Your favourite t-shirt, priced at just Rs. 299! Wow! That sounds like such a cool deal… But what if the MRP is just Rs. 300? Doesn’t sound so good when you rethink now, right? Is this the magic of number ‘9’? Nope! This is actually a really interesting pricing related marketing strategy which brands follow and that helps in increasing their sales significantly. Especially when the brands offered discounts, I was left intrigued why did they always stick to their prices ending with the number 9 or something just below the next whole number. Then I wondered what’s this magical concept? Lo and behold, it’s charm pricing! Now that’s a charming name and you would be left surprised by how much science goes behind this seemingly simple business concept. Let’s dive in!
P.S.: This one is written from both a perspective of a business and a consumer because from whatever I have learnt I believe thinking like a consumer is the key for a successful business!
What is Charm Pricing?
Sometimes the answer is in the question itself! Charm pricing is all about a marketing strategy where the price is set in such a way that the consumer is charmed and attracted by it. They feel they are getting a good deal and that pushes them to make the buying decision.
In most situations the prices end just below the round number i.e. by either the number 9 or 5 or sometimes even decimal places. Example time! Imagine you went to buy a coffee mug and there you find the prices like Rs. 399, Rs. 399.95 etc. then these are all under the category of charm pricing. Why? Because you would prefer both these over a mug that’s priced Rs. 400. Even though technically the difference is negligible, still these prices create a psychological effect of more satisfaction.
Why Do Consumers Get Influenced by Charm Pricing?
Now am sure just like me you must be wondering why do consumers get influenced by charm prices? As a consumer, I went through my shopping history on one of the popular clothing e-commerce websites and I was so surprised to see that the majority of my purchases had this influence of magical number 9! They were all 499, 799, 1099 and even 2499. Strange, but not really!
P.S.: When I delved more into this mystery, I came across this fantastic term, ‘left digit bias’ too. Keep reading to know all the reasons!
1. Psychological Effect
Another name for charm pricing is ‘psychological pricing’. Mainly the idea is that even though there’s a minor difference, consumers feel they are getting a better deal. Psychologically it feels the pricing is better.
2. Left Digit Bias
Now this one is super interesting. While checking the price we get biased towards the leftmost digit (Is it because we start reading from left to right?). That’s why Rs. 299 feels better than Rs. 300. The difference is negligible but the former seems a better deal. Only because we pay more attention to the leftmost digit, it leads to a bias. Woah! That’s one interesting theory.
3. Rounding Mental Calculation
Imagine you went to buy some groceries and are calculating how much it will cost. If you notice a price Rs. 59.99, major chances are you might round it off to Rs. 59 instead of 60. This too happens majorly due to left digit bias.
4. Psychology of Choice
Don’t worry it’s not a full class on complex psychology theories, rather this one is a simple point that decision making often gets influenced by minor differences.
5. Deals Help Initiate Purchase
As consumers we all love good discounts and deals! That’s why this concept of charm pricing works like a charm when it comes to encouraging the consumers to go for that buying decision. Especially when a brand is offering a huge discount, setting a charm pricing is a better idea. Example, if a packet of chips has an MRP of say Rs. 60 and instead the brand wants to sell it at a 50% discount, they may notice a better sale if they price it at Rs. 29.99 rather than Rs. 30.
A Sneak Peak on What Data Says About Charm Pricing
Many studies and researches have been conducted around psychological pricing strategies that attract consumers. There’s a book titled ‘Priceless: The Myth of Fair Value’ which too says that instead of round prices when businesses stuck to charm pricing, they found better sales by upto 24%.
There are other researches too but they are more focused on how emotional buyers or rational buyers react to different types of pricing models.
What Makes Charm Pricing Strategy Effective?
Now we do know why consumers get influenced by charm pricing but what makes this so effective? There are a few more reasons here.
1. Specificity
People love too specific things and charm pricing makes things very specific thus it instantly connects. When you notice something priced as specific as Rs. 599.99, the exact price written specifically attracts you as a consumer.
2. Perceived Gain Feels Higher
Unless a brand is offering a discount, the charm pricing creates the illusion that more money is saved. If an MRP is kept at Rs. 499 instead of Rs. 500, it often attracts more. Even though in this case there is no discount it still gives that effect.
3. Gives an Edge Over Competitors
Suppose there are two more competitors selling similar printed t-shirts as your brand, now you keep the price as Rs. 499 when both your rivals have priced their t-shirts as Rs. 500. Just a difference of Re. 1 gives you better chances of consumers being more attracted to go for your brand’s t-shirts.
4. Bargain Driven Buyers Love It
We love to bargain as consumers. Be it buying vegetables or even clothes, if possible we don’t hesitate in bargaining to the wits end (though the shopping malls and ecommerce culture has made this quite rare now!). The consumers who look for best deals and bargains are often affected by charm pricing.
5. Helps When There is an Increase in Price on Cards
Businesses face the biggest challenge when they increase prices of their product or services but charm pricing helps mitigate potential loss of demand as the difference of say Rs. 9 or 99 feels lesser than a rise of Rs. 10 or Rs. 100.
When Does Charm Pricing Fail?
Oh yes, this is not that one pricing strategy that always works! In fact, there are certain situations where charm pricing can actually lead to a loss of sales for a business.
Where does charm pricing not apply? In the case of luxury products and services! Basically for higher priced items people perceive and associate it with prestige and that’s why the effect of ‘prestige pricing’ works here (Is it the same as Skimming Pricing Strategy?). Completely opposite to charm pricing, prestige pricing means the prices are deliberately set high because the buyer associates it with a supreme product and a higher quality. Round prices give more sense of exclusivity and quality for the consumer. In fact setting a lower price for these products can lead to a decline in sales! Charm pricing generally works for things with lower average revenue per user (ARPU).
Understanding customer emotions and identifying who is your customer is the key here.
Woah! The more I am reading and learning about different pricing strategies, the more I am falling in love with these really interesting marketing theories. Who knew there is so much more behind the mystery of the number 9 in pricing aka the charm pricing?
As a consumer do you feel that charm pricing is a bad thing or a good thing? What are your thoughts?