Speaker 1: Welcome to brain Stuff from How Stuff Works. Hey, brain Stuff,
Speaker 1: I'm Christian Sager. So the other day I was shopping
Speaker 1: at Bavmorda's Trebuche and Millinary Emporium, and I started wondering,
Speaker 1: why do so many prices end in the number nine?
Speaker 1: Don't the stores want that extra penny? You might have
Speaker 1: wondered the same thing too, and if you have, it's
Speaker 1: not just your imagination. Studies have shown that many retailers
Speaker 1: disproportionately used prices within five cents of the nearest dollar,
Speaker 1: within one cent of the nearest ten cents, within five
Speaker 1: dollars of the nearest one hundred dollar or one thousand dollars,
Speaker 1: and within one dollar of the nearest ten dollar amount.
Speaker 1: Prices like this are often known as charm prices, odd prices,
Speaker 1: magic prices, or psychological pricing. Price tags ending in the
Speaker 1: number nine are especially common. But why these days? Two
Speaker 1: main psychological theories of charm pricing have emerged For the
Speaker 1: purpose of this episode. Will call them the rounding off
Speaker 1: theory and the bargain signaling theory. The rounding off theory
Speaker 1: states that shoppers tend to pay a lot more attention
Speaker 1: to the first digits in a list of a price.
Speaker 1: So when you see a product labeled twenty nine nine,
Speaker 1: even though it's one penny off from thirty bucks, the
Speaker 1: theory goes that you mentally round down to think of
Speaker 1: it as a twenty dollar price point based on that
Speaker 1: first digit. Now, the bargain signaling theory suggests that odd
Speaker 1: prices work the same way sales signs do, meaning they
Speaker 1: imply to shoppers that the price listed is especially good.
Speaker 1: Maybe the weird specificity of something priced at five night
Speaker 1: or two thirty nine makes us think that the store
Speaker 1: is selling this bag of gummy bears at the lowest
Speaker 1: price point they can possibly afford. Or maybe we've all
Speaker 1: been conditioned by marketing to associate odd prices, especially the
Speaker 1: ones ending in nines, with sales and discounts. There seems
Speaker 1: to be some evidence for both the rounding off theory
Speaker 1: and the bargain signaling theory. In two thousand three, researchers
Speaker 1: showed that in some cases, you could actually increase demand
Speaker 1: for an item by raising the price so that it
Speaker 1: ended in a nine, which would seem to contradict rational economics.
Speaker 1: One example, they studied a thirty four dollar dress in
Speaker 1: a Clothing Catalog by raising the price from thirty four
Speaker 1: dollars to thirty nine dollars. Demand for the dress actually
Speaker 1: went up when they raised the price to forty four dollars. However,
Speaker 1: the trend didn't hold, so it wasn't just that buyers
Speaker 1: liked paying more for their clothes. Since thirty four and
Speaker 1: thirty nine both start with the same digit, this would
Speaker 1: seem to favor the bargain signaling theory rather than the
Speaker 1: rounding off theory. Something about the nine just seemed to
Speaker 1: make people think they were getting a good deal. But
Speaker 1: there's evidence for the rounding off effect as well. For example,
Speaker 1: a two thousand five study found that prices ending in
Speaker 1: nine cents caused shoppers to make math errors that even
Speaker 1: dollar prices did not. It worked like this test. Shoppers
Speaker 1: were given an allowance of exactly seventy three bucks, and
Speaker 1: they were then asked to estimate how many products they
Speaker 1: could buy with this allowance. It turned out that when
Speaker 1: endings were in the picture, shoppers overestimated their spending power.
Speaker 1: In other words, they thought they could buy significantly more
Speaker 1: products at prices like to ninety nine and five ninety
Speaker 1: nine than they could at three dollars or six dollars.
Speaker 1: This seems to suggest that we do tend to round
Speaker 1: down and ignore the final digits and prices, even though
Speaker 1: it makes no economic sense to do so. So, it
Speaker 1: looks like our penchant for buying at the nines might
Speaker 1: be explained by a mixture of our tendency to round
Speaker 1: down to the leftmost digit and our beliefs at nines
Speaker 1: inherently indicate bargains. Check out the brainstuff channel on YouTube,
Speaker 1: and for more on this and thousands of other topics,
Speaker 1: visit hastuff works dot com.