To round or not to round

Pricing directly affects the consumer’s opinion about a product. A slight difference in price can have a major impact on how the consumer feels about buying - and even his or her opinion on the quality of - the product.

Now, let’s discover if, why and how you should change your prices.

This all sounds very interesting, but how does this help us?

Monica Wadhwa and Kuangjue Zhang performed several studies to help us understand when and how consumers are affected by pricing. They showed that purchase intention (the single most important predictor of actual purchase) is affected by price rounding and that this effect depends on buying purpose. They also found that it does not matter whether your unrounded price is high ($41,15) or low ($38,85).

So should you just increase the price of your products with one buck and a few cents?

No, you should not. It turns out that a rounded price ($40,00) is better sometimes. For example: when buying a camera, your purpose might be to take pictures during a family-holiday or to take pictures for a group project. The first purpose has a strong emotional component, whereas the second is more rational. It turns out that a rounded price ($40,00) has the best effect on purchase intention in the first (emotional) example and an unrounded price ($41,15) the best in the second example.

Is my product something you would buy for emotional or rational reasons?

This is the first question you should ask when setting your prices. As a salesman or marketer, you know your product best and you probably know why people buy it. If your product is something most people would buy for emotional reasons, like for a wedding, a rounded price would be best (example: http://www.bettys.co.uk/cakes/wedding-cakes). A more rational product, like a laptop, would benefit from an unrounded price (example: http://www.bestbuy.com/site/all-laptops/pc-laptops/pcmcat247400050000.c?id=pcmcat247400050000).

What about negative emotions?

Before you slap a rounded price tag on all your emotionally reinvigorating products, there’s one more thing you should know. The reason why round prices work so well for emotional purchases is that it amplifies whatever emotion you are experiencing. The downside: any negative emotions grow stronger as well.

In the case of products that are bought for unhappy emotional reasons, unrounded prices will fare better. While negative emotions are clearly linked to some product categories (for example, funeral necessities), other categories appear to be more mixed. Are typical high-calorie comfort foods such as chocolate and ice cream driven by positive or negative emotions? I’d be very interested to know how price-format affects these categories.

What are the limitations?

The scientists only studied prices with two digits after the comma ($40,00). The effects of fully rounded prices (like $40) remain to be studied.

Also, rational and emotional reasons could overlap and affect one another. Consumers could have emotional and/or rational reasons for buying at your (web) shop. Take this in consideration and you might even discover something beyond your best product price.

Take home points

-       Round your price if your product is something one would buy for positive emotional reasons.

-       Unround your price if your product is something one would buy for rational or negative emotional reasons.

Update of the editor: Should you round eco-friendly products?

A recent study of Tripathi & Pandey (2018) found that for green products, the same holds as for high-quality products: they sell better at a rounded price! This could be explained because buying environmentally responsible products on purpose, might be induced by positive emotional reasons. 

And moreover, round pricing was found to reduce the perception of low quality and thereby prevented a decreasing brand loyalty due to a low-priced image.

So sell those real green products at a rounded price, and you’re in!