American retailers and consumers have a magical fixation on a particular price tag: $9.99. Even if the cost is just a penny more, consumers will turn and walk away.
To retain customers, businesses are forced to keep prices firmly below $10. From soap to soda, from pain relievers to party supplies, the rule is universal. Especially in the current climate of soaring prices, this becomes even more notable.
However, factors such as high oil prices, tariffs, and other elements have raised manufacturing costs, making it increasingly challenging for companies to keep product prices below $10. In order to maintain sales volume, they are compelled to sacrifice profit margins, ensuring prices remain below this crucial psychological threshold of $10.
According to a report by The Wall Street Journal, in order to expand the supply of goods priced below $10 or to limit prices within that range, businesses are pulling out all the stops. Craft store chain Michael’s is redesigning its store layouts to expand its offerings under $10; toy manufacturer Hasbro is streamlining the packaging of its dolls and board games; Boston Beer is introducing a four-pack of Twisted Tea to replace its previous six-pack offering; Walmart has announced a summer promotion reducing the price of a 24-pack of Coca-Cola and Pepsi to below $10.
Some emerging brands, in a bid to grow and expand, are lowering profit margins and trimming marketing budgets, hoping that products priced starting at $9 will attract new customers and open up the market.
Chris Cocks, CEO of Hasbro, remarked that $9.99 is like a “snackable price,” capable of influencing consumer behavior. To maintain this price point, the company is collaborating closely with designers and suppliers to reduce product packaging costs.
Toy company Spin Master revealed that due to streamlined production processes through automation, their new Rubik’s Cube set to launch later this year will feature smoother rotations and a price tag kept below $10.
Vicki Morwitz, a Marketing Professor at Columbia Business School in New York, explained that $9.99 attracts consumers not just because of saving a mere penny, but because consumers subconsciously categorize prices into different brackets. Even though the actual price difference is minimal, prices under $10 evoke a different perception compared to those $10 and above.
The ongoing inflation has led to price increases for many everyday items, making prices no longer as cheap as before. Products priced below the psychological threshold will stand out more prominently.
The hard seltzer drink by Boston Beer Company, Twisted Tea 12-pack, exceeded $10, prompting the company to introduce a 16-ounce four-pack to cater to consumers sensitive to prices below $10.
While most of Michael’s products are already under $10, the company plans to increase their offerings below $10 by 10% by the end of the year. Chief Merchandising Officer Stacey Shively stated that affordable prices allow customers to control their budgets while enjoying the shopping experience.
To encourage retailers to sell more products priced below $10, e-commerce giant Amazon charges only an 8% referral fee for items priced at $10 or under in categories such as baby products, beauty, health, and personal care, as opposed to a potential 15% for items priced over $10.
James Barickman, CEO of Carlin Consumer Health, revealed that due to Amazon’s fee structure, the company decided to launch a mineral ice-cold strong pain reliever priced at $9.99 in June.
Ryan Lupberger, Co-founder and CEO of Clean Cult, a natural cleaning product company, mentioned that to stand out in competition with larger companies, even with thinner profit margins, he has kept prices steady for seven years, some intentionally at $7.99 to attract new users. Additionally, the company frequently offers discounts on its laundry detergent, lowering the price from $12.99 to slightly below $9.99, which instantly doubled product sales.
Lupberger added that consumers perceive prices starting with ‘9’ and ’10’ completely differently, with ’10’ immediately feeling expensive.
Similar to the psychological impact of prices starting with ‘9,’ price points below $5 and below $20 are also crucial psychological thresholds. Shai Eisenman, Founder and CEO of Bubble Skincare, said that many of her moisturizer spray and eye cream customers have identified $20 as their upper limit. Consequently, she has not raised prices in the past few years and has only cut marketing budgets, albeit at a slighter profit margin.