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Does $279 seem much cheaper than $299?

For business applications, I've heard that one pricing point is $300 because that is a typical amount that many can spend without getting a signature from someone.  So, given that they [typically] won't be spending their own money, do you think I'd just be "throwing away" those extra $20 if I price at $279 rather than $299?  Or do you think that $279 would look *much* less expensive to them mentally, thus causing more sales?

Edward
Friday, April 23, 2004

I think most people know that $279 is less than $299. So there you go.

Jack in Yankee's stadium
Friday, April 23, 2004

Very inciteful comment :-/

Edward
Friday, April 23, 2004

Better way to ask:

Answer quickly without calculating:

How much do you think you'll save on a $299 product if it's on sale for $279?

Less than 5%
5%
10%
20%
More than 20%

Yes, $279, in my head, gets approximated ('remembered" or "encoded" ) as "less than $300, or abit more than $250" wheras $299 gets rounded up to $300.

Mr. Analogy
Friday, April 23, 2004

No problem bro.

Jack in Yankee's stadium
Friday, April 23, 2004

I round them both up to $300

TickTock
Friday, April 23, 2004

My theory (I do marketing in addition to programming) is that math-challenged people (that's most people) have a difficult time with a number like $279.


Give 'em a nice round number and they're fine. Give them $279 and they might approximate it to $280, but even that is too "complicated" for the math-challenged, so they might then approximate that as "more than $250" or "less than $300" as above.

But, give 'em $299, and even they are smart enough to know that's really $300 (practically speaking).


it's like settign your price at 2.79E2.  It (somewhat) effectively "hides" the price.

Mr. Analogy
Friday, April 23, 2004

Don't forget sales tax.  Both those values are over $300.00 where I live.

whatever
Friday, April 23, 2004

My wife always rounds down.  If something costs $29.95, she will say it costs $29.  If it costs $279 she will probably say it costs $270.  If it costs $33,697.23 she will probably say it costs $33,000.

On the other hand I always round up.  This has been know to result in some... discussions.

But it doesn't really answer the question.

RH
Friday, April 23, 2004

Employees who have authorization to buy "small" things really don't care about saving every dollar (if anything at all), so nobody is going to say $299 is too expensive but $279 is ok.  But like you point out, $300 may be a cutoff for certain expenditures so that's a decent point to stay under. Price it at $299.

Ron
Friday, April 23, 2004

"My wife always rounds down.  If something costs $29.95, she will say it costs $29.  If it costs $279 she will probably say it costs $270. "

Interesting. My wife does the same thing, though only for things that she wants. Her round-down scale tends to be much higher as well ($29.95 becomes "$20" :-)). I round up. Actually, now that I think about it I round down (and ignore taxes, shipping, etc) whatever I want as well...

DF
Friday, April 23, 2004

Maybe I'm alone in this, but I always find prices ending in 9 (or .99, or for gasoline .999) to be mildly insulting - like the marketeers expect me to be fooled into making my purchase decision based on the rounded-down number.  (I'm definitely in the mentally-round-everything-up camp).

By the same token, I find whole-number prices (e.g. $280 vs. $300 for this discussion) just *feel* more intellectually honest, somehow, and I usually have a corresponding automatic  favorable impression of the item or merchant.

But that's just me...

- former car owner in Queens
Friday, April 23, 2004

By the way dude -- what happened to your car?


Friday, April 23, 2004

I got sick of buying gas at $xx9.999.

- former car owner in Queens
Friday, April 23, 2004

I differentiate between $149 and $199, but after $200 I really only think in increments of $100.  So $279 and $299 look the same to me on a decision-making basis.

Also, my wife rounds down too when sdhe wants to justify a purchase to me. When I want to justify a purchase to her, I just mumble.

yet another anon
Friday, April 23, 2004

Funny you mention. Here in Ontario the gas retailers have been playing a little waltz where they all jack their prices up to 79.9 cents / L, and then they slowly drop, hitting about 64 cents/L by about Wednesday, and on Thursday they're backup to 79.9 cents. It's absolutely absurd.

Dennis Forbes
Friday, April 23, 2004

Why is there such a big price difference between Ontario and Quebec?

pdq
Friday, April 23, 2004

Actually $299 appeals more to me then $279. I guess with $299 I just think '$300', but with $279 it is not really $300, so I just have to keep saying $279. ie I have to think.

If you said $260 or $270, I would *feel* better about it then $299, but if you said $280, or $290, then I would still *feel* better about $299.

Of course this is just how I *feel*.

I think there are soe good studies about all of this.

Aussie Chick
Friday, April 23, 2004

Well just put it as $299 with a $20 rebate and make sure to put conditions like "rebate form needs to be signed in triplicate with blood". You get all the advantages of the $279 price with none of the cost. Seems to be how business pricing is done nowadays :-)

Code Monkey
Friday, April 23, 2004

Former car owner, I agree, yet I still find myself thinking of $29,999 as "twenty thousandish" - it takes mental effort to make it "thirty thousand."

I have to believe that our brains are wired to look at a string of numbers as the first number, number of places, and "and a little more." While there are exceptions, in general millions of marketeers don't do stuff that doesn't work.

Philo

Philo
Friday, April 23, 2004

Actually, the price you want is $297.

Many, many split test comparisons have shown that numbers ending in 7 perform better than other numbers, and also that people don't differentiate much between "barely under $300" and "a little under $300"

In other words, the next logical price break is $250, so anything between $251 and $299 is going to have nearly the same conversion ratio- except, as I said, numbers ending in 7.

Pro Marketer
Friday, April 23, 2004

I read somewhere (it could very well have been on this site), that goods <= $199 are an impluse buy.  Its cheap enough that I just might grab it.

If you ascribe to the above notion, then $279 OR $299 are both in 'decision making' territory and not in the 'honey, look what I bought' price bracket.

Something to think about, perhaps.

Canuck
Friday, April 23, 2004

Thanks everyone for the insight... this is turning out to be a great thread so far!

Mr. Anagoly:
Just to clarify, you're suggesting that using a price that is hard for the math-challenged people to deal with is a good thing, right?  Since it is hard for them to "do the math," they're fine with approximating, and therefore $279 becomes "a little more than $250" etc.  Could there be any cases where "making them think" is a bad thing?  Maybe they just don't want to "figure it out" and just purchase something with a nice round, even, price?

Aussie Chick:
Do you have any sources to any of those studies you mention?

Philo:
Good point!  I find myself struggling with the same issue at times.  Why do you think we have these struggles?

Pro Marketer:
Very interesting.  So basically you'd agree with my original statement that I'd be "throwing away $20" on each order if I price at $279 since not many differentiate much between the two.  Correct?  Of course the point you bring up about ending with 7 sounds interesting in and of itself.  I'd like to read more about that if you have any sources to point out that'd be great and much appreciated.

Canuk:
Do you think impulse buys are important for business software?  My guess is that they could be, but I wonder if you've got another opinion?

All:
Also, the question of sales tax was brought up (and shipping would probably apply as well).  Do you think most business policies account for this?  What I mean is, will $299 purchases likely need a signature because after tax/shipping it will pierce the threshold?  Or will most places allow purchases as long as the "purchase price" is below the threshold?  I'm only asking because I've never needed this type of approval before.  What are your policies, or the policies for where you work?

Another point, do you think that "rounding" stuff goes on for business purchases?  Especially where they aren't likely to be spending their own money anyway?

Edward
Saturday, April 24, 2004

Gas retailers put their prices up on Thursday then reduce them through the week because many people get paid Thursday or Friday, and that's when they buy their petrol. People also buy petrol before or for the weekend.

So retailers adjust their pricing to maximise their revenue.

It's the same with airlines, who use complex software to reserve a certain number of seats for late buyers. Those late buyers pay two, three or more times the price that other travellers pay, because if they need to travel soon, it's probably important enough that they will pay extra.

What I know
Saturday, April 24, 2004

RE: Do you think impulse buys are important for business software?

Interestingly enough, I can give you two perspectives on this.

Firstly, I own a small software company that does consulting work.  After evaluating tons of products, $199 always seems like a steal to me.  I wouldn' t hesitate for a second to purchase at this price point if the product suited my needs. 

Now, anything above $500 usually merits some consideration.  More often than not, I don't buy.  Since the company is so small, Excel handles about 90% of the things we need to do.  The odd Access database to cover the rest.

So, in my eyes as a small business owner, your $279 price point is a grey area.

Now for the flip side ...

I have consulted with a product group in a large (30 000+ employee) company for several years now.  I am often tasked with sourcing software for the group for a variety of things.  In this organization, $1000 is the magic number.  Not because of the 'sign off' factor, but because at this price, the accounting department classifies the purchase as an 'asset' vs. 'expense'.  For reasons unknown to me (although I can fathom a guess or two), purhcases over $1000 cause massive mounds of paper work and signatures.  Needless to say, the $279 vs $299 wouldn't make much a difference to this group.

Ultimately, the point I am illustrating is that pricing is target market specific.  You have to know who you are selling your product to.

On that note, what is your product and who are you selling to?

Canuck
Saturday, April 24, 2004

I read somewhere that based on a lab study, there is a bigger chance that people buy stuff where the price tag contains a 7. so maybe $279 is more than $299 in the long run.


Sunday, April 25, 2004

There is a bit of a "magic number" effect in prices (sevens versus nines, rounding down, etc,) but the strength of the effect is generally very small.

Remember, 95% of people buy products for benefits to themselves (i.e. because it helps them do something they need to do.) The other 5% buy for "new" features.

In a corporate environment, where people aren't spending their own money and +/- $20 is "rounding error," magic number effects are going to have at best marginal influence in the decision process.

Oh, and the reason why capital puchases involve so much more paperwork is usually because (a) tracking depreciation or ammortization over multiple years is more difficult than writing off expenses in a single year, and (b) changes in capital affect some financial planning models that are insensitive to changes in expenses.

Programmer Turned MBA
Sunday, April 25, 2004

Can't remember where I read it but it seems prices ending in 9 empahsise "price" whereas prices ending in 7 emphasize "quality".

Just me (Sir to you)
Monday, April 26, 2004

One of the things that always amuses me when dealing with americans is the fact that they will always buy something that is more expensive on the belief that they believe its better.

This means that we foreigners are in general charging you more than you should be paying simply because we know you are more likely to buy it.

This is especially so for corporate software. :)

If I have a piece of software that I can retail in my country for $50, you can bet your bottom dollar that I will stick it on the shelf in the US for $199 or even $299, since I know that it wont sell if I sell it for its real price.

Andy Watson
Monday, April 26, 2004

Pricing isn't always about seeming like the best value for the money.  When you buy groceries, it is, but when you buy things like software, pricing often serves to establish the *perceived value*. 

Also, the "ending in 7" rule isn't "it makes people want to buy".  If it a price ends in 7 it appears *inexpensive*.  Prices at the deli end in 7.  Prices in the expensive restaurant are all whole numbers (with no dollar sign) in order to seem more expensive (and therefore higher perceived value). 

Sometimes it's more profitable to price higher, sometimes lower.  It's just helpful to know what pricing strategy does what.  As Canuck said, it's mostly about knowing your target audience. 

eaw
Monday, April 26, 2004

RH - get her to loan you money, then see which way she rounds the debt.


Tuesday, April 27, 2004

"If I have a piece of software that I can retail in my country for $50, you can bet your bottom dollar that I will stick it on the shelf in the US for $199 or even $299, since I know that it wont sell if I sell it for its real price."

Maybe people in your country are just dirt poor.

Jim Rankin
Tuesday, April 27, 2004

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