I've read a lot of times in the retail world where the $49.95 (or $49.99) style pricing actually increases sales vs. just making it a round figure like $50.
Has anyone tried this for a subscription software business?
Right now, we've adhered to a simpler pricing model (no prices ending in cents), but am questioning if we're being naive.
Testing is really significant. In some markets $49.95 will beat $50. I know of a test that $10 beat $9.49 4 to 1!
In all things testing is perhaps the most useful thing a startup, can do.
Testing separates the winners from the losers and continued testing separates the flash in the pans with long term success.
What you will find is, the results are many times not one one would expect & are different in every market and time of year.
I would recommend you look at pricing your subscription software without the cents but ending in 9. So in your $50 example, use $49. In the end, it really depends on the nature of the software solution you are offering, your overall offering mix and pricing structure and who your target customers are.
Value Messaging: It's not the price they don't like, but what they infer they are (or are not) getting for that cost.
I tested this number once 19 / 19.99 / 19.95 and in this case (web services) 19 was the winner with 60% more signups.
An A/B test using Google Website Optimizer may be the best route here (and it should be really simple to test, though a bit more complex on the back-end payment creation side). My experience has been that even numbers - $50, $100, $250, etc. have more of a "premium" feel vs. $99.95, $79.99, $19.97, etc. which "feel" like more bargain/discount services. Still, I don't think anyone's experience is as relevant as testing against your user base, so that would be my best advice. Every product and client are different.
Is it possible to test? Switch between $39.99, $39.95, and $39?
Because that differs less than $1, people probably wouldn't notice or complain if they did notice.
Note the ".95" variant. Some studies show that's better. Also ".97".
Here are some situations that may/may not apply to your situation:
If people are using an aggregate site to check pricing and they set a filter for " < 50", you wouldn't show up.
Depending if your product is thought of as "high end" it can induce sticker shock.
Also, impulse type purchases may be affected more.
Any chance you could share your test results?
As a consumer, I've despised the practice of Jedi mind games at places like gas stations. You look at the board and see, say, $2.25/gal. If that's not enough, there's that 9/10th of a cent in there. Why not just sell at $2.26 and be fair?
What does a $19.95 + 9/10th price tag say about your business needs? I feel a little more at ease about a $19 or $20 purchase.
You likewise have to calculate out how budgeting works at the companies you're trying to sell to.
Some may say that any software under $50 (including $49.95) can be bought at the programmer's discretion; anything $50 or over needs a manager's approval. And anything over, say, $500 needs a committee to approve it.
If that's the case, then you'd be better off pricing it at $49 because the extra headaches of going through management makes it 'too expensive'.
There have been cases where software developers have artificially inflated the cost of their software to deal with the committee effect. The committee wouldn't take it seriously enough to approve it if it was priced at $500, but their sales dramatically improved if the cost was inflated to $1000 presumably because it seemed 'better' and more worth the committee's time.
I think you have to have your head up your ass to pay attention to small differences of .97 .99 and .15. Maybe that energy is better spent actually focusing on customer service or bettering your product.
The obvious reason for choosing a slightly lower price than a round number is to deceive customers into thinking they're paying 49 instead of 50. It partly depends on who your target customers are and whether or not they would be offended by this goal (most of the time probably not).
Unless you have competitors who already price their product at xx.99, there's no real incentive to price yours at xx.95 or lower. Without another product to compare with, if your customer buys at xx.95, there's very little to suggest they would not have paid an extra 4 cents.