Whether it's a house listed at $299,999 or a product sold on TV for “three easy payments of $19.95,” marketers have long resorted to “just below” pricing – setting the price just below a round number.
They've done it because they think it's effective. Just ask yourself how many times you bragged to a friend that you filled your gas tank for $1.99 a gallon, when in fact it was $1.99.9 a gallon – $2, for all practical purposes.
Turns out there is research to show this “just below” pricing actually works pretty well. Eli Beracha of Florida International University, who conducted the study with Michael J. Seiler, of The College of William & Mary, said that using this method means sellers can ask more for something without driving away buyers.
Their study looked at 1,000 buyers in Virginia who were considering 370,000 listings. The research team focused on the impact of pricing homes in round numbers as opposed to a price that was just below that number.
“On average, buyers are more attracted to a house priced at $199,000 than to a house priced at $200,000 and it appears that ‘just below’ pricing works out favorably for sellers in terms of their bottom line,” Beracha said.
Buyers end up paying more
In fact, the researchers maintain that dropping the price as little as $1 consistently yields a higher selling price. They say it can result in a buyer paying as much as $6,000 more on a $200,000 property.
“We tested the age-old debate concerning the best technique to price a home when listing it for sale,” Seiler said. “We find that using a price just below a round number works best, particularly in connection to the left-most digit in the price. So, $199,999 works better than $200,000.”
There is still some debate in the real estate industry about the effectiveness of this pricing, but sellers might want to take the research into consideration when putting their homes on the market.
Of course, buyers – not just of homes but of all products – should probably keep it in mind as well. When something is priced at $49.99, it's really $50. A home priced at $199,000 is really $200,000.
And any sale at a “just under” price will always be “just over” after you pay sales taxes, shipping, and other assorted fees that are always associated with any sale these days.