The $0.99 Cent Effect

Last night I went to pick up a few groceries to replace items for the week. While moving through the cereal aisle I saw a box of a generic brand of granola bars that I wouldn’t normally purchase. But the price had been reduced to $1.99, so I decided I would grab a box. Later at home I was putting them away and I started to wonder why I had gotten the things in the first place. I didn’t especially like them, and while my kids would enjoy them they were so packed in sugar that I wouldn’t normally give it to them.

I had fallen for an old sales trick that researchers say is a highly effective on in today’s market. Studies have shown again and again that when a customer sees the tell-tale $.99 ending on any price, they are more likely to buy than if there is a cent more in price, pushing the tag to show $.00. This is such an extreme compulsion that someone might even spent $1,299.99 on a television without considering the price as closely as the same person who would reject buying a similar television for $1,300.00.

A Bargain or a Scam?

What is important to remember is that just because the price says it is a $.99 deal, you aren’t necessarily getting a steal. The numbers indicate some kind of cut price, when the different between the tag price and the retail price are miniscule at best, nonexistent at worse. I learned that the hard way when my own price check revealed that the granola bars I had bought, which I didn’t even want, cost the same whether by a single cent as they normally did. But I had immediately assumed it had to be some kind of discount.

According to Dr. Russell Winer of New York University, it is all a matter of perception versus reality.

“I think this is all consistent with the idea that odd prices act as an information-processing reduction, indicating a product is a deal. Just because the price ends with 99 cents, it doesn’t mean it’s a really good deal.”

Whole Numbers Versus .99

This is something that is used all over the world. However, in some countries there is an opposite view. The generations in Poland that lived under the harsh regime of the Soviet Union were often subjected to such methods to promote an ideal of fair trade. Because of this, when they see a price ending in an odd number they feel they are being manipulated and will be turned off of the product. They prefer round numbers, which show an honest, straightforward price.

In the United Kingdom, several high end stores have consistently kept price tags in whole number values. This, they feel, reflects the quality of the product being better than those of other stores. When they use the strange prices they often see the type of customer meeting their demographic less willing to make a purchase.

However, in most countries, the UK included, the tactic works in low – medium range shops for any number of items. It is as important a marketing method as showing the “original price” crossed out on the sticker.

Smart Shopping

This doesn’t mean that you will be unable to get a good deal on something that ends in .99. Not everyone in the business world is trying to scam you, and some may be serious cuts in the original price. The trick is to comparison shop long before you go into the store. With the introduction of online shopping, this is not at all a difficult task. Especially as there are plenty of websites dedicated to comparing prices, both by users and webmasters.

So, what do YOU think? Does the .99 cent effect work on you? If not, how do you avoid it?

cc licensed flickr photos shared by PetroleumJelliffe, Joel Franusic and nate’sgirl