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

It’s very common to see the number 9 at the right end of a price tag. But why? Learn about the psychology of pricing -- and nines in particular -- in this episode of BrainStuff.

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Episode Transcript

Speaker 1 (00:02):
Welcome to brain Stuff from How Stuff Works. Hey, brain Stuff,
I'm more in vocal Bomb and I've got another brain
Stuff classic episode for you today. It's about a psychological
trick that retailers used to play off our subconscious ideas
about value. Why so many price tags end in the
number Our former host, Christian Sager, has some possible answers

(00:24):
for you. Hey, brain Stuff, I'm Christian Sager. So the
other day I was shopping at Bavmorda's trebuche In Millinery emporium,
and I started wondering, why do so many prices end
in the number nine? Don't the stores want that extra penny?
You might have wondered the same thing too, and if

(00:45):
you have, it's not just your imagination. Studies have shown
that many retailers disproportionately used prices within five cents of
the nearest dollar, within one cent of the nearest ten cents,
within five dollars of the nearest one dollar or one
thousand dollars, and within one dollar of the nearest ten
dollar amount. Prices like this are often known as charm prices,

(01:09):
odd prices, magic prices, or psychological pricing. Price tags ending
in the number nine are especially common, but why these days?
Two main psychological theories of charm pricing have emerged for
the purpose of this episode. Will call them the rounding
off theory and the bargain signaling theory. The rounding off

(01:32):
theory states that shoppers tend to pay a lot more
attention to the first digits in a list of a price.
So when you see a product labeled twenty nine, even
though it's one penny off from thirty bucks, the theory
goes that you mentally round down to think of it
as a twenty dollar price point based on that first digit. Now,

(01:53):
the bargain signaling theory suggests that odd prices work the
same way sales signs do, meaning they imply to shop
bors that the price listed is especially good. Maybe the
weird specificity of something priced at five or two thirty
nine makes us think that the store is selling this
bag of gummy bears at the lowest price point that

(02:14):
can possibly afford. Or maybe we've all been conditioned by
marketing to associate odd prices, especially the ones ending in nines,
with sales and discounts. There seems to be some evidence
for both the rounding off theory and the bargain signaling theory.
In two thousand three, researchers showed that in some cases,

(02:34):
you could actually increase demand for an item by raising
the price so that it ended in a nine, which
would seem to contradict rational economics. One example, they studied
a thirty four dollar dress in a clothing catalog by
raising the price from thirty four dollars to thirty nine dollars.
Demand for the dress actually went up when they raised

(02:55):
the price to forty four dollars. However, the trend didn't hold,
so it wasn't us that buyers liked paying more for
their clothes. Since thirty four and thirty nine both start
with the same digit, this would seem to favor the
bargain signaling theory rather than the rounding off theory. Something
about the nine just seemed to make people think they

(03:16):
were getting a good deal. But there's evidence for the
rounding off effect as well. For example, a two thousand
five study found that prices ending in nine cents caused
shoppers to make math errors that even dollar prices did not.
It worked like this test. Shoppers were given an allowance
of exactly seventy three bucks, and they were then asked

(03:38):
to estimate how many products they could buy with this allowance.
It turned out that when endings were in the picture,
shoppers overestimated their spending power. In other words, they thought
they could buy significantly more products at prices like two
ninety nine and five ninety nine than they could at
three dollars or six dollars. This seems to suggest that

(04:01):
we do tend to round down and ignore the final
digits and prices, even though it makes no economic sense
to do so. So it looks like our penchant for
buying at the nines might be explained by a mixture
of our tendency to round down to the leftmost digit
and our beliefs that nines inherently indicate bargains. Today's episode

(04:27):
was written by Joe mccarnick and produced by Tyler Clang.
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