In a prior article where we tested “odd digit” account pricing, we showed that conversion rates were almost twice as high when we used a $1.99 price point for a product compared to $2.00 (HERE). We previously also showed the importance for banks to show their pricing easily on their website. We received many comments on these blogs about our use of $12.95 per month pricing versus $12.99 or $13.00. In this article, we look at the data behind our logic and show why we use dollar prices ending in $0.95 instead of other alternatives.
Deposit Pricing Tactics
Survey deposit pricing and you will see a mix of pricing strategies. Some banks, like TD (below), have accounts that end in $0.99, while other banks such as Wells Fargo, PNC, BB&T, SunTrust and many others, use only pricing ending in zeros such as $10.00.
Then there are also a handful of banks that use a combination of both pricing structures. For example, Citizens, use a combination of both. These banks usually use odd digit pricing on their lower tier accounts while using rounded pricing for their higher end packages.
We could not find any bank that uses odd digit pricing in one geographical market and rounded pricing in another, but we suspect there are probably a few banks that do it.
When it comes to odd digit pricing, it is usually reserved for retail accounts but not always.
This brings up the question, which tactic is better?
Account Pricing Data
Behavioral economics as applied to pricing strategies is difficult to understand because of the large variety of variables. Demographic factors, account attributes, economic cycle and competition all play a role, so results of account testing vary. However, the data is fairly strong (below). We conducted a series of A/B tests where we rotated pricing for a group of accounts. We showed each retail AND business customer a series of two accounts, each with a variety of pricing syntaxes, and recorded their choices. Price levels varied from $5.99 to $24.00. If an account did not favor a particular pricing syntax, that is they favored one syntax sometimes and another in other times, then we determined no strategy had an effect.
As can be seen above, for the largest segment of customers, the difference in pricing had little impact. However, for a material amount of customers, checking accounts ending in $0.95 had the highest conversion rates by almost double of the next highest converting syntax. Accounts ending in $0.00 converted the next best with a probability of 16.22%, or more than double the rate for accounts ending in $0.99.
Demographic Breakdown – Millennials are different
This syntax effect was approximately the same across genders, locations, and household income. Millennials, however, were more biased to odd digit pricing and were more strongly influenced by a pricing structure that ends in $0.95 (below).
Putting This into Action
We don’t know if moving to account pricing that ends in $0.95 will help your bank but it works well for us, and our data indicates that it can make a material impact on account conversion. While pricing isn’t the only attribute that matters, it is a significant consideration. If you can increase your deposit account conversions by 18%, then changing your pricing syntax may be worth trying. You will never know unless you test, and if the above data is somewhat representative of your market, it will be well worth your effort.
Submitted by Chris Nichols on April 06, 2017