Pros and cons of .99c pricing

.99c pricing is one I’m sure we’re all familiar with, a marketing tactic used by many retailers to help boost sales – but does it really work?

There are many storied as to where .99c pricing first originated, I’m not really sure which one is true. This one if my favorite though:

“In 1876, Melville E. Stone decided that what Chicago needed was a penny newspaper to compete with the nickel papers then on the stands. But there was a problem: with no sales tax, and with most goods priced for convenience at even-dollar figures, there weren’t many pennies in general circulation. Stone understood the consumer mind, however, and convinced several Chicago merchants to drop their prices–slightly. Impulse buyers, he explained, would more readily purchase a $3.00 item if it cost “only” $2.99. Shopkeepers who tried the plan found that it worked, but soon they faced their own penny shortage. Undaunted, Stone journeyed to Philadelphia, bought several barrels of pennies from the mint, and brought them back to the Windy City. Soon Chicagoans had pennies to spare and exchanged them for Stone’s new paper.”

But does it actually work? Here are a few pros:

• Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored. Some suggest that this effect may be enhanced when the cents are printed smaller (for example, $19⁹⁹).
• Fractional prices suggest to consumers that goods are marked at the lowest possible price.
• When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.
• Judgments of numerical differences are anchored on left-most digits, a behavioral phenomenon referred to as the left-digit anchoring effect. This hypothesis suggests that people perceive the difference between 1.99 and 3.00 to be closer to 2.01 than to 1.00 because their judgments are anchored on the left-most digit.

Don’t get too excited though! Here’s a few cons:

• Upscale establishments normally end in whole numbers as opposed to decimals – this offers a more “quality” feel, as opposed to a “bargain” feel.
• In many cultures, it seems deceptive (especially in Poland for example).
• This has been around for over a hundred years, most consumers are becoming immune to it’s effects.

As far as I know, there hasn’t really been a conclusive study (well a study I deem to be conclusive) and results seem to vary widely. Personally, I dislike .99c pricing and try to avoid it wherever possible – It makes me wonder, if this person is trying to deceive me with their pricing, what else are they trying to deceive me with?

Have you ever used .99c pricing in your business? What were the results?