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Whenever I go to a fast food restaurant or a store, I noticed that the product prices end with a 9 rather than a 0.

Please see the example below. Even though the difference is just 1 pence, people perceive £2.99 as a much smaller number than £3.00. That is because the price ends in 99.

enter image description here

Now, please take a look at the second example below. Even though the price is not ending with "99", people still perceive it as cheaper. What is the reason behind this? enter image description here

marked as duplicate by JonW May 13 '17 at 10:26

This question has been asked before and already has an answer. If those answers do not fully address your question, please ask a new question.

  • 117
    9 doesn't look smaller than 0, but 2 looks smaller than 3.... – PlasmaHH May 11 '17 at 8:09
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    My wife would tell you that the burger costs only 2 pounds. – BЈовић May 11 '17 at 8:24
  • 48
    Is it just me, or does the burger on the left look better? – Matthew Wilcoxson May 11 '17 at 11:10
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    This often leads to me remembering a higher than actual price. I map 2.99 to 3 when reading it. And then when recalling it, I remember it as 3.99 and round it to 4. – CodesInChaos May 11 '17 at 11:15
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    Now I'm starting to see things that are 2.97 – the_lotus May 11 '17 at 11:36
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Ending a price in .99 is based on the theory that, because we read from left to right, the first digit of the price resonates with us the most.

That's why someone is more likely to buy a product for $2.99 than the same one for $3. The item that starts with a 2 just seems like a better deal than the one that starts with 3.

Source: Why Do Most Prices End in .99?

Here's a great article about pricing cues.

Another common pricing cue is using a 9 at the end of a price to denote a bargain. In fact, this pricing tactic is so common, you’d think customers would ignore it. Think again. Response to this pricing cue is remarkable. You’d generally expect demand for an item to go down as the price goes up. Yet in our study involving the women’s clothing catalog, we were able to increase demand by a third by raising the price of a dress from $34 to $39. By comparison, changing the price from $34 to $44 yielded no difference in demand.

Source: Mind Your Pricing Cues

Edit

Provided link to original article. Thanks, DPS.

Edit two

Talking about the second example, the above theory is still valid. When someone sees 79, the '7' is smaller than '8' when someone sees 80.

  • 3
    A link to your bolded text would have been a lot helpful livescience.com/33045-why-do-most-prices-end-in-99-cents-.html Ending a price in .99 is based on the theory that, because we read from left to right, the first digit of the price resonates with us the most, Hibbett explained. That's why shoppers are more likely to buy a product for $4.99 than an identical one for $5 the item that starts with a 4 just seems like a better deal than the one that starts with 5. – DPS May 11 '17 at 7:27
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    I'm confused by the phrase "because we read from left to right, the first digit of the price resonates with us the most". Whatever direction we read in there would be a first digit. – aPaulT May 11 '17 at 8:57
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    What it means is that we remember the first thing we see more than what comes after. So the 2 of 2,99 is a better digit to remember than the 3 of 3,00 because people think 2 is better(cheaper) than 3. – Nick Groeneveld May 11 '17 at 9:04
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    What you wrote at the beginning does not match with the passage you cited. Particularly, why demand increased at $39 compared to that at $34, and why $34 vs $44 has no effect is not explained, and they actually contradict your whole point. – sawa May 11 '17 at 10:07
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    @aPaulT Reading from left to right seems important when talking specifically about prices like 2.99 vs 3.00, since the first digit is then 2 vs 3 (2 is lower) rather than 9 vs 0 (9 is higher, so the price may be perceived as being worse, even though it's lower), unless we're also assuming that the number is switched around if we change the direction we read from (i.e. 2.99 reading ltr is identical to 99.2 reading rtl). I don't know if that's actually the case for languages that are written from right to left. – Anthony Grist May 11 '17 at 10:58
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tl;dr

Taking your example:

We (the fast food chain) found that customers don't want to spend $3 on our hamburger.
Customers are willing to pay somewhere in the $2 range.
Our customers focus on dollars not cents.
So, anything less than $2.99 is throwing cents away.
The board gets mad when we throw money away.

Pricing is complex, Humans are lazy

I might almost go so far as to say we're dumb — but that's too far. Cognitively speaking, we look for quick, simplistic answers. In the case of pricing, consumers make glancing assessments based on prices we've encountered in the past. This assessment can psychologically override the actual value of the item. This is especially true for lower priced items, whatever that threshold might be.

Psychological Pricing Theory

The complexity of minute changes in price have been studied extensively and generally fall under the label of Psychological Pricing Theory. Read that page on Wikipedia for a lot of detail and some historical findings.

One key point, is they way consumers "round" the price. It's a higher level issue than simply left-to-right reading. It has to do with orders of importance. Specifically, the dollars are psychologically more important than the change. As quoted in the Wiki article:

Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored.

Fast Company wrote an article, The Psychology Behind the Sweet Spots of Pricing, that speaks to a related concept.

According to a study conducted by Kenneth J. Wisniewski from the University of Chicago, when the price of margarine dropped from 89 cents to 71 cents at a local grocery chain, sales improved by 65%. But when the price fell two cents more to 69 cents, sales jumped by an astounding 222%!

FastCo also proposed that the digital age may have introduced new sweet spots, but this has not been proven out yet.

Has $5.00 usurped $4.99 as a sweeter spot for luring customers?

Historically, pricing format has also been used as a means of record keeping, odd as that may sound today. Some retailers, even up to my experience in e-comm 10 years ago, used one format for regular prices and another for sale prices. Picking up on the theory that .99 performs better with price-sensitive buyers, many companies made that their sale standard. This has a compound effect: Consumers are subsequently trained to recognize 99 as the sale number.

In practice

Working in the e-comm world for several years, I had the opportunity to evaluate some very interesting pricing studies. The exact numbers varied, but the common factor in on-line buying habits was that anything after the dollars was effectively ignored.

I reviewed tests run at .00, .50, .95, .97, and .99 (just off the top of my head). Once the priced moved up or down a dollar, the cents had minimal impact on sales. IOW, asking $29.50 for an item rather than $29.99 just lost the seller 49 cents. Sell 10-20,000 units and you start to feel the spare change.

In the data I reviewed, the 99 effect was not as dramatic as discount retailers have seen. I worked primarily with mid-range and some high-end markets. Interestingly, in these markets, we found evidence that the price brackets had a bigger impact than the 9s. For example, pricing an item anywhere between $40-49 made very little difference. As soon as that item moved into the $50-75 bracket, volume would decrease.

For mid-range markets, these brackets tended to brake down as follows:

  • 5-9.99
  • 10-19.99
  • 20-29.99
  • 30-39.99
  • 40-49.99
  • 50-75.00*
  • 76-99.99
  • 100-125.00*
  • 126-149.99
  • 150-175.00*

* Those zeros aren't accidental. At these points, consumers responded best when the high point in the bracket stuck to the even dollar amount. In my findings the 99.99 and 149.99 points showed that it wasn't simply a matter of crossing some imaginary line. Some colleagues suggested that 25 and 75 became magic numbers after the 100 mark. YMMV ¯\_(ツ)_/¯

Effectively, it appeared that in mid-range price points consumers were mentally focused on the tens rather than the ones or cents. Price sensitivity up to a given bracket's _9.99 was fairly light. Crossing into the next bracket triggers a spike in that sensitivity and volume was disproportionately impacted.

Reverse psychology

One side-effect worth noting: I have also seen an inverse effect to the "deal shopping" mentality. Consumers of high-end items (jewelry, haute couture, fine decor and furniture, etc) aren't supposed to care about price. That's part of the status of owning those items. In those markets, I have seen evidence that there is a sort of branding effect that happens when the price is set with .00, no cents notation at all, and even no $.

For example, a dress from a Parisian high-fashion designer valued at about $4,600.00 could be priced according to any of the following formats:

  1. $4,599.99

  2. $4,599.00

  3. $4,600

  4. 4,600

From what I've seen in tests between $200.00-599.99, #4 would be the winning option. To a status- or craftsmanship-conscious buyer, my hypothesis is that this format shows confidence in one's product and an unwillingness to compromise. #1 in particular implies a sales rather than craft focus and may turn this consumer away.

  • Should the categories following the starred ones be 75.01-99.99, 125.01-149.99, etc.? – supercat May 11 '17 at 21:37
  • @supercat That's what my footnote was referencing. In the numbers I saw, going 1 cent over 75 was the same as jumping to 76. Unfortunately, pricing strategy doesn't follow a linear curve, even within the same product line. – plainclothes May 11 '17 at 22:01
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    At present, your table doesn't say whether prices in the range 75.01-75.99 are treated the same as those 76.00 and up or 74.99 and down. If 75.01 is the same as 76.00, then the range you list as 76-99.99 should instead be 75.01-99.99, should it not? – supercat May 11 '17 at 22:03
  • @supercat do with the table as you wish. These are the price brackets that repeatedly surfaced as worthy of experimentation. There were gaps that were not -- 75.01-75.99 was one of those gaps. At higher price points, gaps can be wider, but my "evidence" there is spottier. – plainclothes May 11 '17 at 22:12
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    @supercat sorry for the confusion. This was simply illustrative of how price strategy can shape up. Experiments were conducted in the gaps. In the case of a $75 item, +1 cent increments consistently performed poorly compared to prices below that threshold. It's a strange phenomenon and worthy of re-testing in any new market/brand. Again, included here simply for illustration of how pricing strategy isn't always a simple linear equation. – plainclothes May 11 '17 at 22:45
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The main reason to end a price for product in .9 or .99 is human psychology.

Research has proved that "Consumers perceive such prices lower than they actually are. So that additional 1 pence seems much more valuable to a consumer than it actually is."

Consumers tend to "round down" that value to the nearest dollar. E.g., $9.99 would be rounded down to $9 instead of up to $10. So the perception is actually getting the product at $1 less, instead of getting it at $0.01 less.

This is where that additional one pence would make a great difference (in consumers mind and not in actual value).

You can find a lot of research on the internet under "psychological pricing". You can start here: https://en.wikipedia.org/wiki/Psychological_pricing.

  • 17
    Not all languages read left-to-right. – JDługosz May 11 '17 at 8:19
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    @JDługosz still even for languages where it's read right to left (arabic for example), you still read a price 4,99 and not 99,4 – Joao Carvalho May 11 '17 at 8:34
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    In Aribic , where our numbers come from, they still put the most significant digit on the left. But to them that’s little endian — left is last. – JDługosz May 11 '17 at 8:38
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    @JDługosz Agreed and a very valid point! However the human psychology does not change whether you read it left to right or right to left. Brain would still register the first digit or character – Aditya Durgude May 11 '17 at 8:39
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    @JDługosz: Written/spoken direction is irrelevant. More significant digits remain more significant for the total price, irrespective of the order in which they are written or read out aloud. The trick is to confuse people about the distance to the next higher/lower number by tempting them to assign a greater relative importance to a given digit than it has. – O. R. Mapper May 11 '17 at 13:37
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Contrary to what appears to almost universally believed, the original reason for this practice was to prevent fraud. It was to keep the customer at the counter until the transaction was completed, in the days when the sales docket and the money tendered were whisked overhead in a basket to a cashier. By making sure there would always be change to give back to the customer, the opportunities for sales assistants to perpetrate frauds were reduced. They had to write e correct amount on the docket, tender at least that much money, wait for the cashier to check it, wait for the correct change to be returned, and return the change to the customer. So the customer had an interest in waiting for the entire internal transaction to complete correctly.

  • 2
    Sounds interesting - do you have any references for this? – O. R. Mapper May 13 '17 at 9:06
  • Overhead baskets? I think you have watched the movie Brazil too many times : ) – user67695 May 15 '17 at 17:15
  • @O.R.Mapper In fact my grandfather used to run a furniture store with them, and I may have got it from him. – user207421 May 15 '17 at 21:07
  • @nocomprende Neither seen it nor heard of it, but I'm old enough to remember them. Saw some last week in a W.C. Fields movie. – user207421 May 15 '17 at 21:07
  • Well, then this is probably the correct answer. Good luck, mate! – user67695 May 16 '17 at 11:48
0

For me, this goes back to our infancy where counting numbers was something hard and fun when done right. So there's a bit of excitement into the "almost promoted" number.

It's the first time we start dealing with the main number system used today, the 10 base system and the numbers start changing into something different, a double digit one. So from the teacher, we get a reward for getting to another digit every time.

For no confusion let's call it the Promotion factor

When our brain interprets the number there's a cognitive tick to the fact that the number is almost another number.

So what I see is that the customer get's this subliminal message that says "Yes! you counted well!" which taps to our childhood memories.

And this triggers being the promotion to another number just .01 away

In the end, when the time of decision comes to mind there's the embedded information of the promotion factor and that renders more excitement to the decision of taking the .99 ( which alleviates some of the need to get out of the anxiousness of choice-making )

Let's say we all know a better-looking package attracts more clients and this one is in your cognitive process.

As an example of this factor think of how more exciting is when a sports team wins by a close number rather than when it's far away. Maybe you could also measure with a set of length varied strips on a paper, randomly arranged and linearly arranged (like 1, 2, 3, 4, 5 centimeters strips) and ask someone which seems more dramatic and one will mostly look more dramatic than the other in comparison.

This shows how information can too yield emotion by itself and when this emotion is something that says we counted well then it's assuring towards the anxiousness of having to choose between two good options.

  • "Tonight I'm gonna party like it's 1999." – user67695 May 12 '17 at 12:12
  • Interesting idea. How does this create the impression that the price is lower than it really is? – plainclothes May 12 '17 at 17:06
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    @plainclothes thanks for the feedback, the idea was not expressed just my piece of mind – userDepth May 12 '17 at 18:47
  • As stated in your answer, it would imply that the opposite of the OP's question is true. I suspect that's not what you meant. Could you expand on the childhood experience position to explore why consumers perceive a 1 cent reduction to be much greater than it is? – plainclothes May 12 '17 at 19:01
  • @plainclothes The promotion factor is when the number is almost a promoted one – userDepth Jun 25 '17 at 13:12

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