There's a method to the madness.
By Meghan Jones, Reader's Digest
Whether it’s a grocery store or a car commercial, many of the prices you encounter are likely to have something in common. Prices are more likely to end in .99 more than any other pair of numbers—and certainly more than the even .00. We probably don’t think twice about buying something for $5.99 or $16.99, but it is a little strange when you think about it. Why aren’t prices just even dollar amounts? Is it an elaborate marketing scheme to get you to spend more?
Well, essentially…yes. But there’s really nothing “elaborate” about it; it’s actually pretty simple. “It’s a type of psychological pricing,” says Julie Ramhold, consumer analyst with DealNews. “Because we read from left to right, we pay less attention to the end of the number versus the beginning.” This is especially effective if you’re just quickly perusing several prices in a row; the first number will definitely stand out to you more.
Of course, we still know that $9.99 is basically ten dollars, not nine dollars. But the $.99 trick takes advantage of the way our brains process prices. When we see a price of $9.99, we associate it as part of the $9–$9.99 “range” rather than the $10–$10.99 “range.” “Consumers don’t want to transcend a certain category, so even a penny less may make a huge psychological difference,” explains Subimal Chatterjee, Distinguished Teaching Professor of Marketing at Binghamton University School of Management. This is especially effective when it’s a change in the number of digits; $99.99 is just inside the “two-digits” range, so it seems like a score…even though you basically are paying a hundred dollars. And, of course, the retailers are getting the most money they possibly could within that lower “range,” because 99 cents is only a cent below the higher “range.”
Basically, in a prices/sales setting, we just subconsciously forget all of the basics of rounding we learned in second grade. Instead of rounding up everything that ends with .5 and above, we tend to round prices down based on their first digit. As Mary Potter Kenyon, author of Coupon Crazy: The Science, the Savings, and the Stories Behind America’s Extreme Obsession, explains, “We see $9.99 and think of it as priced for nine dollars and some cents, instead of rounding it up to ten dollars. We look at a price tag of $10 and we see it as ten dollars, rather than one penny more than the $9.99 price tag!”
Of course, there are some prices that do end in even dollar amounts, but it usually is a deliberate choice. You might see even-dollar prices at thrift stores or secondhand shops, where the prices aren’t pre-determined or are marked down. Ramhold explains that you’ll also see this on clearance items: “Often it’s when they’ve gone as low as they can, so a clearance item at the store might be just $3.” On the other end of the spectrum, though, because $.99 comes across as cheaper, some high-end retailers choose to avoid this. They will price things evenly to make it seem like the items are particularly good quality, in a practice called “prestige pricing.”
So how to avoid falling into the .99 trap? Well, it probably goes without saying, but make sure you’re reading the full price tag of something before you buy it—and make sure you’re correctly rounding that price to the nearest dollar amount, not to the first digit.
