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