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Why Do So Many Price Tags End In .99?

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It’s very common to see the number 9 at the right end of a price tag. Why is this? Lauren explains the psychology of prices and nines in this episode of BrainStuff.

Learn more at HowStuffWorks.com.

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Hi there! I’m Lauren, and this is BrainStuff. The other day I was shopping at Bavmorda’s Trebuchet and Millinery Emporium and I started wondering -- why do so many prices end in the number 9?

You might have wondered the same thing too, and if you have, it’s not just your imagination. Studies have shown that many retailers disproportionately use prices within 5 cents of the nearest dollar, 1 cent of the nearest 10 cents, $5 of the nearest $100 or $1000, and within $1 of the nearest 10-dollar amount.

Prices like this are often known as “charm” prices, “odd” prices, “magic” prices, or “psychological pricing.” Pricetags ending in the number 9 are especially common. But why?

These days, two main psychological theories of charm pricing have emerged. And yes, this is a field of study. For the purpose of this video, we’ll call them the “rounding off” theory and the “bargain signaling” theory.

The rounding off theory argues that shoppers tend to pay a lot more attention to the first digits in a listed price. So, when you see a product labels $29.99, even though it's only 1 penny off from being 30 bucks, the theory goes that you mentally round down to think of it as a $20 price point based on that first digit.

For example, a 2005 study found that prices ending in 99 cents caused shoppers to make math errors that even-dollar prices did not. It worked like this: Test shoppers were given an allowance of exactly 73 bucks, and they were then asked to estimate how many products they could buy with this allowance. It turned out that when 99-cent endings were in the picture, shoppers overestimated their spending power.

In other words, they thought they could buy significantly more products at prices like $2.99 and $5.99 than they could at $3 and $6. This seems to suggest that we do tend to “round down” and ignore the final digits in prices, even though it makes no economic sense to do so.

The bargain signaling theory suggests that odd prices work the same way “Sale” signs do, meaning they imply to shoppers that the price listed is especially good. Maybe the weird specificity of something priced $5.98 or $2.39 makes us think that the store is selling that bag of Gummy Bears at the lowest price point they can possibly afford. Or maybe we’ve all been conditioned by marketing to associate odd prices, especially the ones ending in 9, with sales and discounts.

In 2003, researchers showed that in some cases, you could actually increase demand for an item by raising the price so that it ended in a ‘9,’ which would seem to contradict rational economics.

One example they studied: A $34 dress in a clothing catalog. By raising the price from 34 bucks to 39 bucks, demand for the dress actually went up. When they raised the price to $44, however, the trend didn’t hold -- so it wasn’t just that buyers liked paying more for their clothes.

Since 34 and 39 both start with the same digit, this would seem to favor the bargain signaling theory rather than the rounding off theory. Something about the 9 just seemed to make people think they were getting a good deal.

So it looks like our penchant for buying at the 9s might be explained by a mixture of our tendency to round down to the leftmost digit AND our beliefs that 9s inherently indicate bargains.

SOURCES:

http://www.jstor.org/stable/10.1086/678484?seq=1#page_scan_tab_contents

http://www.theatlantic.com/business/archive/2015/01/the-psychological-difference-between-1200-and-1167/384993/

http://timharford.com/2012/06/pound-for-pound-99p-is-worth-every-penny/

http://www.nytimes.com/2009/02/08/weekinreview/08arango.html?_r=0

http://dept.camden.rutgers.edu/business/files/Schindler-2006.pdf

http://dept.camden.rutgers.edu/business/files/Bizer-Schindler-2005.pdf

http://onlinelibrary.wiley.com/doi/10.1002/mar.20084/abstract

https://hbr.org/2003/09/mind-your-pricing-cues

http://classes.bus.oregonstate.edu/fall-05/ba499/elton/Articles/Mind%20Your%20Pricing%20Cues.pdf

http://link.springer.com/article/10.1023%2FA%3A1023581927405

http://www.ozshy.50webs.com/21why99.pdf

https://www_nelsonpricing_com_ar.1.com.ar/biblioteca_pricing/1997-02_why_are_so_many_goods_priced_to_end_in_nine_Basu_K.pdf

http://marketing-bulletin.massey.ac.nz/V8/MB_V8_N1_Holdershaw.pdf

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