The Nonlinear Nature of Pricing

February 28, 2010

As people like Mr Kelly and Mr Godin point out, there’s a big difference between free (0p or 0c) and non-free (1p or 1c), much more than the difference between 1p and 2p, or even 1p and 10p. It’s a ‘special’ price point.

As retailers have known for years, there are other special price points: the decimal system combined with our psychology has led to the .99 pricing model (£9.99, £14.99, etc). This means that we perceive a bigger difference between £9.99 and £10.00 than between £10.00 and £10.01.

I’ve created a graph that shows my best guess as to where these perceived ‘price points’ are.

Note that this is not based on research, but solely opinion. I’d love to hear (comments below) if you have any thoughts or know of any data on this subject.

My graph assumes that every £10 represents a new ‘step’ in perceived difference (i.e. the difference between £30 and £29 is perceived as larger than between £34 and £33). Also, I suspect every additional digit represents a bigger perceived step (£100, £1000, etc.).

There are also some cultural price points, which I guess are around £3 (or ‘the price of beer’), £25-30 (gym membership, mobile subscription, etc) and £50 (just because it’s half way to £100).

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