Why 99 Is the Magic Number for Pricing Products

A consumer psychologist explains how giving up that extra penny can benefit your bottom line.
The 99-cent pricing strategy allows customers to perceive your business as having a lower price image. (Photo: Olivier Le Moal/Shutterstock)

Is the lowly penny worth anything these days? If you see one on the ground, it’s debatable whether it’s worth the energy to pick up. But if you own a store, knocking a single cent from the whole dollar price of a product can make a positive impact on your bottom line.

NCR Silver talked with consumer psychologist Bruce Sanders, author of “Sell Well: What Really Moves Your Shoppers,” for his insights on how prices that end in 99 influence sales and the perception of your store.

Related: How to Develop a Pricing Strategy for Your Small Business

How do customers respond to prices ending in 99?

“People want to believe they’re getting the full value for their money. When I talk with shoppers, I know that they realize what the real price is when something’s priced at 99. They’re not going to say, ‘I paid $5.99.’ They’re much more likely to say, ‘I got this for less than $6.’ But the 99-ending prices allow us to feel that we’re paying less, and therefore believe we’re getting more value.”

Is there science to back up this pricing theory?

“There’s a classic research example of this. Researchers asked people to choose between two ballpoint pens, a plain version and an upgraded version with extra features. When a group of participants were told the pens were priced at $2 and $3.99, 44 percent of the consumers chose the upgraded pen. For another group, they changed the price of the $2 pen to $1.99 and the upgraded pen to $4. Only 18 percent chose the higher-priced pen. The people were looking at the figures to the left of the decimal point. What a difference two pennies made.”

When is it most effective to use prices that end in 99?

“One circumstance when this will work well for a retailer is when you prefer the shopper purchase one particular item rather than a similar item they’re considering. If you feel one product would better serve the customer and your bottom line, price that product with a 99-cent ending and it will stand out from the whole dollar price tags.

“There’s something important to realize about this, though. The 99-cent ending does not mean that the item becomes the one most likely to be purchased. It means that the likelihood of the purchase of that product over alternatives climbs significantly from what it is otherwise.” -Bruce Sanders

“This pricing strategy can also influence how customers perceive your store. When people are dealing with a small- to medium-size retailer, they usually have a store price image (the general belief of the prices in your store compared to what other stores charge for similar items) in mind. Products that are most associated with your store, known as signpost items, will determine that image more than others, which makes pricing really important. Keeping the everyday prices of those items low or regularly discounting them to a 99-ending price will have minimal impact on store profitability, but great influence over your store price image.”

woman checking price of shirt

Avoid using the 99-cent ending with gift items, explains Bruce Sanders, author of “Sell Well: What Really Moves Your Shoppers.” (Photo: racorn/Shutterstock)

Are there times when the 99 price rule will turn off a customer?

“When price is your main selling point, 99 endings won’t be as effective. That’s why Walmart has all those odd prices, like $7.24. They want to send the message that they have trimmed every possible penny off the price. But for the small to midsize retailer, making price your main selling point is treacherous. It’s a race to the bottom. Smaller retailers usually want to be known for things other than price.

“Another area to avoid 99-cent endings is gift items. If I’m going to buy a gift for my sweetie, I’d prefer to spend $34 instead of $33.99. I don’t want to feel I shaved every last penny off this purchase.

“Indulgences follow the same logic. When a customer wants to splurge on herself, say with a high-definition TV, vacation package or handbag, she doesn’t want to attend to the difference between 99 and whole dollar pricing. One study found that when a camera was advertised as for class projects, a 99-ending price worked best. When the same camera was promoted for vacation use — an indulgence — a round-dollar price worked best.”

Can you increase sales by using other numbers besides 99? How about prices that end in 95?”

“I am aware of no evidence that finds a selling advantage in using 95-ending prices. Never use a price like $4.95, set the price at $4.99 instead. You’re not going to sell more items at $4.95 than $4.99, and you’re giving up four cents on every sale.

“Pricing that uses the number six sounds less expensive to customers than pricing that uses the number eight. People are a little more likely to purchase something at $12.66 than at $11.88. The researchers say that the ‘s’ sound in six is associated with the word ‘small’ in the brains of English speakers.”

Related: 9 Retail Trends to Tap Into in 2017

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