Anyone who has browsed through online or physical stores has noticed that retailers have a propensity for slapping price tags that end with .99 on their products. This method has been a common practice in commerce for decades, and according to consumer behavior experts, ending product prices with .99 helps to sell more goods as consumers tend to resonate with the first digit of a price.
Consequently, consumers are more likely to purchase a product worth $9.99 over a $10.00 product even though both products essentially cost the same.
With e-commerce constantly growing and evolving as millions of retailers fight to attract the most consumer attention, psychological tricks such as the $.99 pricing strategy are becoming crucial to maximizing revenue and outperforming fellow e-commerce retailers.
Physical retailers have had great success with this strategy for years, relying on the way our brains process product prices to make us think we are spending less in our shopping. But with commerce increasingly moving to virtual spaces and consumer behaviors changing, some e-commerce players wonder whether the $.99 pricing strategy will be as effective in virtual retail.
Turns out, whether consumers are looking at prices in person or online, the leftmost digit significantly affects their price perception. While a $9.99 product and a $10.00 practically cost the same, the $9.99 product seems much cheaper to and appeals to our cost-savings side.
Subimal Chatterjee, Binghamton University School of Management Distinguished Teaching Professor of Marketing, explains that pricing a product at $9.99 makes customers associate it with the $9–$9.99 range instead of the $10–$10.99 range.
However, online shoppers tend to be more price sensitive and informed than physical shoppers. The availability of countless other online retailers makes it extremely easy for virtual shoppers to compare prices across different platforms before they make a purchase. In this context, the old-school $9.99 pricing strategy may not be as effective at convincing consumers to buy certain products.
Charm pricing has also become less impactful on consumers due to the proliferation of microtransactions and subscription models such as Amazon Prime in e-commerce. Some experts say the $.99 pricing strategy is steadily losing its effectiveness and advise virtual retailers to use data analytics to figure out the most optimal strategies for product pricing.
The strategy may also be less effective for premium or luxury brands because it may detract from the image of exclusivity, but it can help push value-focused brands because they tend to attract more frugal customers who want more value for their money.
Moving forward, e-commerce companies should consider context before deploying the $.99 pricing strategy.
The strategy may have lost a lot of its effectiveness now that trade is shifting to the digital space, but virtual retailers can leverage data analytics and constant adaptation to determine when the strategy will be most effective.
E-commerce platforms such as NextPlat Corp. (NASDAQ: NXPL) (NASDAQ: NXPLW) with a presence in countries around the world probably leverage AI systems to price products optimally for maximum appeal to customers, especially customers looking to buy healthcare products.
NOTE TO INVESTORS: The latest news and updates relating to NextPlat Corp. (NASDAQ: NXPL) are available in the company’s newsroom at https://ibn.fm/NXPL
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