Stories | October 21, 2009

The “99” price point. Why is it so common?

Many products are priced to end in "9". Why?

You'll see it in the price for many products, cheap and expensive. Detergent sells a 2.99 a bottle. Soap at 49 cents and cars at 5,999.

But what is so special about "nine"? There are several explanations.

Registering a change?
Some argue the advent of the cash register in 1879 played a part. By charging 99 cents, sales staff were forced to open the till to give back change - meaning there was less chance to steal from their employer by pocketing the money and not registering the sale.

Left hand digit bias
Various experiments, however, suggest our tendency to read a price from left to right is a factor. Reading in this way means we tend to perceive a larger difference between 2.99 and 3.00 than the mere 1 cent difference. An alternative interpretation of this "left hand digit" effect is that consumers actually read 2.99 as 3.00 but consider that the producer is giving a little back and, therefore, consider that they have got a good deal.

Others suggest that producers are not so generous
Some argue .99 is a way of making choices simpler for shoppers. Instead of charging a true price of the individual items as 75 or 85 or even 1.20, the price is set at the "99" level. Effectively, price averaging is taking place. Depending on how savvy the consumer, producers could get a price advantage.

Let's negotiate
Expensive items, such as cars, are also are often priced in 9s. A possible here explanation is that sellers build in a margin that can be beaten down by the buyer. After all, the true price that the sales person may expect to get for the car is 4,500 but there is no point in setting the price there as bargaining would begin at that price. So, one lesson we can learn is that if the price is high but ending in a 9, it's worth haggling. The sales person could well have room to move.

Ian Bright
Ian Bright

Senior economist at ING
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