Study Shows Precise Pricing More Enticing to Buyers Researchers at Cornell University found that when the price of an item is in a round number, people perceive it as higher than an odd number. In other words, people think a $3,000 car is more expensive than one priced at $3,129.50. The finding has implications for people trying to sell their homes.
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Study Shows Precise Pricing More Enticing to Buyers

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Study Shows Precise Pricing More Enticing to Buyers

Study Shows Precise Pricing More Enticing to Buyers

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RENEE MONTAGNE, host:

And anyone who's trying to sell a house these days knows how tough it can be, but two professors from Cornell University's Johnson Graduate School of Management may have found a way to help sellers get more money. It's a strategy that would be familiar to customers of big retailers, like Home Depot and Wal-Mart. NPR's Jim Zarroli reports.

JIM ZARROLI: When people put their homes on the market, they usually spend a lot of time thinking about the price they're going to ask, and they almost always come up with a round number, like $220,000, or a million three. But Professors Manoj Thomas and Vrinda Kadiyali say that may be a mistake. Thomas says the pair recently ran an experiment about the way people perceive house prices.

Professor MANOJ THOMAS (Cornell University): So we would bring students into the lab and we would tell them that we're going to show you a house in Syracuse and you're going to see six prices for the house that the seller is considering. All that you have to do is look at the price and tell me whether it's low or high.

ZARROLI: The catch was that half the prices were round numbers, like 680,000, and half were precise numbers, like 682,417. But the students judged the precise numbers to be lower than the round numbers. Professor Kadiyali says the research revealed something interesting.

Professor VRINDA KADIYALI (Cornell University): What we found was the more precise the list price, the higher the sale price ends up being.

ZARROLI: In other words, people have a kind of built-in bias in favor of precise numbers. They think they're lower than round numbers even when they're not. Why would this be? Kadiyali says when people see large precise numbers they've never seen before they are momentarily confused.

Prof. KADIYALI: If somebody told you that the U.S. deficit is six trillion, you'd say, okay, fine, that makes some sense to me. But if somebody said the U.S. deficit is projected to be six trillion five hundred and thirty-seven, you might look at that saying, what sense should I make of this?

ZARROLI: In their confusion, she says, people tend to fall back on associations, and they associate precise numbers with low prices.

Professors Thomas and Kadiyali say that the reason for this can be found in retail stores like this one. This is Pintchik's Hardware Store in Brooklyn.

Mr. MATT PINTCHIK (Owner, Pintchik's Hardware Store): I'm Matt Pintchik. I'm the owner of Pintchik's in Brooklyn, Park Slope.

ZARROLI: Now, we are looking at a bunch of different kinds of products. Let's go through some of these. I mean, some of the prices I'm seeing here are $11.20, $9.02, $8.83. What kind of effect do you think these odd numbers have on your customers?

Mr. PINTCHIK: Anything that's a difference from that nice even number to me indicates an additional discount, and I think that people recognize that, that they're saving money, simply put.

ZARROLI: That is, the things you buy at Pintchik's, like most of the everyday items people buy anywhere, tend to have precise prices. Thomas and Kadiyali say it's especially true at big box retailers like Home Depot and Wal-Mart.

Prof. THOMAS: If you go to Wal-Mart, you'll find that most of the products there are priced very precisely.

Prof. KADIYALI: You don't see a $3 tube socks, you see it 2.67.

Prof. THOMAS: Or maybe a 3.27.

Prof. KADIYALI: Yeah.

ZARROLI: So when people see houses with precise numbers, somewhere in the back of their minds they think discount shopping, and they make these associations even when they've done their homework and know something about the real estate market. The professors say the upshot of all this is that a condo priced at, say, $153,322 might actually sell faster than one priced at 150.

I took this idea to Amelia Gewirtz of the New York real estate company Halstead. Gewirtz says slapping a really precise price on a home could backfire.

Ms. AMELIA GEWIRTZ (Halstead): In all honesty, I feel like in Manhattan the attraction would be that must have some kind of significant meaning to the owner. I don't understand why they did that, is what I think the reaction would be.

ZARROLI: So it would seem a little strange?

Ms. GEWIRTZ: It would seem a little strange is accurate.

ZARROLI: Thomas and Kadiyali concede their findings may have limited utility. Many factors affect how people make home purchases. Moreover, if sellers everywhere started listing their properties at precise prices, buyers would gradually catch on, and the advantage would be minimized.

But for now, Kadiyali says, precise pricing just may give a seller a leg up.

Prof. KADIYALI: So sell the condo fast.

(Soundbite of laughter)

Prof. KADIYALI: Precisely. Before everybody else does it.

ZARROLI: Jim Zarroli, NPR News, New York.

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