Applying Rounding Bias to Pricing Strategies

You’ve probably heard this before: “End your prices with a 7, 8, or 9 - it makes them feel cheaper.” That works… sometimes. But not always. Quick example: Leather bag – 1700 Leather bag – 1699 Look at the price endings. 1699 feels like a deal. 1700 feels like a premium product. That’s not an accident. It’s how our brains read prices. “99” suggests discounts, retail, and accessibility. “00” feels clean, confident, higher-end. Now here’s what studies show: — If your product is about pleasure, round prices convert better. — If you’re selling luxury or high-ticket, “9” endings can hurt perceived value. — If it’s a gift, “00” wins — it feels thoughtful, not cheap. — If your product is genuinely high quality, rounded pricing reinforces that. Your price ending sends a message. Even two digits can shift how people see your brand. Do a quick check: → How do your prices end? → Do they match what you want to say about your product?

Patients are more likely to buy at £5,000 than £4,987 (It’s not logic. It’s how the brain reads prices.) Sounds backwards, right? But behavioural research says otherwise. When a price is easier to process, it feels smaller—regardless of the actual number. This is called perceptual fluency, and it’s one of the simplest pricing wins you can apply. Round numbers like £5,000 are smooth. Fast. Fluent. Uneven numbers like £4,987 feel slower. Heavier. Riskier. Thomas & Morwitz (2005) showed that when people rely on emotion (as they do with surgery), rounded prices increase conversions. Nick Kolenda explains this well in “Methods of Pricing”, when the brain doesn’t have to unnecessarily burn calories, choices are more fluid. So if you’re pricing high-ticket procedures (like lens replacement or premium laser vision correction): • Ditch the odd figures • Stick with fluent, round numbers • And trust that clarity > cleverness You’re not selling the lowest price. You’re selling the best feeling. Ref: Thomas, M. & Morwitz, V. (2005). Penny Wise and Pound Foolish: The Left-Digit Effect in Price Cognition

Rounding down to the closest 99 has long been considered good practice in pricing. This practice is so ubiquitous that it works for small items like bananas at $0.99 as well as real estate transactions, where sellers are advised to price down for certain price perception -- like pricing a $1 mill home at $990k. At Luca, we have a simple configuration that lets our users specify pricing behavior that applies at the end of all price optimization actions. Interestingly, sometimes this rounding behavior can do more harm than good. Here is a recent illustration we saw. Let's take a simple instance of carton of milk currently priced at $2.99. Our price optimization engine might observe -- 1. Costs are trending up by a few cents on milk, so margin has shrunk 2. Competitors are pricing on average higher by $0.40 3. Price elasticity indicates higher willingness to pay on the customer's part without loss in conversion. So our system proposes $3.29 as an output. It's a better price, and has margin upside. Great! But... the rounding rule brings us right back down to... $2.99. So retailers beware! Rounding is good, but needs to be contextual to the value of the product. It can damage price perception at times if applied indiscriminately.