Precise numbers.
If you asked a builder for a quote and their price was exactly £1,000, would you be suspicious? Mostly builders have an hourly or daily rate, which might be a round number. But surely the cost of any materials is unlikely to be a round number too. Your suspicion may be that the builder has rounded up the price to make the quote exactly £1,000.
To be fair, it is also entirely possible that the quote has been rounded down (e.g. from £1027.15 to £1,000), but that might seem unlikely to a cynical buyer! In most situations it might be reasonable to assume that a profit-generating business would be keen to increase their ‘margin’ i.e. the difference between the price paid and cost of delivery.
Often there are situations where consumers don’t think twice about paying a round price, say £5 in a café for example. But when you think deeply about how that price was arrived at, it’s unlikely that it was a careful calculation of all the costs plus tax. It’s likely that this number has been rounded in some way.
It seems likely that customers will feel that a precise number (£4.92 rather than £5) for example has been carefully calculated. Therefore, there is less suspicion that the seller has inflated a price to increase profit.
The research though suggests that marketers shouldn’t round prices. Thomas, Simon and Kadiyali (2010) call this the ‘precision effect’. They actually found that people judge precise numbers as being smaller than equivalent ‘rounded’ numbers, as well as being more willing to pay when given a precise, rather than rounded, price. Similarly, when a discount is rounded up, it reduces purchase intention in comparison to a precise price.
The lesson for marketers is not to be tempted to ‘markup’ prices to add unnecessary profit margin. Sometimes honestly is the best policy, demonstrating transparency in how a price has been reached.
Thomas, M., Simon, D. H., & Kadiyali, V. (2010). The price precision effect: Evidence from laboratory and market data. Marketing Science, 29(1), 175-190.
Jha, S., Biswas, A., Guha, A., & Gauri, D. (2024). Can rounding up price discounts reduce sales?. Journal of Consumer Psychology, 34(2), 343-350.
