[EN] The Power of Charm Pricing: How Small Numbers Can Make a Big Impact
In the world of Revenue Management, even the smallest details can make a difference in boosting your sales and profitability. One of the most powerful yet often overlooked tools in pricing strategies is Charm Pricing—or what some call Price Endings. This is part of Psychological Pricing, a practice that leverages how customers perceive prices to subtly influence their buying decisions.
I’m going to show you a real-life example of consumer behavior related to Price Endings and then explain how you can implement a Charm Pricing strategy for your business.
Why Price Endings matter?
When we see a price like $129, we don’t usually think of it as “almost $130.” Instead, we interpret it as closer to $120. This psychological bias occurs because we tend to focus on the first digits of a price and disregard the ending. By understanding and applying this concept, businesses can increase revenue without significantly affecting demand.
Numerous studies have shown that odd price endings, like 9, 7 or 5, make products feel cheaper compared to their rounded counterparts. For instance, $19.99 is perceived as less expensive than $20, even though the difference is negligible. However, this approach isn't universal—it’s crucial to consider the type of product you’re selling. For example, premium or luxury items often benefit from rounded prices, as they communicate quality and exclusivity.
In the following chart, you’ll see that the demand for a certain product drops at specific thresholds rather than following a linear function. This data comes from a price sensitivity study conducted with actual clients.
How to implement a Charm Pricing strategy?
We have defined two steps to quickly implement a Charm Pricing strategy:
- Step One: Study the Competition
One of the easiest ways to determine the best price endings for your products is to look at your competitors. Analyze their pricing strategies to identify patterns in price endings. “Are they using .99, .49, or something else entirely?” This can provide you with a baseline for setting your own price endings.
If you have the resources, you can prioritize conducting a survey with potential customers and complement it with a competitive benchmark.
But remember, this analysis is about how your prices should end, not necessarily what your list price should be. Charm pricing is a tool to fine-tune your pricing strategy, not dictate it entirely. - Step Two: Monitor Price Ending Deviations
It’s not always possible—or even advisable—to stick to ideal price endings. Competitive pressures, promotional campaigns, or specific revenue goals may require you to use alternative price points. However, regularly monitoring how far your prices deviate from the optimal price endings can help you measure the potential value of aligning with psychological pricing rules.
For instance, if your analysis reveals that your competitors’ products are consistently priced at $19.99, but your product is at $18.50 due to a promotion, you may notice a slight drop in potential revenue considering psychological pricing. But, now you could compare the uplift that discount generated against the potential revenue loss from changing the price ending.
Implement and monitor Charm Pricing easily with datalemons
Charm Pricing is a simple yet effective way to optimize your pricing strategy and enhance your revenue management efforts. At datalemons, we already established rounding rules by country in order to help you skip the “Study the Competition” step, and created a tool to monitor deviations, that way you can see your potential revenue loss in just a few minutes for your entire history. Plus, if the rules don’t suit you, they can be adjusted specifically for each of your businesses.
