Psychological pricing

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Marketing Management
Psychological Pricing

Rodrigo Fernández-Romero.
20th March 2010.

Psychological Pricing
Many sellers believe that prices should end in an odd number (9,99€) insteadof 10€ as price. Why?.

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Because consumers have the tendency of ignoring the last digits instead of doing the rounding. Although actually seeing the cents, they may subconsciously ignorethem. Some suggest that this effect may be enhanced when the cents are printed smaller (for example, €19.99). Fractional prices suggest to consumers that goods are marked at the lowest possibleprice, attracting them to an impulsive purchase. People perceive the difference between 1.99€ and 3.00€ to be closer to 2.01€ than to 1.00€ because their judgments are anchored on the left-most digit.Let's suppose the explanation is that odd endings convey the notion of a discount or bargain. Nevertheless, why the second best option is 9,95€ instead of  9,98€?. What about 9,97€?.

•Some countries have eliminated the 0.01 coin from their currency (or the number of these coins is not very large due to its low usage) resulting in a rounding to the nearest 0.05. This way, 9.95€would be the same case as 9.99€. However, in countries with a 0.02 intermediate coin this strategy could be applied (e.g. Wal-Mart in the U.S. prefers price endings like $9.98). Given the sameasumptions, the 9.97€ price is not very interesting for sellers because consumers would effectively pay 9.95€ (rounding down) so it would be more interesting to use the latter as the resulting revenue willbe the same. If not, 9.99€ has statistically proven to be more effective.



References
• Various authors, Psychological pricing, Wikipedia Online Encyclopedia[http://en.wikipedia.org/wiki/ Psychological_pricing]. Last access: 20th March 2010. • Folkertsma C.K. (2001), The Euro and Psychological Prices: Simulations of the Worst-Case Scenario, Research Memorandum WO&E no. 659....
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