Reference from The real reason most prices end in 99 cents
Do you ever wonder why you see many prices ending in .99? It’s known as the “left digit effect.”
It seems to be a common human trait to look at a price like $19.99 and seeing it as $19, instead of a penny less than $20. We evaluate prices by the left digits. Although this pricing behavior is only a theory, we see this type of pricing in more than 60 percent of retail products.
Not pricing items in round numbers is also called “Odd Pricing” — referring to the resulting odd price numbers like 69 or 99 cents. The practice of odd pricing has been used for for more than a century.
Prices ending in 99 cents are impactful because we are conditioned to think 99 cents is a bargain, no matter how small the saving.
It’s interesting that people don’t perceive much difference in value between items priced at $20 and $25. But drop the price by one penny, and they perceive great difference between $19.99 and $24.99.
The power of the number “9” isn’t confined to the cents column, either. One American clothing retailer experimented by changing the price of a dress from $34 to $39 dollars and increased sales by over 30%. Higher prices ending in a “9” will actually outperform lower prices – on the very same product. The alluring thing about 99-cent pricing is that it feels like a sale price.
We also like bargains. So if we saw a $14 dollar shirt, we might assume it was cheaply manufactured. But if we see a $50 price tag marked down to $14, they would see that as a huge bargain. As Time Magazine noted, shoppers can be irrational. An end table that was priced at $150 doesn’t sell. Later, the table was priced at $245, then marked down to $150, and it sold out.
What does this mean to us?
My take away from this behavior is to price in terms of .99, but I also consider how to present my options next to less desirable options. Reinforce to consumers that they are getting a good deal by helping them to compare to less desirable options. Sometimes, you can put some options up that you don’t expect most people to purchase. Those options are there purely to strengthen the odds of buying the product you want your customer to purchase.