Fact or fable: The pricing power of 9
This episode might reference ProfitWell and ProfitWell Recur, which following the acquisition by Paddle is now Paddle Studios. Some information may be out of date.
Originally published: January 29, 2018
On this episode of the ProfitWell Report, Ria Lao, Founder and CEO at GroupStar, has a fascinating question that you've probably thought of at some point: Should you end your subscription price in 9?
One of these tricks is to end your prices in 9 rather than a 0 or a 5. It’s a tactic used in retail products and environments, so it stands to reason that it may work in the subscription and SaaS worlds.
So to answer this week’s question, we designed a pricing experiment with just over ten thousand potential buyers.
But first, if you like this kind of content and want to learn more, subscribe to get in the know when we release new episodes.
The theory behind ending your prices in a 9 actually stems from a J.C. Penney study that was done in the early 1900s in their stores.
They determined that when someone saw a price that ended in 7, 8, or 9 there seemed to be a feeling that they were getting a deal and this created a level of urgency that then pushed them to buy.
As the research expanded over the years, economists essentially found that if you wanted to be perceived as a luxury good you ended your prices in 5 or 0 and if you were more of a discount good or wanted to be perceived as a deal, you’d end your prices in a 7, 8, or 9.
Walk into any luxury jewelry store and you’ll see all fives and zeros. Luxury discount companies like Gilt Groupe will also show all before prices with fives and zeros, and all after prices in "7"s, "8"s, or "9"s.
In software, data indicates that ending your prices in 9s does help some sectors of the market, so we designed an experiment where we measured qualified conversion of the same product when the prices ended in 0 and then compared to the same product when the price was simply ending in 9.
What you’ll notice in the data is that conversion tends to be 15 to 20% higher for lower ARPU products, those that are selling for less than $200 per month in particular.
As you get over that dollar amount this conversion power starts to diminish and basically trends to 0 with some natural variation, especially when you get into products over five thousand dollars per month.
So you should probably just end your prices in "9"s if you’re lower ARPU right? Well, not exactly. The problem comes into play when you’re looking at conversion.
We didn’t have a ton of data on this, because not a lot of companies have tested this tactic, but when comparing customers who converted with a 0 based price versus those with a "9"s based price, you’ll notice that the "0"s have roughly 10% better net retention than those who converted with a 9 based price.
Why is this happening? Well, keep in mind that the individuals converting from a 9 based price are feeling like they’re getting a discount, and long time viewers of the show know that discounted customers tend not to be the best customers for lifetime value and retention.
When you’re doing a 9 based price in a retail product, you don’t necessarily care as much about the repeat purchase, because you’re just trying to spur that one time purchase. It’s not like they’re buying that coat as a subscription.
So what should you do? Well, this is something you need to test in your business individually unfortunately. There isn’t a very clear heuristic, but keep in mind that if your monetization strategy is terrible, this type of tactic is not going to save you at all.
Check out our Paddle Studios video about ending prices in 9s.
Want to learn more? Check out our recent episode: Including "Blockchain" in Marketing Copy Powers Willingness to Pay and subscribe to the show to get new episodes.
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You've got the questions,
and we have the data.
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This is the ProfitWell Report.
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Hey, Neil. This is
Ria, CEO of GroupStar.
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I wanna know, should you end your
subscription prices in nines?
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What's up, everyone? Neil here
for the ProfitWell Report.
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When it comes to monetization,
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there's an importance of getting
your central strategy right.
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And then once that's done or
even directionally correct,
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there are a whole myriad of
tactics you can use in order to
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boost conversion.
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One of these tricks is to end
your prices in nines rather
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than a zero or a five.
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00:00:33,930 --> 00:00:36,490
It's a tactic used in retail
products and environments,
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so it stands to reason that it may work
in the subscription and SaaS worlds.
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00:00:40,250 --> 00:00:41,770
So to answer this
week's question,
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00:00:41,770 --> 00:00:44,225
we designed a pricing
experiment with just over ten
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thousand potential buyers.
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Here's what we found.
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The theory behind ending your
prices in a nine actually stems
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from a JCPenney study that
was done in the early nineteen
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00:00:53,340 --> 00:00:55,160
hundreds in their stores.
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They determined that when
someone saw a price that ended
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in a seven, eight, or nine,
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00:00:59,015 --> 00:01:01,495
there seemed to be a feeling
that they were getting a deal,
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or this created a level of
urgency that pushed them to buy.
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00:01:04,615 --> 00:01:06,455
As the research
expanded over the years,
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economists essentially found
that if you wanted to be
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perceived as a luxury good,
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you end your prices
in a five or a zero.
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And if you were more of a
discount good and you wanted to
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00:01:15,875 --> 00:01:19,555
be perceived as a deal, you'd end your
prices in a seven, eight, or nine.
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Walk into any luxury
jewelry store,
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and you'll see all
fives and zeros.
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Luxury discount companies
like Guild Group will show all
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before prices in fives and
zeros and all after prices in
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seven, eight, or nines.
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In software, data indicates that ending
your prices in nine does help some
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00:01:35,675 --> 00:01:36,715
sectors of the market.
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00:01:36,715 --> 00:01:39,115
We designed an experiment
where we measured qualified
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conversion of the same product
when the price had ended in
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zero and then compared to the
same product when the price was
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simply ending in nine.
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What you'll notice in the data
is that the conversion tends to
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00:01:48,840 --> 00:01:52,355
be fifteen to twenty percent
higher for lower ARPU products,
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those that are selling for less
than two hundred dollars per
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month in particular.
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As you get over
that dollar amount,
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this conversion power power
starts to diminish and
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basically turns to zero
with some natural variation,
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especially when you get into
products over five thousand
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dollars per month.
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So should you probably just end your
prices in nines if you're lower ARPU?
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Well, not exactly.
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The problem comes into play when
you're looking at conversion.
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We didn't have a ton of data
on this because not a lot of
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companies have actually
tested this tactic.
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But when comparing customers
who converted with the zero
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based price versus those
with a nine base price,
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you'll notice that zeros have
roughly ten percent better net
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retention than those who
converted with a nine base price.
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Why is this happening?
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Well, keep in mind that individuals
converting from a nine base
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price are feeling like
they're getting a discount,
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and long time viewers of the
show know that discounted
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customers tend not to be the
best customers for lifetime
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value and retention.
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When you're doing a nine based
price in a retail product,
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you don't necessarily care as
much about that repeat purchase
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00:02:48,905 --> 00:02:51,930
because you're just trying to
spur that one time purchase.
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It's not like they're buying
that coat as a subscription.
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So what should you do?
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00:02:56,570 --> 00:02:59,865
Well, this is something you're gonna need
to test in your business individually.
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00:02:59,865 --> 00:03:01,625
There isn't a very
clear heuristic,
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00:03:01,625 --> 00:03:04,665
but keep in mind that if
your monetization strategy is
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terrible, this type of tactic is
not gonna save you at all.
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Well, that's all for now.
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If you have a question,
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send me an email or video
to neil at profit well dot com.
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And if you got value here or
any other week of the report,
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we appreciate any and all
shares on Twitter and LinkedIn
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because that's how we
know to keep going.
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I will see you next week.
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