Imagine you’re buying a camera for a fundraising project. You find the one you want, with all the features you need, for £200. You shop about, and find the exact same model for £198.76. Which price feels right? The second perhaps, as you do as we all do, and round the amount down, known as the Left Digit Effect. We just can’t be bothered to read to the end of prices - in this case we are getting the best deal out of our habit. Now imagine you need the camera for a family holiday. Does that change your view?
According to research published in the Journal of Consumer Psychology, it does. Monica Wadhwa of Insead and Kuangjie Zhang of Nanyang Business School found that we deal with pricing information differently when prices feature round numbers (5), as opposed to non-round ones (4.99). When something costs £200, consumers tend to rely on their feelings, whereas when something has an irregular price - such as £198.76 - consumers have to use reason to decide whether it's a good price. Their experiments (including the camera one) found that the more emotive the purchase, the more likely that the rounded figure "felt right".
Great news for fundraising, with our emotional storytelling. Well, not quite. Let’s look at that lower camera price again: £198.76. Does it appear a little odd to you? How about £198.99? As consumers we prefer to round down the price, telling ourselves that £4.99 is £4, not a penny under £5. And we prefer having the number 9 there to do so. This could be something we’ve learned through frequent exposure to this retailers’ trick. Is this the thinking behind Race For Life’s £14.99 entry price?
According to research published in Quantitative Marketing and Economics, prices ending in 9 were so effective they outsold lower prices on the exact same product. The article goes one to show that in sale prices, "Was, $60, now only $49" beat "Was $60, now only $45". Perhaps we should be moving away from the £5 increments that most online donation forms follow.
Looking closely at online forms, we could take a lead from the Economist. You’ll all know the research by Dan Ariely looking at the Economist’s pricing packages. Both the print and print plus web subscription cost the same ($125). When they are published alongside the web only option ($59), 84 per cent chose the print plus web package. When only the web and print plus web were offered, this dropped to 32 per cent. This is known as the Decoy Effect: a slightly worse option to the one you want people to pick will increase the number choosing the latter.
The cost of something is all relative. We need a starting point to make our decision. Similar to the Decoy Effect is the Anchoring Effect. We struggle to make a decision in isolation: we need a starting point for estimating the unknown. We tend to rely too much on the first piece of information we get - the anchor. (A cynic may suggest that was the rationale behind the Leave campaign’s £350m). In fundraising we could use this to our advantage, starting with a higher ask, as demonstrated perfectly by Macmillan Cancer Support’s donation slider with its £25 default. From there I am unlikely to go right back to £2. Tests have shown that anchoring also has a positive effect on the "pay what you like" option.
Our psychological relationship with numbers is complex. We spend a lot of time thinking about when, where and how to ask. Is it time to pay closer attention to the what, and capitalise on people’s cognitive biases when it comes to numbers?