Charm pricing is an anchoring bias that uses an odd number – usually nine – to show buyers perceived value and persuade them to buy.
For example, at Bata, for a product, the price that ends in Rs 19.95 instead of a whole number Rs 20!
Another type of Charm Pricing is Price lining.
Multiple versions of the same product/service are offered at different prices – budget (lowest), standard (mid-priced), and premium (expensive) options. Each has added features and benefits. Pricing is designed to attract upscale buyers, giving them a choice between a better product and a better deal.
Why charm pricing works
Hypotheses on why charm pricing works
The consumer ignores the least significant numbers instead of rounding them up correctly. Although paise are visible and not completely ignored, they are unconsciously partially neglected and could be amplified if paise are printed smaller.
And evidence suggests that despite its use, charm pricing still works. In a 2003 study conducted by researchers from the University of Chicago and the Massachusetts Institute of Technology, 3 different test groups received different prices for 4 different apparel. All control groups had prices ending at 9, and the researchers tested whether the price of the dress at $5 or less influenced purchase rates.
Researchers found that the product with a price of 9 was better than the others even though the prices of others were lower. So a $39 price tag resulted in more sales of the dress than a lower price of $34!
Charm pricing is a very important tool in pricing. They draw attention to your product and can induce the shoppers who are reluctant to purchase now.
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