The End Of The 99¢ Effect?

Andrew Sullivan —  Apr 4 2011 @ 5:32pm

Leigh Caldwell's new research finds that "prices such as £1.99, £5.99 or £9.99" no longer boost sales. Update: Caldwell's post was an economic April Fools' joke. The money quote from his wry post:

1. Prices ending in .99 no longer have any advantage in consumer value perception, and do not lead to higher sales.

2. The optimal penny value varies by country. In the United States, it is .01. So, instead of $3.99, companies should charge $4.01. In European countries, the optimal price point is different for different product categories, but there is a peak at .04 for many products. So, British or European retailers currently charging, say, £0.99 should increase the price to £1.04.

3. By switching in this way to a “dollar-plus” price instead of “dollar-minus”, retailers can increase sales volume by an average of 8% and increase profit margins by 1-3% (depending on the exact price point).

4. Consumers, when presented with the new price point, report an increased level of trust and affinity with the brands of the retailer and manufacturer. We believe this arises from the “honesty signal” that comes from abandoning a discredited and manipulative sales practice. 

(Hat tip: Niklas Blanchard)