Psychological pricing

Psychological pricing (also price ending, charm pricing) is a pricing and marketing strategy based on the theory that certain prices have a psychological impact. Retail prices are often expressed as 'odd prices': a little less than a round number, e.g. $19.99 or £2.98. There is evidence that consumers tend to perceive 'odd prices' as being lower than they actually are, tending to round to the next lowest monetary unit. Thus, prices such as $1.99 are associated with spending $1 rather than $2. The theory that drives this is that lower pricing such as this institutes greater demand than if consumers were perfectly rational. Psychological pricing is one cause of price points. Psychological pricing (also price ending, charm pricing) is a pricing and marketing strategy based on the theory that certain prices have a psychological impact. Retail prices are often expressed as 'odd prices': a little less than a round number, e.g. $19.99 or £2.98. There is evidence that consumers tend to perceive 'odd prices' as being lower than they actually are, tending to round to the next lowest monetary unit. Thus, prices such as $1.99 are associated with spending $1 rather than $2. The theory that drives this is that lower pricing such as this institutes greater demand than if consumers were perfectly rational. Psychological pricing is one cause of price points. According to a 1997 study published in the Marketing Bulletin, approximately 60% of prices in advertising material ended in the digit 9, 30% ended in the digit 5, 7% ended in the digit 0 and the remaining seven digits combined accounted for only slightly over 3% of prices evaluated. In the UK, before the withdrawal of the halfpenny coin in 1969, prices often ended in 11​1⁄2d (elevenpence halfpenny: just under a shilling, which was 12d); another example was £1/19/11¾d. (one pound, nineteen shillings and elevenpence three farthings) which is one farthing under £2. This is still seen today in gasoline (petrol) pricing ending in ​9⁄10 of the local currency's smallest denomination; for example in the US the price of a gallon of gasoline almost always ends in US$0.009 (e.g. US$1.799).