Photo: Flickr / DaMongMan
Ever wonder why supermarket prices often end in 99 cents? In an interview with the Daily Telegraph, “undercover economist” Tim Harford explains why retailers know what they’re doing when they slap that bright orange sticker on a cereal box.
To charge the most money without losing customers with every price hike, they go for the sweetest price point there is—99 cents.
Here’s why Harford says it works:
They make change. “Product prices with 99p endings are difficult to pay for with exact money,” says Harford, a good thing since “the sale must be recorded to open the register” and “the shop can’t just hand over the product and steal the cash.”
The “left digit” effect. This “suggests that consumers can’t be bothered to read all the way to the end of a price,” Harford says. “‘£79.99′ reads as ’70-something pounds.’ The alternative theory is that a price ending in 99p is simply shorthand for good value.”
It’s better than ‘4’. Harford points to field experiments from 2003 in which a mail order company switched around its advertised prices. “A $59 dress would sometimes be priced at $54 or $64 instead,” he says, and prices ending in ‘9’ were more likely to find buyers, relative to the prices ending in ‘4.’” That said, people might simply ignore the pennies and round down.