Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How Price Ending with 99 Boosts Sales Without You Noticing
Transcript
- Lucas: If you walk into a grocery store and look at the shelf tags, you will see something like eighty-nine cents, one dollar forty-nine, two dollars ninety-nine. The pattern is so universal that most of us never stop to ask: why does every price end in nine? Luna: It is everywhere. Even at higher price points, you see ninety-nine dollars, one hundred ninety-nine dollars. Why do retailers love the nine so much? Lucas: The short answer is that it works. There is a well-documented psychological effect called the left-digit effect. When a price is $19.99, the brain processes the leftmost digit first — the one — so it registers as closer to $10 than to $20. That one-cent difference disproportionately affects perceived value. Luna: But is it really that powerful? I mean, we are talking about a penny. Do consumers actually make decisions based on a penny? Lucas: Yes, and the data is really striking. In the early 2000s, researchers at MIT and the University of Chicago ran a field experiment in a women's clothing catalog. They set the same dress at three prices: $34, $39, and $44. The $39 dress outsold the $34 dress — even though $39 is five dollars more expensive. The nine-ending made it feel like a better deal. Luna: So $39 felt cheaper than $34? That is wild. What is going on in the brain? Lucas: The leading theory is that we process prices from left to right, and we truncate the rightmost digits. So $39 gets read as 'thirty-something' and $34 gets read as 'thirty-something' too — they seem similar — while $44 jumps to 'forty-something.' But $34 compared to $44 feels like a clear ten-dollar gap. The nine creates this fuzzy zone where the price seems lower than it actually is. Luna: That explains the catalog study. But what about grocery stores? There is a famous study about a cheese display, right? Lucas: Right. Researchers at Cornell looked at a store that raised the price of a block of cheese from $5.99 to $6.99 — a one-dollar increase. Sales dropped significantly. But when they raised it from $6.00 to $7.00, sales dropped even more. The same one-dollar increase had a bigger impact when the left digit changed from six to seven. The left-digit effect magnifies the perceived jump. Luna: So charm pricing — that is what it is called, right? — it really does influence buying behavior. But are there situations where it backfires? Lucas: Absolutely. If you are a luxury brand, ending your prices in ninety-nine can cheapen the brand image. Rolex does not price a watch at $9,999. They price it at $10,000. The rounded number signals quality and prestige. There was a study from the Journal of Consumer Research showing that round prices — like $30 — increased purchase intent for luxury products, while nine-ending prices increased it for utilitarian products. Luna: That makes sense. If I see a high-end handbag for $1,999, I might think it is trying too hard to look like a deal. For luxury, you want the price to feel like a statement, not a bargain. Lucas: Exactly. And there is also a risk of overuse. When every single price in a store ends in ninety-nine, customers start to feel manipulated. Some retailers, like J.Crew or Apple, use a mix of rounded and charm prices depending on the product line. Apple prices the iPhone at $999 for the base model, but the high-end Pro Max at $1,199 — which is a round number — to signal premium. Luna: And what about the psychology of the number nine itself? Is there something special about nine, or could it be any odd number? Lucas: Most research focuses on nine because it is the most common ending in retail. But studies have tested prices ending in five, seven, and even eight. The nine consistently outperforms others in terms of perceived discount. However, some brands have found success with seven — like the old '97-cent' pricing at some gas stations — but nine remains the champion. Luna: So if I am a small business owner, should I use charm pricing across the board? Or are there nuances I should consider? Lucas: It depends on your category and your brand position. If you are a discount retailer or a grocery store, charm pricing is almost expected. If you are a premium service or luxury good, you might want to avoid it. Also consider the price level: at very high prices, the left-digit effect weakens. $99,999 vs $100,000 — the difference is still there, but the consumer is making a different kind of decision. Luna: That reminds me of something I read about car dealerships. They often price cars at $19,995 instead of $20,000. But for a car, that five-dollar difference seems almost comical. Lucas: Right. But it persists because it works. A study from the Journal of Marketing Research found that used cars priced with a nine-ending sold faster and at higher volumes than those with round prices, even after controlling for condition and mileage. The effect is real, even if the savings are trivial. Luna: Speaking of real effects, I want to ask about something I have noticed. Online, prices often end in ninety-nine cents, but sometimes you see $19.98 or $20.00. Is there a difference in digital versus physical pricing? Lucas: Great question. Online, the left-digit effect still applies, but there is an additional factor: visual presentation. On a screen, the price is often listed in a smaller font or alongside a strikethrough original price. Some A/B tests have shown that ending with ninety-nine works better on product pages, but for checkout totals, round numbers reduce cart abandonment. Nobody wants a total of $99.99 — it feels more expensive than $100.00. Luna: So the same digit that boosts initial interest can hurt the final sale. That is a subtlety that many businesses miss. Lucas: Exactly. And that is the kind of insight that makes pricing strategy so fascinating. It is not just about slapping a nine on the end. It is about understanding the entire customer journey and where that digit will have the most impact. Luna: You know, Lucas, I find these conversations genuinely useful for my own work. And I know a lot of our listeners do too. If today was actually useful to you, the way these stay ad-free is listener support. Lucas: Absolutely. If you have gotten value from these episodes, consider buying us a coffee over at buy me a coffee dot com slash fexingo. It is a small way to keep the conversation going without any ads. Luna: Yeah, it helps us keep doing what we love. And there is no pressure — we are just grateful you listen. Lucas: Anyway, back to the pricing science. There is another layer to this that we have not touched on: how charm pricing interacts with discounts and promotions. Luna: Oh, that sounds like a good follow-up. For example, if a product is already priced at $19.99, and you put it on sale for $15.99, does the nine-ending still work the same way? Lucas: That is a great point. When you have a sale price, the left-digit effect is even more pronounced. A price drop from $19.99 to $14.99 feels like a bigger discount than from $20 to $15, even though both are a five-dollar reduction. The left digit changes from one to one, but the second digit changes from nine to four — that 'four' feels significantly lower. Luna: So the nine-ending not only helps the regular price seem lower, but it also amplifies the perception of a sale. That is a double benefit. Lucas: Exactly. But there is a catch. If you use charm pricing too often on sale items, customers start to anchor on the nine-ending and assume it is the regular price. Then when you run a promotion, the discount feels less impressive. It is a balancing act. Luna: So the strategy has to be dynamic. You cannot just set it and forget it. Lucas: Right. And that is why companies like Amazon use algorithms to test thousands of price endings. They know that a price of $9.99 might outperform $9.98 by a statistically significant margin, but only for certain products and customer segments. It is not one-size-fits-all. Luna: That level of granularity is impressive. But for a small business without those resources, what is the single best piece of advice? Lucas: Test. Pick one product, change the price from $20 to $19.99, and track the sales volume over a month. Then compare to a control period. You might be surprised. And if you are in a category where charm pricing is standard, not using it could put you at a disadvantage. Luna: I think a lot of listeners will try that. It is a low-risk experiment that could yield real results. Lucas: And if it does, you will have a concrete example of how that one penny — or actually, that one digit — can change behavior. It is a small tweak with a big psychological punch. Luna: Alright, next time I go shopping, I am going to start counting nines. I think I will see the world a little differently. Lucas: Once you see it, you cannot unsee it. But hopefully, understanding why it works helps you make smarter decisions as a buyer and as a seller.