Why do prices end in .99?

Many of the questions people ask me are about pricing. One of the most popular questions is why do prices end in .99? It seems like everything from coffee to televisions and shoes to computers end with .99. So why do marketers do this? There are several different consumer psychology arguments but I’ll highlight two:

Right-Digit Effect or “Meaning”

The right digit theories suggest that prices ending in .99 signal to the consumer that the item is low-priced or on sale. Think about buying a coffee:

Large: $2.99
vs.
Large: $3.00

The meaning argument suggests that the $2.99 price sends a message that the item is a good deal, low price or on sale. While this argument makes sense, there is another pricing theory that consumer psychology researchers focus on a bit more.

Left-Digit Effect or “Drop-Off”

The left-digit theories argue that consumers pay very little attention to the last couple digits of the price. Consumer attention and focus drops off. Let’s take the same pricing example as above:

Large: $2.99
vs.
Large: $3.00

The drop off theory suggests you read those prices and interpret them in the following way:

Large: $2.99 —> $2
vs.
Large: $3.00 —> $3

Which price looks more appealing? $2.99 seems like a better option than $3.00 because consumers interpret it as $2. There are other explanations for why this happens, how it happens, variations of how the .99 price is interpreted but I will save those for other posts.

Takeaway

Pricing matters. Numbers matter. Very subtle changes can result in big differences in how consumers respond. The two theories presented in this post argue that the $.99 ending either signals something to the consumer (like a sale) or is ignored by the consumer ($2.99 becomes $2).

How do you price your products? Do your prices end with .99 or do you use a round number (ex. $3)?

Sources/Credits:

  • Bizer, G. Y., & Schindler, R. M. (2005). Direct evidence of ending-digit drop-off in price information processing. Psychology and Marketing, 22(10), 771–783. doi:10.1002/mar.20084

3 comments

  • What is Consumer Behavior?
  • nice post C. I’d love to see a follow up about unusual price endings- example, .98, or .97 (which I believe Wal-Mart often utilizes). There is also an interesting conversation to have in the luxury market about round numbers- example, $368 (is that actually more desirable to that customer than $350 or $398?)

    Like

    • Thanks for the comment! Great suggestions for future posts. There are differences on how .98 (even ending) and .97 (odd) are interpreted. Given .99 pricing has been common for so long, there seems to be a bit of a shift back to round numbers, as you point out, particularly with premium products. Some great ideas for future posts/research!

      Like

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