Ask HN: $4.99 VS $5 - Does odd number pricing work?

I'm thinking about how to price a project I'm working on and I'm curious to know if anyone has any data from their own experiences to show whether a $.01 price difference really has any impact on conversion rates.

On the one hand, odd number pricing is touted as an effective psychological trick to get consumers to think that the price of a product "isn't really that much."

On the other hand, I personally appreciate the simplicity and honesty of seeing a nice round number.

Does anyone have any data to support one tactic over the other?

Sounds like the perfect case for an A/B test.

I agree. I'm just wondering if anyone has ever done such tests and, if so, what the results were.

An apparent word of caution though for A/B price tests:

”Amazon has run A/B pricing experiments, and learned the hard way that customers do find out, and are upset about it. So their new policy is: if they run a price experiment, you’ll always get the lowest price in the experiment, when you get to the checkout. (So you might click on something with 5% off - when you get to the checkout, it’ll give it to you for 10% off, because that was the other offer that you didn’t see).” -AndrewMcG

I originally remembering hearing about this 'phenomenon' during undergrad. It's a common heuristic that we think the gap is much larger than $.01 when it comes to the $4.99 -> $5.00 jump.

Here's a link to the pretty extensive study that two guys from Cornell published -- Heuristics in numerical cognition: implications for pricing http://forum.johnson.cornell.edu/faculty/mthomas/HeuristicsI...

On a semi-related note, I remember telling all my friends in the music biz how iTunes was making a huge mistake by crossing the $1 threshold when they jumped up from $.99 to $1.29 ... at <$1, fans didn't think too much about the purchase. once they crossed it, it only accelerated the progression of pirating.