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PRICE ENDING
Price ending, or more commonly psychological pricing, is the practice whereby advertised prices are consistently just below round numbers; for example, such prices might end in a sequence of nines. The price is often equivalent to a round number minus the value of the smallest coin: typically ending .99, .95, .90 or occasionally .50. In the UK, before the withdrawal of the half penny coin in 1984, prices often ended in 99½.
A number of explanations have been advanced for this practice:
- It fools the customer into thinking that the price is lower than it is. This is especially the case when the rounded-up price has an extra digit (e.g. 9.99 → 10.00). One controlled study suggested that this increased sales by 8%.
- When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.
- When prices are quoted after tax, it is a way to reduce employee theft by forcing them to make change, hence ringing up a sale in order to open the till.
- When prices are quoted after tax, the total gives a simple checksum of the number of items purchased.
- When prices are quoted after tax, some customers may not wish to wait for their change, and this will produce a small increase in tax free profits.
- When prices are quoted before tax, the rounding algorithm may slightly reduce the amount of tax payable.
See also
Sources
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