Monday, September 18, 2006

99 Cent Pricing

This is an age-old question: why do prices in stores end in .99 (like $1.99 instead of $2 or $19.99 instead of $20)?

The traditional explanation is that there is some psychological aspect that makes more people buy the product because it appears much cheaper even though it is only $0.01 cheaper. I buy that to a certain extent, but I feel there is also something to be gained by pricing at even numbers because people appreciate not feeling like they are being tricked. Or why not price items so that they work out to be even numbers when tax is added so that you save people from having to deal with change?

Another explanation I have heard is that it was designed to keep cashiers from pocketing money given to them by customers. Since they are given $1.99 instead of $2, the cashier has to open the register to give change.

Neither of these explanations are really satisfying, so I wanted to see what you guys thought. Another interesting idea is to think about the circumstances where pricing is a little different. Like why are gasoline companies are the only ones to give tenths of a cent on their prices? Or why do some places price in whole numbers (some fancy restaurants, used book stores, concert tickets, etc.) while most do not?

(Schulz gets credit for suggesting the question should be on the blog)


Anonymous said...

I know that, as lame as it is, I am definitely a victim to the idea of if something is $1.99, I tend to think of it as alot cheaper than if it were to be $2. I guess I feel as if that one cent makes a big difference. I think that 99 cent pricing not only allows the customer to think that they are getting a better deal but it also helps to kind of rob the customer into giving that extra dollar. For example, if something is $1.99 as opposed to like $1.50 then there something like 12 0r 13 cents. I don't personally carry around change so I usually end up giving that extra dollar and carrying around an obnoxious amount of change; however, I guess that same idea could be held for if you just rounded up that extra cent. I feel like the psychological reasoning behind the concept is the biggest reason behind 99 cent pricing. That one cent sure makes a big difference when you aren't thinking rationally.

Anonymous said...

I think that the reason for charging just 99 cents rather than the whole dollar might be because, like veronica said, it seems like a significantly smaller amount to have to pay. When you go to the 99 cent store, you know you won't have to pay more than one dollar for any item and therefore buying twenty items seems like such a bargain because it's not even one dollar a piece! in reality, you're still paying probably 20 dollars or more with tax, so you aren't saving as much as you might have irrationally identified with the price before.

I think maybe gasoline companies get more money out of you without getting a lot of grudging customers out of it by charging tenths of cents because added up, that's a lot of extra money spent that wasn't even part of the thought process probably when the person pulled into the station seeing the price. Also, when you go to a fancy restaurant, you expect to be charged a lot for your meal, and therefore if the same food was served at a normal place, it might cost $11.05, but with the standard whole number fare, the classy place might just round up and call it "15". Maybe I don't really have a reason I can swear by for this, but that is my best guess.

-Kate Vanderlip

Anonymous said...

One reason why gas companies might charge that extra tenth of a cent onto their prices is in order to increase people's willingness to pay subtly. If gas prices increase overnight by a few cents, I seriously doubt that it will deter enough people to affect the amount of profits gas companies receive. If they subtly increase the price over weeks at a time people tend not to notice as much and they still need to buy gas. People have to go to work and go out and enjoy themselves. If gas companies can maximize their profits without decreasing the demand for their gas, they will raise prices and keep that extra tenth of a cent.

Anonymous said...

this was Chris Templin who just posted

Anonymous said...

As hard as it is for me to believe, I cant find any other reason to why companies would put $.99 instead of a whole dollar. The only reason that comes to mind is the fact that consumers normally do not think twice of putting in that extra 99 cents into a purchase, yet while at the same time looking at a whole dollar does seem to make a significant difference. I think this works because most of the payments we recieve: paychecks, allowances, etc are given to us in a whole dollar amount. We are not thinking of a dollar being .99 cents plus a penny but rather a dollar is on a totally different level. Companies such as iTunes use this trick to their advantage. Each song is priced at .99 cents. People usually have no problem throwing away coins, yet place that paper in their hand and they will have a harder time letting it go. As a result, iTunes is able to get buyers to get more songs without thinking about the value of a dollar (or close to it at least).

Nick Wellmon

Anonymous said...

i like the idea of charging for an item that after taxation would come up even change. In france when i bought a Mcdonalds hamburger off the "dollar" menu an mazing thing was a dollar well euro not like 1.07..i think thats right. Although france doesn't have sales tax it was still really sweet. This would be a difficult task in America, with all the changing city and county sales taxes.
Looking at the 99 cent thing, i would have to say its just a logical way to for stores to get people to buy more items although less convience. Think if Cokes in the vending machines were 99 cents and you needed exact change..that would be terrible. like wise with chicken biscuits they are 2 dollars for convience. I know that the 99 cents is incovient but stores can get away with it because it seems less to people. Plus when doing a tax its the same as a dollar so the state and stores both win...we kind get screwed