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.
Do you have a theory of your own about the
99-cent trick?
Let us know in the comments!
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