WEBVTT - BrainStuff Classics: Why Do So Many Price Tags End in .99?

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<v Speaker 1>Welcome to brain Stuff from How Stuff Works. Hey, brain Stuff,

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<v Speaker 1>I'm more in vocal Bomb and I've got another brain

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<v Speaker 1>Stuff classic episode for you today. It's about a psychological

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<v Speaker 1>trick that retailers used to play off our subconscious ideas

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<v Speaker 1>about value. Why so many price tags end in the

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<v Speaker 1>number Our former host, Christian Sager, has some possible answers

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<v Speaker 1>for you. Hey, brain Stuff, I'm Christian Sager. So the

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<v Speaker 1>other day I was shopping at Bavmorda's trebuche In Millinery emporium,

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<v Speaker 1>and I started wondering, why do so many prices end

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<v Speaker 1>in the number nine? Don't the stores want that extra penny?

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<v Speaker 1>You might have wondered the same thing too, and if

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<v Speaker 1>you have, it's not just your imagination. Studies have shown

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<v Speaker 1>that many retailers disproportionately used prices within five cents of

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<v Speaker 1>the nearest dollar, within one cent of the nearest ten cents,

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<v Speaker 1>within five dollars of the nearest one dollar or one

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<v Speaker 1>thousand dollars, and within one dollar of the nearest ten

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<v Speaker 1>dollar amount. Prices like this are often known as charm prices,

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<v Speaker 1>odd prices, magic prices, or psychological pricing. Price tags ending

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<v Speaker 1>in the number nine are especially common, but why these days?

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<v Speaker 1>Two main psychological theories of charm pricing have emerged for

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<v Speaker 1>the purpose of this episode. Will call them the rounding

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<v Speaker 1>off theory and the bargain signaling theory. The rounding off

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<v Speaker 1>theory states that shoppers tend to pay a lot more

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<v Speaker 1>attention to the first digits in a list of a price.

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<v Speaker 1>So when you see a product labeled twenty nine, even

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<v Speaker 1>though it's one penny off from thirty bucks, the theory

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<v Speaker 1>goes that you mentally round down to think of it

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<v Speaker 1>as a twenty dollar price point based on that first digit. Now,

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<v Speaker 1>the bargain signaling theory suggests that odd prices work the

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<v Speaker 1>same way sales signs do, meaning they imply to shop

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<v Speaker 1>bors that the price listed is especially good. Maybe the

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<v Speaker 1>weird specificity of something priced at five or two thirty

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<v Speaker 1>nine makes us think that the store is selling this

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<v Speaker 1>bag of gummy bears at the lowest price point that

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<v Speaker 1>can possibly afford. Or maybe we've all been conditioned by

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<v Speaker 1>marketing to associate odd prices, especially the ones ending in nines,

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<v Speaker 1>with sales and discounts. There seems to be some evidence

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<v Speaker 1>for both the rounding off theory and the bargain signaling theory.

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<v Speaker 1>In two thousand three, researchers showed that in some cases,

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<v Speaker 1>you could actually increase demand for an item by raising

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<v Speaker 1>the price so that it ended in a nine, which

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<v Speaker 1>would seem to contradict rational economics. One example, they studied

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<v Speaker 1>a thirty four dollar dress in a clothing catalog by

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<v Speaker 1>raising the price from thirty four dollars to thirty nine dollars.

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<v Speaker 1>Demand for the dress actually went up when they raised

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<v Speaker 1>the price to forty four dollars. However, the trend didn't hold,

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<v Speaker 1>so it wasn't us that buyers liked paying more for

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<v Speaker 1>their clothes. Since thirty four and thirty nine both start

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<v Speaker 1>with the same digit, this would seem to favor the

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<v Speaker 1>bargain signaling theory rather than the rounding off theory. Something

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<v Speaker 1>about the nine just seemed to make people think they

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<v Speaker 1>were getting a good deal. But there's evidence for the

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<v Speaker 1>rounding off effect as well. For example, a two thousand

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<v Speaker 1>five study found that prices ending in nine cents caused

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<v Speaker 1>shoppers to make math errors that even dollar prices did not.

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<v Speaker 1>It worked like this test. Shoppers were given an allowance

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<v Speaker 1>of exactly seventy three bucks, and they were then asked

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<v Speaker 1>to estimate how many products they could buy with this allowance.

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<v Speaker 1>It turned out that when endings were in the picture,

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<v Speaker 1>shoppers overestimated their spending power. In other words, they thought

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<v Speaker 1>they could buy significantly more products at prices like two

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<v Speaker 1>ninety nine and five ninety nine than they could at

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<v Speaker 1>three dollars or six dollars. This seems to suggest that

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<v Speaker 1>we do tend to round down and ignore the final

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<v Speaker 1>digits and prices, even though it makes no economic sense

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<v Speaker 1>to do so. So it looks like our penchant for

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<v Speaker 1>buying at the nines might be explained by a mixture

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<v Speaker 1>of our tendency to round down to the leftmost digit

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<v Speaker 1>and our beliefs that nines inherently indicate bargains. Today's episode

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<v Speaker 1>was written by Joe mccarnick and produced by Tyler Clang.

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<v Speaker 1>Check out our online shop at t public dot com

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<v Speaker 1>slash brain Stuff. Every purchase supports us directly, and of course,

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<v Speaker 1>for more on this and lots of other valuable topics,

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<v Speaker 1>visit our home planet, how Stuff Works dot com