Why $9.99 Is a Special Price

According to The Wall Street Journal, as a threshold, $9.99 is more than a price. Hearing $10.00, we refuse to make the purchase.

99 cents has always made a difference. Now, combined with $9.00, it has extra significance.

The Significance of $9.99

Avoiding $10.00 is nothing new. Always, retailers have known a $10.00 price could make a customer switch and try a different brand. However, because of inflation and expensive gas, $9.99 has more power.

In a summer promotion, Walmart slashed the price of its Coke and Pepsi 24-packs to less than $10. Similarly, we can buy a Boston Beer Twisted Tea 4-pack (instead of their usual 6-pack) that is below $9.99.

Meanwhile, producers like Hasbro are creatively cutting costs through newly designed cheaper packaging. A Hasbro executive told us that $9.99 is a “snackable price“ that is “great for a quick treat, a gift or a little show of love or appreciation.”

What 99 Cents Means

The number “99” relates to our left digit bias and to “just below” pricing.

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. Then, knowing $9.99 is “just below” $10.00, we like it. However, when we compare prices from memory, our left digit bias fades.

Our Bottom Line: Price

In a market economy, price provides information. We know, for example, that a $5 t-shirt might not be well made but $5 for a gallon of gasoline is expensive. Correspondingly, sellers use price to select land, labor, and capital. For all of these reasons, with capitalism, prices play a crucial role because of the incentives they create on the demand and supply sides of markets.

Further explaining, a Columbia University professor tells us that we “tend to categorize prices into ranges, so having a price be under $10 can feel different than a price that is $10 and above, even when the actual monetary difference is negligible.”

Perhaps it all takes us back to the power of the market. Together, supply side cost cuts have interacted with the law of demand to make a $9.99 sweet spot.

My sources and more: WSJ inspired today’s post while their 2022 Money Briefing podcast and this 2020 WSJ article told the whole 99 cent story.

Please note that several of today’s sentences were in a past econlife post.