$9.99 or $10? What goes into determining how the end of a price will look? According to a recent study, the psychology of pricing is more complex than it appears on the surface. The ideal pricing form differs based on a country’s culture. By researching how psychological pricing in a new market works can increase the chances of a new product’ success.
The study breaks down countries into two major categories: High-Context Cultures and Low-Context Cultures. High-Context Cultures are ones where there is a strong attention to implicit and non-verbal cues from routine communication where many things are unsaid but understood. These include countries such as China, Hong Kong, Japan, India, Brazil, and Argentina. Low-Context Cultures are ones where “what is said is what is meant”, where the message itself is given the meaning without requiring many verbal cues. These tend to be countries like USA, Australia, and Norway.
The study observed the differences in the last number in the pricing for similar objects in different regions. The results showed strong correlation between the groupings of the nations and the type of pricing structure the country uses. For example, low-context nations mostly use prices that end in 9 where high-context countries tend to have round numbers ending in 0. The study showed the example of a MacBook Pro price in Japan vs. USA. Through the Apple online store, this product in the Japanese Store was ¥248,800 vs. $1,599 in the American Store.
The study also had a couple of interesting cultural oddities. China, Hong Kong, and Japan commonly used an 8 in the ending price. Because the number 8 has a meaning of luck and prosperity in these cultures, it is preferred for customers. It also shows the seller as being upfront and dealing honestly with their customers. India also has an oddity with its fixation on prices ending in 5. Similar to 8 in the Asian countries, 5 in the Indian market signifies prosperity. The number is also viewed as a fair price point as it is neither rounded up or down.
So what causes this difference? In low context cultures, being in a lower category can be attractive to consumers. Back to the original example, a buyer in a low context culture will see $9.99 and can justify their purchase as “being under $10.” The difference in 1 cent can psychologically alter what category of expense they will put the product in. On the flip side, high context cultures read much deeper into the price and why the price is the way it is. They will likely not see the 1 cent decrease as a positive positioning but will find it to be manipulative and insulting to them. They will also view the seller as sketchy and untrustworthy. By understanding which pricing structure works best in a particular country or culture, a new market entry can minimize risk.
