0 or 9 Pricing Endings: What Sellers Are Secretly Trying to Tell You
A reader recently wrote in requesting more blogs on the role of psychology in pricing. Always happy to oblige, I thought I’d share a few recent experiences I’ve had with psychology and pricing.
Sandra Naipaul and H.G. Parsa wrote an insightful article titled “Menu Endings That Communicate Value and Quality” (Cornell Hotel Restaurant and Restaurant Administration Quarterly, February 1, 2001). Their research found that consumers tend to associate prices ending with a “0” as indicative of quality and those ending in a “9” as reflecting good value. And what’s interesting is that we see these price ending associations in practice. For example, uber chef Wolfgang Puck ends all of the prices at his famous Beverly Hills Spago menu in “0.” Conversely, The Ninety Nine chain of family restaurants is known for serving “great good and great drink at a terrific price.”
What I find interesting is the seller’s perspective when they offer a line of prices, some ending in 0’s and others in 9’s. For example, a few years ago I helped my good friend Pete Cucchiara price the barbecue entrees for his restaurant, Uncle Pete’s Hickory Ribs. Pete uses a “secret” three day process involving hickory, oak, and apple wood smoke to make his famous ribs. He is a big believer in offering his customers great value – virtually all of his menu prices end in a “9” or a “5.” After years of my encouragement, Pete finally offered a “chef’s table” product, baby back ribs. While I was surprised that he priced these ribs at $24 (probably the most expensive ribs in America at that time) – I was most intrigued that he ended the price in a “0,” not his usual “9” or “5.” Sharing his thinking, Pete revealed that he wanted his baby back ribs price “to show confidence” and that he wanted “people to realize they are getting an outstanding product.” It’s amazing that a “0” price ending can convey such a message, don’t you think? By the way, Fortune Small Business wrote a nice article that featured Pete’s baby back ribs.
Pete’s “0” ending sentiments recently came up in a similar situation. I was helping a manufacturer set wholesale prices for their everyday hardware products. As part of the pricing process, we recommended to retailers what we thought the retail price should be. For virtually every retailer, my client had recommended a retail price ending in a “9.” However, for a premium product they were offering exclusively to a warehouse club, my client recommended a price ending in a “0.” Curious about why this warehouse club price ended in a “0,” the marketing director proudly claimed, “This is our premium product” with a confident smile.
So while researchers tend to focus on how consumers react to the price ending number, my point is that the number a price ends in may actually reflect the retailer’s sentiments about their product.
