The Psychological Difference Between $12.00 and $11.67

Bourree Lam for the Atlantic:

When something costs $100, consumers tend to rely on their feelings, whereas when something has an irregular price—such as $98.67—consumers have to use reason to compute whether it’s a good price.

Monica Wadhwa and Kuangjie Zhang, assistant professors of marketing at INSEAD and at Nanyang Business School respectively, conducted five experiments to test this. They found that the prices of different types are evaluated in different ways. For example, products that are recreational or luxurious benefit from rounded prices: Consumers were more inclined to buy a bottle of champagne when it was priced at $40.00 rather than at $39.72 or $40.28. However, for purchases that are utilitarian—a calculator, in this experiment—participants were more likely to buy at the higher non-rounded price. In another experiment, participants were told that a camera was purchased for leisure (a family vacation) or for a class project. They preferred rounded prices when it was for vacation, and non-rounded prices for class projects.

Interesting insight.

Here’s a thought, too: how much does this difference in behaviors affect publishers that are selling in the App store, considering that apps can only sell at predefined (in USD, but not in other currencies) .99 price points?