Let’s say you want to move some stock quickly. How do you let your buyer know that you are open to negotiating? According to some recent research, it could be as easy rounding your price.
One of the key decisions we have to make in business is how we should price our goods and services. Not only do we need to come up with a price point that we think the market will accept, we have to work out how to display the price.
Should we use decimals? Commas? Dollar signs? How big should the typeface be? What typeface should we use? What colour? Should the number be rounded or not?
As with most things, the devil is in the detail and sadly too many businesses are still relying on guesswork and intuition rather than science.
So here’s a bit of what the science tells us.
Imagine you are an impatient seller listing on eBay. You are less interested in maximising the sales price and more interested in getting the stock sold, so how can you signal your eagerness to sell? Are you better to list your price as $200 or $198? A rounded number or a precise number?
According to a recent study which analysed over 10.5 million eBay “Best Offer” listings, rounded number listings:
However,
They also found that sellers who listed a rounded number made less-aggressive counter offers and were more likely to settle with their buyer whereas those who used precise numbers tended to stick to their guns and bargain more aggressively. In other words, it seemed the sellers using rounded numbers were much more ready to do a deal.
The researchers also analysed sales data from the real estate market and similarly found “round numbers are correlated with lower sale prices [which] suggests that round-number signaling is more a general feature of real-world bargaining”.
This led the researchers to conclude that round numbers act as a signal to the buyer the seller is looking to get the deal done. In their words, a “cheap-talk” signal.
You can take from this latest research that a rounded price in the context of a negotiation sends your buyer the subconscious message that you are keen to sell.
But that is not your only consideration when it comes to pricing.
For instance, whether to use rounded or precise numbers may depend on the type of product or service you sell.
Researchers investigating the impact of rounding found that for hedonic purchases (those that make you feel good like holidays and wine), rounded pricing (e.g. $40.00) did the better job of increasing purchase intent. For things that are utilitarian (insurance, buying a camera) however, non-rounded (e.g. $39.95) was more effective.
Other researchers have delved into how people process numbers, and whether this is impacted by elements like decimals and commas. Sure enough they found the inclusion of commas (e.g. $1,599 vs $1599) or cents (e.g. $1599.85 vs $1599) led people to perceive the number to be bigger. Why? It seems we spell the number out in our heads and equate more syllables with numerical magnitude.
And yet more research has found that the size of the typeface you use in your pricing can impact how it is perceived, concluding that if you want people to think the price is low, use a smaller print.
Devil in the detail indeed. If you would like to know more about how to represent your pricing based on what the science tells us then just get in touch.
Bri Williams runs People Patterns, a consultancy specialising in the application of behavioural economics to everyday business issues.
Bri Williams is an authority on behavioural economics applied to everyday business and personal effectiveness.
