Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a $19.99 Price Became Twenty Dollars
Transcript
- Lucas: So there's this moment every pricing person knows — you set a price at $19.99, and the customer reads it as 'nineteen something'. But if you set it at $20 exactly, they read it as 'twenty dollars'. That one cent difference is worth about a 4 to 6 percent lift in conversion, depending on the category. But here's the thing — it doesn't work everywhere. Luna: Right, because if it worked universally, every single product would end in.99. And clearly that's not what we see. Lucas: Exactly. So today I want to look at a specific study — MIT and a couple of behavioral economists ran a field experiment in 2025 across 4,000 real online transactions for a women's apparel brand. They tested three price endings:.00,.99, and.95. And the results were not what a lot of marketers assume. Luna: Okay, I'm curious — I've always heard.99 is the gold standard. What did they find? Lucas: Well, for items under $50,.99 outperformed.00 by about 5.3 percent in conversion. But for items over $100, the.00 ending actually did better — by about 2.1 percent. And.95 was a middle ground, slightly worse than.99 on cheap items, slightly better on expensive ones. Luna: So the left-digit anchoring — where the brain drops the last two digits and focuses on the first one — that only works when the left digit actually changes. Going from $19.99 to $20.00 changes the left digit from 1 to 2. But going from $99.99 to $100.00, the left digit goes from 9 to 10, which is less intuitive. Lucas: That's exactly the mechanism. The researchers called it 'left-digit truncation' — your brain processes the first digit and then approximates the rest. So $19.99 becomes 'nineteen-ish', which feels closer to $19 than to $20. But $199.99 feels closer to $200 than to $190, because the first two digits change from 19 to 20. So the anchoring effect diminishes as the price goes up. Luna: And I imagine for luxury goods, a.99 ending might actually hurt the brand perception. You don't see a Rolex priced at $9,999.99. They'd round to $10,000. Lucas: That's a great point. The study also measured something called 'quality inference'. When participants saw a.99 price on a high-end product, they rated the product quality lower by about 12 percent on a scale. So the.99 ending signals discount, bargain, maybe even cheap. If you're selling prestige, you want the round number. Luna: So the recommendation would be: use.99 for products under $50, maybe up to $100, but above that, go with.00 — and if you're a luxury brand, never touch.99. Lucas: That's a solid rule of thumb, but there's another twist. The MIT team also tested odd endings like.37 or.72 — completely arbitrary numbers. And those actually performed better than.00 on high-price items in one specific condition: when the product was highly standardized, like a basic white t-shirt. The researchers think it's because an arbitrary price signals that the seller has done precise cost-based pricing, not just emotional pricing. Luna: Fascinating. So sometimes a weird price is actually a trust signal. Lucas: Right. And that ties back to something we've talked about before — price anchoring isn't just about the left digit. It's about what the price communicates about the seller's intention. A.99 says 'I want you to think this is a deal'. A.00 says 'this is the value'. A.47 says 'I calculated this down to the penny'. Luna: You know, it reminds me of something that happened in my own shopping recently. I was looking at a subscription software tool — $49 per month versus $588 per year. The annual price ended in a nice round number, but the monthly ended in.99. I went annual, partly because the per-month cost felt lower, but also because the round number felt more intentional. Lucas: That's a perfect real-world example. And by the way, that annual pricing strategy — charging a round number for the year but a.99 for the month — that's a common tactic. The round number signals 'this is the serious commitment price', while the monthly.99 keeps the anchor low for the hesitant buyer. Luna: So what about the middle ground?.95 — is that ever the right call? Lucas: The data shows.95 is kind of a tweener. It doesn't trigger left-digit anchoring as strongly as.99 because the left digit doesn't change — $19.95 still starts with 1. But it doesn't signal discount as aggressively either. Some retailers use it for premium but not luxury — think mid-tier department stores. It's a compromise. Luna: That makes sense. And if these marketing conversations have sparked something you've actually used at work or just in your own shopping decisions, we should mention — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes. No ads, no sponsors, just people who find the conversations useful. Lucas: Yeah, and we really appreciate that. It keeps the show independent and lets us drill into these specific studies without worrying about pleasing a sponsor. So thank you to everyone who does that. Now, back to those price endings — one more finding from the MIT study that I think is really actionable. Luna: Let's hear it. Lucas: They also looked at what happens when you show the per-unit price alongside the total. For example, a 12-pack of soda at $4.99 versus $5.00. When the per-unit price was displayed, the advantage of.99 disappeared completely. Because the per-unit price — like $0.42 per can — is a smaller number, and the brain processes that left digit more carefully. Luna: So if you're in a category where unit pricing is common — groceries, household goods —.99 might not help you at all. Lucas: Exactly. And that's why you see so many grocery items priced at.99 or.49, but also why warehouse clubs like Costco use.00 or.97. They know their customers are comparing unit prices anyway. The.99 anchor loses its power when the customer has a calculator in their head. Luna: So the takeaway for today is: know your price range, know your category, and know your customer's decision process. There's no one-size-fits-all magic ending. Lucas: Right. And if you're running an online store, you can A/B test this in about a week. Pick your top-selling product under $50, try a.99 ending against.00, and measure conversion. The MIT data suggests you'll see a lift — but only if your customers aren't doing unit math and only if the product isn't luxury. Luna: And if it is luxury, round up with confidence. Your customer might actually prefer the round number. Lucas: Exactly. One final number from the study: for products priced between $50 and $100, the difference between.99 and.00 was negligible — less than 1 percent. So that's a gray zone where other factors, like the product image or the brand name, probably matter more than the price ending. Luna: That's a useful band to know. So the next time I'm shopping and see $74.99, I'll know that could just as easily be $75 without changing my decision. Lucas: And the retailer might make a slightly higher margin if they charged $75, because that one cent adds up across thousands of transactions. So maybe we should start a movement: round up for the sake of the seller's sanity. Luna: I'm not sure consumers will join that movement. But it's a good thought. Lucas: Fair point. That's all for today on The Pricing Marketing Podcast. We'll be back with another episode tomorrow.