You may think you are getting a bargain when the price is $3.99 or $399.99.
Not necessarily.
What 99 Cents Means
The numbers “99” relate to our left digit bias and to “just below” pricing.
Left digit just refers to what we see first makes the biggest impression. And because we see a price from left to right, it’s the first digit that we absorb. As a result, we could feel better about $9.99 than $10.00. However, when we compare prices from memory, our left digit bias fades.
Just below as you might expect is the penny decrease that takes us to $3.99 or to $399.99. However, just below might not take you to a price decrease. The WSJ Numbers Guy tells that it is more likely that 99 relates to a price increase. By contrast, when stores lower a price, you could be told that you get “two for $30.00.”
The psychology is old. One unconfirmed possibility is the cash registers that were first used to prevent employee theft. The reasoning was that 99 cents required change so you had to use the register.
Our Bottom Line: Price
In a market economy, price provides information. We know, for example, that a $10 t-shirt might not be well made and $8 for a gallon of gasoline is expensive. Correspondingly, sellers use price to select land, labor, and capital. For all of these reaons, with capitalism, prices play a crucial role because of the incentives they create on the demand and supply sides of markets.
Thinking about 99 cents, I wondered why, as we noted in yesterdays post, Sam’s Club lowered its “cafe hot dog combo” to $1.38.
My sources and more: WSJ’s Money Briefing podcast had the facts about prices with “99” in them. Meanwhile, this WSJ article from 2021 had more academic detail. Please note that our featured image was from sgimerchandising.
