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I've seen two competing theories on the origin of pricing products at $<desired dollar amount minus 1>.99 (i.e. charging $19.99 instead of $20, of $5.99 instead of $6):

  1. Psychological pricing scheme used by retailers to make products seem one dollar less expensive than they really are.
  2. As an anti theft measure; forcing store clerks to ring up orders and open cash drawers (to give customers their one cent change); rather than just pocketing the money.

Neither of these responses seem plausible to me.

In the first case, retailers are expecting people to ignore the 99 cents, but when most people check to see whether or not they have enough money in the bank are going to take these things into account. Even if there's a slight edge to be had by losing that penny, I can't believe it'd be more than the potential thousands that one cent is multiplied into when you're selling thousands of copies of a product. Plus, most mentally add a few cents for sales tax and other things anyway.

In the second, I fail to see what additional security forcing someone to open the cash drawer really offers. One could easily have a bunch of pennies lying around and still be able to pull off the same theft scheme. Most retailers have computerized systems and security cameras for these purposes now anyway.

Do any hard data exist which proves or disproves either of these claims, or which supports a third, heretofore unmentioned claim?

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    In all the European countries I have been to, and in New Zealand, sales tax is already included in the shelf price, so people don't have to add it mentally. – Lagerbaer Apr 20 '11 at 0:21
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    You are severely underestimating psychology. It’s irrelevant that we consciously know the difference between $1.00 and $0.99 to be minute. It’s been conclusively shown that we still fall prey to the difference. I’ve got no sources hence this is a comment. But this is well established so somebody will come up with sources soon enough. – Konrad Rudolph Apr 20 '11 at 8:50
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    Note that it's not only about getting people to think an item is one dollar cheaper, when it's actually just one cent cheaper. This trick can be employed to push something from the mental category "things that cost triple figures" to the more appealing "things that cost double figures" category. Applicable to any order of magnitude, obviously. – David Hedlund Apr 20 '11 at 9:17
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    One thing I detest about it is when a store offers a deal something like "Spend $20 and get a free bent spoon" and then everything is priced at $9.99, $4.99, $19.99 etc. I've always had a little sadistic enjoyment though when real estate agents price a property at $229,000 and I casually ask "The price was 230 thousand wasn't it?" knowing it bugs them... – Highly Irregular Feb 25 '12 at 8:01
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    @Mark: I don't really see what's immoral about doing this. Someone selling a product is completely moral in asking whatever they want for something. Now, if nobody takes them up on the offer, they know nobody thought the price was decent. :) – Billy ONeal Jul 23 '12 at 16:55
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Apparently it is a psychological marketing technique that assumes consumers ignore the least significant digit, reading from left to right. This explains why you'll often see the 99 in superscript (e.g. $1999). A study by Nicolas Guéguen and Céline Jacob(pdf) found that "nine-ending prices led to increase the amount of purchasing of women-customers". Interestingly, they also concluded that nine-ending prices do not increase the number of buyers, but does increase the number of sales from those who already buy:

The mean purchase amount of the customers was 6.53 €uros (SD = 1.95) in the nine-ending condition and of 5.08 €uros (SD = 2.22) in the zero-ending condition. The difference between the two means was highly significant (z = 3.72, p<.001).

The results of this experiment confirm Schindler and Kibarian’s results and indicate that the effect of nine-ending prices can be generalized to an other business situation.

As for preventing theft, opening the till/cash register creates a record of the sale which could potentially decrease likelihood of pocketing the money given by a customer. Can't find any studies on this, though.

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    The quote "nine-ending prices led to increase the amount of purchasing of women-customers" is taken out of context. It's mentioned in the linked paper as a rationale for conducting the authors' experiment, which revealed no difference in behaviour between sexes. The study the quote is taken from targetted women only. – jd. Apr 19 '12 at 11:20
  • @ajax333221 It is a bit ambiguous, to be fair. The hyphen means that the customers are women, and we are talking about their purchasing (as a noun). If that makes sense. Compare it to this: "...the running of women-athletes." – Mike Speed Aug 13 '12 at 8:27
  • Also, if 9.99$ may look to most as equal to 10$, no one would doubt a price of 10$. Therefore it comes almost for free. – clabacchio Mar 24 '14 at 12:27
  • @clabacchio: When you're selling millions of copies of a thing, that penny does not seem "free". – Billy ONeal Jul 14 '14 at 15:24
  • @BillyONeal I mean that it's free for who puts the price, not for who buys – clabacchio Jul 14 '14 at 15:40
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The short answer is that this practice is marketing orthodoxy, and supported by empirical evidence; companies do this because it makes them money. The exact cause is complex and perhaps unknowable, but the effect is real, and reasonably well documented.


Some common "folk" psychological explanations of the phenomena of the "9-fixation" are outlined in the paper "Why 99 Cents?" (pdf) written by Economist Oz Shy:

Rounding illusions: Consumers tend to approximate the prices they pay by a lower integer or a lower decimal number rather than a higher price. Thus, depending on the level of rounding numbers, consumers may state or report a price of $999.99 as nine-hundred-ninety-nine, as nine-hundred-ninety, or simply nine-hundred dollars. Whence, people tend to under quote a price according to the leading digits of the price. Stores, then, maximize profit by setting the last digits as large as possible, in which case they simply add the relevant sequence of 9s.

Consumers like to receive change: Therefore, if stores take into their pricing consideration the assumption that consumers' utility is enhanced by receiving change, they will maximize profit by handing out the minimum-possible change, which is 1¢. Hence, all prices end in 99¢.

Attractive digits: People find the combinations of 99, 999, 9999, and so on to be "nice." Thus, consumers are attracted to looking at prices involving many digits of nine. Hence, this "elegant" statement of the price serves as a store-advertising mechanism since after looking at the price itself consumers are more likely to pay attention to other details and features of the store.

Image of a discount retailer: Discount stores tend to utilize black & white ads in order to create an image that the store is engaged in a significant cost cutting. Similarly, a price of 99¢ may indicate that a store is concerned with all levels of cost cutting and that even a 1¢-cost reduction is being transferred to the consumers in the form of a 1¢ price reduction.


There are various proposed psychological and economic "causes" to this problem.

In "Why 99 Cents?", Shy proposes a game-theoretic solution, which has retailers reaching pricing equilibrium with 99 cents after the dollar amount.

The book The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making by Tom Nagle and Reed Holden suggests that people observe the "dollar" and "cent" parts of prices independently, and often ignore the cent portion as insignificant. Capitalizing on this phenomena, retailers should maximize profit by setting the "cent" part of the price to the highest possible value.

In his paper "Why are so many goods priced to end in nine? And why this practice hurts the producers" Kaushik Basu additionally offers that this phenomena is due to pricing equilibrium caused by consumers always assuming that the "cent" part of a price will be 99, and so when an item is "four-dollars", for instance, a consumer will assume that it's $3.99 and retailers will "lose" a penny.


Whatever the actual cause and effect of this phenomena, it is an empirical fact observed by André Gabor in his 1988 book Pricing: Concepts and Methods for Effective Marketing, who observed that the decimal portion of a price has no effect on the consumers of an item.

This same phenomena was observed by Phillip Gendall in his paper Estimating the Effect of Odd Pricing, who noted that "odd pricing generates greater-than-expected demand, at least at the individual brand level, and for the common practice of setting retail prices that end in 95 cents or 99 cents."

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    The "Consumers like to receive change" argument doesn't make any sense in places that have sales tax. – dan04 May 15 '11 at 21:55
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    Why do they like to receive change? I don't. – Louis Rhys Aug 19 '11 at 12:19
  • @Louis: you don't like when they give you back money? – nico Aug 19 '11 at 12:59
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    for example if the thing costs 7.80, I would prefer I have exact 7.80 so that I don't have to clutter my pocket with the coins.. – Louis Rhys Aug 19 '11 at 15:20
  • @nico Most of the people I know will let the cashier keep the change. It just isn't worth the bother :) – Luaan Sep 23 '15 at 8:37
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Here are two more recent papers to support the notion that consumers do suffer from significant "left-digit bias".

Lacetera, Pope, & Snydor (2012) looks at US used car sales data. It finds a large and discontinuous drop in sales prices at each 10,000-mile mark of the odometer.

For example, cars with odometer values between 79,900 and 79,999 miles are sold on average for approximately $210 more than cars with odometer values between 80,000 and 80,100 miles, but for only $10 less than cars with odometer readings between 79,800 and 79,899.

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MacKillop et al. (2013) surveys smokers and finds that smokers' self-reported probability of a quit attempt also jumps discontinuously each time the price of a pack of cigarettes crosses a dollar mark.

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These tend to support the notion that consumers have a left-digit bias. So do retailers tend to have 99-cent pricing because they want to exploit this bias? I do not have data regarding retailers' motives, but this seems to be a reasonable conclusion to make.

Some competing explanations--such as that retailers do this mainly (i) to circumvent employee theft or (ii) because consumers like to receive change--can perhaps be rejected based on evidence that similar 99 cent pricing is common in e-commerce, where there are usually no cash register or coins to deal with. Examples: Hackl, Kummer, & Winter-Ebmer (2014), Levy et al. (2011).

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