Why do prices end in 99: Psychology of Pricing

Ever notice that stores seem to always price their items ending with a 99, 97, or a 95?

It’s called ‘Charm Pricing’ and it’s a strategy that’s based on the belief that the price of something, has a psychological impact on us. Prices elicit emotional responses, and therefore can be manipulated to more favourable outcomes.

There’s actually a TON of research on this, so today, we’re going to talk all about how companies do this, the different strategies they use and why, AND we’ll talk about how it might affect your bottom line as a consumer.

Introduction:

Historians can’t exactly pinpoint how long this trend has been around, but according to a 2018 episode of CBC’s “Under the Influence” this pricing phenomenon is trackable as far back as 1875.

That’s a LONG history and no wonder stores are sticking to it, IT WORKS! Countless studies have proved these theories over and over again. I, am completely fascinated by these pricing models. It seems so silly that people would just ignore logic and change their likelihood of buying an item based on an arbitrary number change.

But I DO IT TO! I catch myself picking up items priced at 97 or 99 over even numbered ones all the time. Odd pricing just seems more ‘normal’ to me.

So, why does whole numbered pricing seem so weird?

The Left Digit Effect:

A large part of this pricing model actually has to do with something called ‘the left digit effect’. Our brains read from left to right. Which means we automatically judge pricing by the whole number digits on the left; sort of ignoring those leftover cents.

If everything is based off that LEFT number, you’ll be choosing your products based on whatever number is lower. This works because of anchoring. Our eyes register that left number, and our brain anchors the rest of the numbers to THAT one instead of ‘converting it’ to the number that it’s really closest to.

So, $5.99 turns into ‘that’s pretty much $5’ instead of ‘that’s really one cent away from $6’

This especially works in situations where the ‘decision’ is minimal. If you’re buying something that you don’t really put a lot of thought into, you’re relying on those unconscious triggers to make your choices.

Even Vs. Odd Pricing:

So, what about other weird types of pricing? The $3.95’s, or the $1.97’s ?

With these prices, the theory works the same. That it’s that first number we pay attention to.

There’s a bit of a story behind why this type of pricing might have started, which goes that it was to force the cashier to give change. Meaning, the register would open to give change forcing the cashier to record the sale, versus putting an item at an even numbered amount like $5 or $10 which the cashier could easily pocket.

I don’t know how much of that is actually true; it seems like a bit of a tall tale to me, but I thought I’d mention it anyway.

Some retailers also use the last digit of the product price to indicate how far it’s been discounted.

For example, a store could discount in percentage increments of 15, 30, 50, and then 70, and then have prices reflect that discounting process. ie. Prices ending in 6 or 8 will be marked down again in the next pricing cycle, while prices ending in 4 will not be discounted any further.

This is true for some stores and not for others, which I know can be confusing. On top of that the stores that DO use this method are all different so it’s not necessarily true that ‘all prices ending in 4’ would be the last possible discount.

I’ve seen some pretty detailed articles from people who’ve seemed to figure out the strategies for certain chains, so I’ll link those down below, but unfortunately a lot of them are US specific so sorry Canadians.

The Magic of 9:

There’s also this super weird obsession with the number 9.

And, oddly enough, there’s actually scientific research behind this. In a 2003 experiment conducted by the University of Chicago and MIT, it was found that the use of the number 9 in pricing actually DID have an effect on the demand for that product.

To figure it out, they did a series of manipulations on the price of items, and tracked the uptake. For one experiment, they took a women’s dress, and studied the purchasing data when the price was $34, $39, and $44. The dress sold better at $39 even though it was higher than the $34!

They also found that ‘9’ had a lesser effect on sales cues. So, if a store is putting something on sale, it would be more effective to price it without a 9 so shoppers are actually more trustful of the deal.

This is a study from 2003, and no one knows WHY this ‘magic number 9’ is so effective, but it IS a super interesting phenomenon.

Seriously. Take a look at the Apple store right now. Every major product they’re selling right now ends in a 9!

Adding Tax:

Another theory I want to add into the mix here is the tax theory. A lot of restaurants or small town service providers price their items so that when the tax adds, it’s an even bill. For example, with a 15% tax added on, $8.70 becomes a flat $10. It can make it easier for workers or servers to do their job, and easier for the customer to pay, especially if items include taxes on their price tags.

If you liked this post, make sure to let me know by leaving a comment down below! You might also like a post I did not too long ago on the Psychology of Supermarkets!