original results. Using psychology works, why? Because it’s the nature of human thinking, and psychology never lies.