99 cent pricing, a relic from days when we paid cash to buy things

Friday, 8 April, 2011

Even though the article is dated 1 April there is some method in the foolishness… taking one cent/penny off the round dollar/pound/insert-your-currency-here price of any product has been “found” to no longer entice consumers into purchasing said product. That actually makes sense.

Everyone knows – or thinks they know – that prices such as £1.99, £5.99 or £9.99 are optimal price points for retail goods. Customers read the first digit first, and the last two are ignored – or at least, they have much less cognitive impact. In general, consumers were thought to put a subjective value estimate of about ten per cent less on an item priced at £3.99, than one at £4.00.

The rationale behind .99 cent pricing – or at least so we are told – is that consumers think they are actually paying ten-percent less for something than if it were priced at the round dollar figure. In other words we “feel” as if we are paying $3.70 for a cup of coffee that is priced at say $3.99.

99 cent pricing may have worked in the days when a cent was worth something, say when five of them could pay for a bus fare, but today they are virtually worthless, except in very large quantities, and then only if you can find a merchant who will accept piles of small coins as payment.

Not only though do we not receive a ten-percent “discount”, to add insult to injury, we are saddled with useless one cent coins, or as is the case in this part of the world, five-cent coins, being the smallest unit of currency in Australia. And some people so hate five-cent coins that they literally throw them away.

Despite therefore an underlying psychology that dictates otherwise, we are probably making a greater saving by paying the round dollar price, what are you going to do with a stack of one or five cent coins anyway?

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