WEBVTT
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You're listening to Wait, why do we do that?
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The strange stories behind completely normal things.
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This time, Why do prices end in 99?
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To help explain it all, here's Steve.
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Here's something we've all collectively agreed to pretend isn't happening.
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You walk into a shop, you see something you like.
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Price?
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And your brain says uh$9.
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No.
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It's$10.
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It's$10 with a one cent administrative error.
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But retailers have been doing this to us for generations.
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$4.99,$19.99.
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$49.99?
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Apparently the difference between financial responsibility and reckless extravagance is one cent.
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And it gets more ridiculous as the numbers increase.
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A television for$1,999.99.
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Oh good.
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Because$2,000 would have been excessive, but thank goodness they've knocked off that penny.
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And what's particularly strange is that we all know what's happening.
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Nobody sees$19.99 and genuinely believes excellent.
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Under$20 by a comfortable margin.
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We know it's basically$20.
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The retailer knows we know it's basically$20, we know they know we know.
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And yet the price is still$19.99.
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Which suggests one of two things.
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Either retailers have been wasting enormous amounts of ink, printing nines for the last hundred years, or that stupid little penny actually works.
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So, wait, why do we do that?
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There's actually a name for this, charm pricing, which is a remarkably pleasant name for what is essentially psychological warfare involving pennies.
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The basic idea is simple.
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Instead of charging ten dollars, charge nine dollars and ninety-nine cents.
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Instead of twenty, nineteen dollars and ninety-nine cents.
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Instead of five hundred, four hundred and ninety-nine dollars.
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The price sits just below a nice round number, and importantly, the first digit changes.
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Ten becomes nine, twenty becomes nineteen, five hundred becomes four hundred and ninety-nine, mathematically, the difference is almost meaningless.
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Psychologically, not necessarily.
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And this is where things become slightly embarrassing for the human brain.
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Because despite thousands of years of civilization, despite mathematics, despite calculators, despite carrying extraordinarily powerful computers around in our pockets, apparently one of the world's most successful retail strategies remains?
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Make the first number smaller, and our brains respond, ooh, bargain.
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Part of the explanation is something researchers call the left digit effect.
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When we read a price, we read from left to right.
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So the digits on the left can disproportionately influence our perception of the number.
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Take$2.99 and$3.
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The actual difference?
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One cent.
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But one price begins with a two, the other begins with a three.
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And research has found that this can make the psychological difference feel larger than the mathematical difference.
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Your rational brain knows perfectly well that$2.99 is basically$3.
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But apparently another part of your brain has already seen the two, made a decision, packed its bags, and gone home.
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Researchers have even found that this effect becomes particularly relevant when the leftmost digit changes.
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So$3.59 versus$3.60?
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Probably not terribly exciting.
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$2.99 versus$3?
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Now we've crossed a border.
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Nothing meaningful happened.
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One cent moved.
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But suddenly we're in another country.
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$3 territory, dangerous place.
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Very expensive.
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Best remain safely over here at$2.99.
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Now at this point you're probably thinking, come on.
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Nobody actually falls for that.
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I'm an intelligent adult.
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I understand numbers.
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I pay taxes.
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I have a mortgage.
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I've successfully assembled furniture using instructions containing no actual words.
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Surely I'm not being manipulated by a penny.
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And individually, maybe not every time, and that's important.
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Charm pricing isn't hypnosis.
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You don't walk into a shop for toothpaste, see something priced at$999.99, and accidentally come home with a refrigerator.
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But retailers don't need this effect to work on everyone.
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They don't even need it to work strongly.
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Imagine you're selling millions of products.
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If changing$30 to$29 and 99 cents nudges purchasing behavior by even a small amount, that's useful.
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And researchers have found real effects.
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One controlled retail experiment comparing prices ending in 0.99 with prices ending in 0.00 found higher purchasing with the 0.99 versions.
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Large-scale research, using thousands of products across US retail chains, has also found evidence consistent with consumers placing too much weight on that left digit.
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So yes, we know the trick.
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And apparently, knowing the trick doesn't necessarily stop the trick, which is irritating.
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I would at least like my psychological manipulation to be more sophisticated.
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Perhaps subliminal messaging.
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A hypnotist?
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Something involving lasers.
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Not look, Steve, it's got a nine.
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So who invented it?
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Who was the first person to look at a$1 product and say, no, 99 cents?
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Trust me.
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This is where the story gets messy.
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There are several popular explanations for the origins of odd pricing.
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One of the most repeated involves early cash registers.
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The story goes like this Suppose an item costs exactly one dollar.
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A customer gives the clerk a dollar bill.
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A dishonest clerk could simply pocket the money.
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No change required.
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No need to open the till.
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No record of the transaction, but price the item at 99 cents, and suddenly the customer expects a penny back.
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The clerk has to open the register.
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The sale gets recorded, the owner gets the money.
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Very clever.
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There's just one problem.
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It's one of those stories that gets repeated far more confidently than the historical evidence deserves.
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There are other origin stories involving newspaper pricing, department stores, and competitive retailing.
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And there's no wonderfully convenient documents saying, On Tuesday we invented 99 cent pricing.
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So the cash register explanation is plausible and wonderfully neat, but we shouldn't pretend the history is completely settled.
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Which is disappointing, because I really wanted this entire global pricing strategy to have originated because Victorian shopkeepers didn't trust Kevin behind the till.
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Still, whether or not it explains the entire origin, the cash register story tells us something interesting about retail.
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Pricing has never just been about what is this thing worth.
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Prices do jobs, they control behavior, they communicate information, they manage inventory, they influence perception, they can even help manage employees.
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A price isn't simply a number, it's part of the system.
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And once retailers began using odd prices, something else became apparent, consumers seemed to respond to them.
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Now the penny wasn't just useful for making change, it was useful for making the price feel different.
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And at that point, the penny became immortal.
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Which is extraordinary when you think about it.
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We live in an age where you can pay for a$1,500 laptop by tapping a watch against a machine.
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No cash.
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No register drawer, no penny changing hands.
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And the price?
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$1,499.99.
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The original mechanical problem, if that story is even correct, has completely disappeared, but the penny survived.
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Hello again, Quarty.
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There's another interesting effect.
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Over time, prices ending in nine didn't just look slightly lower.
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They began to mean something.
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Researchers have found associations between 99 endings and things like discounts or low price appeals.
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In other words, we've seen so many sale signs next to prices ending in nine.
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That nine itself can start to feel a little bit like a sales sign.
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$50.
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That sounds like the price.
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That feels like somebody has done something for me.
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They haven't.
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They've removed a penny.
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Please don't send a thank you card.
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But this association matters.
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Retailers teach us how to interpret their prices.
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And eventually, we start doing some of the work ourselves.
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Nine can say value.
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Discount, deal, affordable.
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Which is why you'll often see prices like was$79.99.
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Now$59.99.
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Look at that, two nines.
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This must be serious.
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But here's where it gets really interesting.
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Not everyone wants to look cheap.
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Imagine walking into an extremely expensive jewelry store.
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Beautiful lighting.
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Glass cabinets.
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Someone wearing a suit that probably costs more than your car.
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You look at a watch, price tag$17,999.99.
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Suddenly, something feels wrong.
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At that level, the penny starts looking desperate.
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Luxury brands often use rounder pricing because the message is different.
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They're not necessarily trying to say, well look how cheap this is.
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Quite the opposite.
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A clean price can communicate confidence.
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Premium quality.
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Exclusivity.
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$17,000.
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No apology.
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No little ninety-nine desperately clinging to the end.
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If you need to ask about the missing penny, this may not be the shop for you.
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So pricing psychology isn't simply nine's good, zero's bad.
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The ending helps communicate what kind of product you're buying.
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A discount shop wants you thinking bargain.
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A luxury brand may prefer you thinking, I have made some questionable financial decisions.
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But look at this watch.
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And retailers don't even need the ninety-nine cents.
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Sometimes the nine alone does the job.
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$39.
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$49?
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$199?
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$499?
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No cents required.
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There have been fascinating experiments involving nine-ending prices.
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In one well-known catalogue experiment, researchers tested different prices for the same clothing item.
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And remarkably, a price ending in nine could sometimes outperform a lower price.
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Think about that.
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The retailer effectively says, Would you like this cheaper?
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Consumer.
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No.
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Retailer, what if I make it slightly more expensive?
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But put a nine on the end.
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Consumer.
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Now you're talking.
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Human beings are magnificent.
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We built the large Hadron Collider.
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We landed people on the moon.
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We mapped the human genome.
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And then somebody puts$39 on a sweater, and apparently we're like, well that seems reasonable.
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Of course, 0.99 is only one part of the strange language of retail pricing.
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We've all seen this.
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Regular price$100.
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Sale.
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$69.99.
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Save$30.10.
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$30 and$10.
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Excellent.
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I shall put the one cent toward retirement.
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But what's doing the psychological work here?
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The$100 gives you an anchor.
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Now you have a reference point.
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$69.99 isn't just a price, it's a price compared with$100.
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And suddenly, you aren't spending$70?
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You're saving$30.
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This is one of retail's greatest linguistic achievements.
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You walk into a shop with$100.
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You leave with$30.
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And somehow the receipt congratulates you on saving$70.
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No, I had$100.
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Now I have$30 and trousers.
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Let's maintain some perspective.
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You might think online shopping would have killed this, after all.
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There's no physical till.
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No cashier.
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No need to make change.
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Prices can be changed instantly.
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Algorithms can test different values.
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Consumers can compare dozens of retailers in seconds.
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Surely this would be the moment when humanity finally said, you know what, let's just make it twenty dollars.
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No,$19.99 survived perfectly well.
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Of course it did.
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At this point it's not merely a pricing technique.
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It's cultural furniture.
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Amazon, online retailers, apps, subscriptions, streaming services, software, digital products that have never existed physically still end in nine.
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Nobody is handing you a penny.
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There isn't even a penny.
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The penny is theoretical.
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We have reached a stage where the missing scent exists purely as a concept.
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Somewhere a nineteenth century shopkeeper would be enormously proud.
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Then the subscription economy made things even more fun.
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$9.99 a month?
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That sounds manageable.
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Because we're focusing on the monthly number.
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Ten dollars, basically.
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But annually?
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That's about$120.
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Then you add another service.
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$14.99.
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Another.
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$7.99.
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Cloud storage.
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An app.
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Music.
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Television.
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Something you subscribed to three years ago and no longer remember what it does.
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Each individual price feels small.
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$9.99.
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$4.99?
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$7.99.
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Nothing alarming.
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Until one day you look at your credit card statement and discover you're apparently financially supporting 17 technology companies.
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This is one of the great talents of modern pricing.
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Take a large annual number, break it into 12 smaller numbers, put 0.99 on each one, and suddenly everything feels delightfully affordable.
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Now before we conclude that retailers possess a magic penny capable of controlling the human mind, the evidence isn't that simple.
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Not every study finds exactly the same effect.
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Context matters, the product matters.
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How carefully you're comparing prices matters.
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Whether you're buying something cheap or expensive matters.
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Whether the price is signaling a discount or premium quality matters.
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And some experimental research has failed to reproduce a strong, left-digit effect in particular settings.
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So this isn't.
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$9.99 guarantees more sales.
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It's human beings don't always process prices as perfectly rational mathematical objects.
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Which, if you've ever visited a supermarket while hungry, you already knew.
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Pricing interacts with perception, expectation, context, comparison, habit, and emotion.
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The fascinating part isn't that we can't tell the difference between$9 and 99 cents and$10.
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Of course we can.
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It's that the way the price is presented can still influence how that difference feels, even when we know exactly what they're doing.
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There's also a wonderfully simple defense against all of this.
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Roundup.
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$9.99?
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$10.49.99?
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$50.
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$299.99?
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$300.
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Congratulations, you've defeated approximately a century of retail psychology.
00:15:11.600 --> 00:15:19.679
Although I say this, and then I'll walk into a shop tomorrow, see something reduced from$99.99 to$79.99.
00:15:20.320 --> 00:15:23.440
And then think, ooh, that's only 70 something.
00:15:23.679 --> 00:15:25.120
No, Steve, it isn't.
00:15:25.360 --> 00:15:28.240
We literally just recorded an entire podcast about this.
00:15:28.399 --> 00:15:31.519
But that's the point that these techniques don't require us to be stupid.
00:15:31.679 --> 00:15:34.240
They work with the shortcuts our brains naturally use.
00:15:34.399 --> 00:15:35.200
We're busy.
00:15:35.360 --> 00:15:36.879
We're comparing products.
00:15:37.120 --> 00:15:39.600
We're thinking about whether we actually need the thing.
00:15:39.840 --> 00:15:41.840
We're wondering whether there's free shipping.
00:15:42.000 --> 00:15:47.039
We're trying to remember the password to an account we apparently created in 2014.
00:15:47.279 --> 00:15:51.759
And somewhere in all that mental noise, the first digit gets through, nine.
00:15:52.000 --> 00:15:52.799
Good enough.
00:15:53.120 --> 00:15:55.759
So, why do prices end in point?
00:15:56.000 --> 00:15:56.960
Nine nine?
00:15:57.120 --> 00:16:01.360
Partly because odd pricing became embedded in retail practice a long time ago.
00:16:01.600 --> 00:16:05.840
Its exact historical origin isn't as neat as some stories would have you believe.
00:16:06.000 --> 00:16:11.840
The famous cash register explanation may be part of the story, but we shouldn't treat it as proven fact.
00:16:12.080 --> 00:16:15.360
What we do know is that retailers discovered something important.
00:16:15.519 --> 00:16:18.960
How a price is written can affect how a price is perceived.
00:16:19.200 --> 00:16:21.919
That one cent difference can move the left-hand digit.
00:16:22.159 --> 00:16:24.480
$10 becomes$9.99.
00:16:25.039 --> 00:16:28.320
$100 becomes$99.99.
00:16:29.120 --> 00:16:37.360
And even though we understand perfectly well that the mathematical difference is trivial, our brains don't always treat the psychological difference as trivial.
00:16:37.519 --> 00:16:39.279
Then repetition did the rest.
00:16:39.519 --> 00:16:42.559
Nine ending prices became associated with bargains.
00:16:42.720 --> 00:16:44.320
Retail systems adopted them.
00:16:44.480 --> 00:16:46.000
Advertising reinforced them.
00:16:46.240 --> 00:16:48.320
Consumers became accustomed to them.
00:16:48.559 --> 00:16:51.759
And eventually, ninety-nine stopped looking strange.
00:16:52.000 --> 00:16:56.399
Ten dollars began looking strange, which is perhaps the greatest trick of all.
00:16:56.720 --> 00:16:59.519
So, why do prices end in.99?
00:16:59.919 --> 00:17:04.000
Not because$19.99 is meaningfully cheaper than$20.
00:17:04.640 --> 00:17:05.440
It isn't.
00:17:05.759 --> 00:17:07.759
You cannot retire on the difference.
00:17:08.000 --> 00:17:12.240
Not because there's a law requiring retailers to preserve the world's supply of nines.
00:17:12.799 --> 00:17:17.440
And probably not because one single clever shopkeeper invented the entire system one afternoon.
00:17:17.680 --> 00:17:19.680
The historical origin is messy.
00:17:19.839 --> 00:17:22.079
But the reason it survived is much clearer.
00:17:22.240 --> 00:17:24.160
It works with the way we perceive numbers.
00:17:24.319 --> 00:17:35.359
We read from the left, we respond to boundaries, we associate certain price endings with bargains, and sometimes a one cent difference can make a price feel more different than it really is.
00:17:35.599 --> 00:17:40.240
Retailers learnt that, and once they did, the nine became almost impossible to kill.
00:17:40.480 --> 00:17:49.359
Cash registers changed, credit cards arrived, online shopping arrived, smartphones arrived, we stopped using cash for half the things we buy.
00:17:49.680 --> 00:17:51.920
And still,$19.99.
00:17:52.880 --> 00:17:58.720
So next time you see something priced at$9.99, don't say it's only$9.
00:17:59.680 --> 00:18:00.480
It's$10.
00:18:00.799 --> 00:18:01.680
Just say$10.
00:18:02.000 --> 00:18:04.799
The retailer will be fine, but they've still got your penny.
00:18:04.880 --> 00:18:05.759
I'm Steve.
00:18:05.920 --> 00:18:10.880
And apparently there's a reason for almost everything, even if it isn't a particularly good one.
00:00:07.839 --> 00:00:11.599
You're listening to Wait, why do we do that?
00:00:12.000 --> 00:00:15.599
The strange stories behind completely normal things.
00:00:15.919 --> 00:00:19.679
This time, Why do prices end in 99?
00:00:20.079 --> 00:00:23.039
To help explain it all, here's Steve.
00:00:24.640 --> 00:00:28.000
Here's something we've all collectively agreed to pretend isn't happening.
00:00:28.239 --> 00:00:30.800
You walk into a shop, you see something you like.
00:00:31.039 --> 00:00:31.679
Price?
00:00:34.640 --> 00:00:36.159
And your brain says uh$9.
00:00:36.799 --> 00:00:37.119
No.
00:00:37.359 --> 00:00:37.920
It's$10.
00:00:38.880 --> 00:00:42.479
It's$10 with a one cent administrative error.
00:00:42.719 --> 00:00:45.439
But retailers have been doing this to us for generations.
00:00:45.840 --> 00:00:49.920
$4.99,$19.99.
00:00:50.880 --> 00:00:52.640
$49.99?
00:00:56.960 --> 00:01:02.320
Apparently the difference between financial responsibility and reckless extravagance is one cent.
00:01:02.560 --> 00:01:05.920
And it gets more ridiculous as the numbers increase.
00:01:06.239 --> 00:01:10.400
A television for$1,999.99.
00:01:11.280 --> 00:01:12.000
Oh good.
00:01:12.239 --> 00:01:16.799
Because$2,000 would have been excessive, but thank goodness they've knocked off that penny.
00:01:16.959 --> 00:01:20.000
And what's particularly strange is that we all know what's happening.
00:01:20.159 --> 00:01:24.319
Nobody sees$19.99 and genuinely believes excellent.
00:01:24.480 --> 00:01:26.719
Under$20 by a comfortable margin.
00:01:26.959 --> 00:01:28.239
We know it's basically$20.
00:01:28.560 --> 00:01:32.400
The retailer knows we know it's basically$20, we know they know we know.
00:01:32.799 --> 00:01:35.840
And yet the price is still$19.99.
00:01:36.640 --> 00:01:38.400
Which suggests one of two things.
00:01:38.640 --> 00:01:46.879
Either retailers have been wasting enormous amounts of ink, printing nines for the last hundred years, or that stupid little penny actually works.
00:01:47.200 --> 00:01:49.200
So, wait, why do we do that?
00:01:49.439 --> 00:01:57.040
There's actually a name for this, charm pricing, which is a remarkably pleasant name for what is essentially psychological warfare involving pennies.
00:01:57.200 --> 00:01:58.879
The basic idea is simple.
00:01:59.120 --> 00:02:03.359
Instead of charging ten dollars, charge nine dollars and ninety-nine cents.
00:02:03.519 --> 00:02:06.319
Instead of twenty, nineteen dollars and ninety-nine cents.
00:02:06.480 --> 00:02:09.439
Instead of five hundred, four hundred and ninety-nine dollars.
00:02:09.599 --> 00:02:14.479
The price sits just below a nice round number, and importantly, the first digit changes.
00:02:14.639 --> 00:02:24.400
Ten becomes nine, twenty becomes nineteen, five hundred becomes four hundred and ninety-nine, mathematically, the difference is almost meaningless.
00:02:24.719 --> 00:02:27.439
Psychologically, not necessarily.
00:02:27.680 --> 00:02:31.199
And this is where things become slightly embarrassing for the human brain.
00:02:31.439 --> 00:02:46.000
Because despite thousands of years of civilization, despite mathematics, despite calculators, despite carrying extraordinarily powerful computers around in our pockets, apparently one of the world's most successful retail strategies remains?
00:02:46.240 --> 00:02:51.199
Make the first number smaller, and our brains respond, ooh, bargain.
00:02:51.599 --> 00:02:55.759
Part of the explanation is something researchers call the left digit effect.
00:02:56.000 --> 00:02:59.599
When we read a price, we read from left to right.
00:02:59.919 --> 00:03:05.039
So the digits on the left can disproportionately influence our perception of the number.
00:03:05.199 --> 00:03:07.520
Take$2.99 and$3.
00:03:08.159 --> 00:03:09.120
The actual difference?
00:03:09.360 --> 00:03:10.080
One cent.
00:03:10.400 --> 00:03:14.319
But one price begins with a two, the other begins with a three.
00:03:14.560 --> 00:03:20.159
And research has found that this can make the psychological difference feel larger than the mathematical difference.
00:03:20.400 --> 00:03:24.879
Your rational brain knows perfectly well that$2.99 is basically$3.
00:03:25.599 --> 00:03:32.479
But apparently another part of your brain has already seen the two, made a decision, packed its bags, and gone home.
00:03:32.719 --> 00:03:38.080
Researchers have even found that this effect becomes particularly relevant when the leftmost digit changes.
00:03:38.319 --> 00:03:42.000
So$3.59 versus$3.60?
00:03:42.560 --> 00:03:44.159
Probably not terribly exciting.
00:03:44.479 --> 00:03:46.719
$2.99 versus$3?
00:03:47.360 --> 00:03:48.719
Now we've crossed a border.
00:03:48.800 --> 00:03:50.319
Nothing meaningful happened.
00:03:50.479 --> 00:03:51.840
One cent moved.
00:03:52.080 --> 00:03:53.840
But suddenly we're in another country.
00:03:54.000 --> 00:03:56.240
$3 territory, dangerous place.
00:03:56.479 --> 00:03:57.520
Very expensive.
00:03:57.759 --> 00:04:01.039
Best remain safely over here at$2.99.
00:04:01.919 --> 00:04:04.719
Now at this point you're probably thinking, come on.
00:04:04.879 --> 00:04:06.639
Nobody actually falls for that.
00:04:06.800 --> 00:04:08.319
I'm an intelligent adult.
00:04:08.479 --> 00:04:09.439
I understand numbers.
00:04:09.599 --> 00:04:10.560
I pay taxes.
00:04:10.719 --> 00:04:11.680
I have a mortgage.
00:04:11.840 --> 00:04:16.639
I've successfully assembled furniture using instructions containing no actual words.
00:04:16.879 --> 00:04:19.279
Surely I'm not being manipulated by a penny.
00:04:19.439 --> 00:04:23.040
And individually, maybe not every time, and that's important.
00:04:23.279 --> 00:04:25.199
Charm pricing isn't hypnosis.
00:04:25.360 --> 00:04:34.399
You don't walk into a shop for toothpaste, see something priced at$999.99, and accidentally come home with a refrigerator.
00:04:34.639 --> 00:04:37.439
But retailers don't need this effect to work on everyone.
00:04:37.600 --> 00:04:39.680
They don't even need it to work strongly.
00:04:39.920 --> 00:04:42.000
Imagine you're selling millions of products.
00:04:42.240 --> 00:04:49.839
If changing$30 to$29 and 99 cents nudges purchasing behavior by even a small amount, that's useful.
00:04:50.000 --> 00:04:52.079
And researchers have found real effects.
00:04:52.319 --> 00:05:02.720
One controlled retail experiment comparing prices ending in 0.99 with prices ending in 0.00 found higher purchasing with the 0.99 versions.
00:05:03.040 --> 00:05:12.560
Large-scale research, using thousands of products across US retail chains, has also found evidence consistent with consumers placing too much weight on that left digit.
00:05:12.720 --> 00:05:14.879
So yes, we know the trick.
00:05:15.120 --> 00:05:19.759
And apparently, knowing the trick doesn't necessarily stop the trick, which is irritating.
00:05:19.920 --> 00:05:23.600
I would at least like my psychological manipulation to be more sophisticated.
00:05:23.839 --> 00:05:25.519
Perhaps subliminal messaging.
00:05:25.759 --> 00:05:26.720
A hypnotist?
00:05:26.879 --> 00:05:28.319
Something involving lasers.
00:05:28.560 --> 00:05:31.199
Not look, Steve, it's got a nine.
00:05:31.519 --> 00:05:32.639
So who invented it?
00:05:32.800 --> 00:05:37.680
Who was the first person to look at a$1 product and say, no, 99 cents?
00:05:37.920 --> 00:05:38.720
Trust me.
00:05:38.879 --> 00:05:40.639
This is where the story gets messy.
00:05:40.800 --> 00:05:44.480
There are several popular explanations for the origins of odd pricing.
00:05:44.639 --> 00:05:47.920
One of the most repeated involves early cash registers.
00:05:48.160 --> 00:05:52.000
The story goes like this Suppose an item costs exactly one dollar.
00:05:52.240 --> 00:05:54.319
A customer gives the clerk a dollar bill.
00:05:54.560 --> 00:05:57.199
A dishonest clerk could simply pocket the money.
00:05:57.360 --> 00:05:58.639
No change required.
00:05:58.879 --> 00:06:00.240
No need to open the till.
00:06:00.639 --> 00:06:07.279
No record of the transaction, but price the item at 99 cents, and suddenly the customer expects a penny back.
00:06:07.519 --> 00:06:09.360
The clerk has to open the register.
00:06:09.600 --> 00:06:12.000
The sale gets recorded, the owner gets the money.
00:06:12.240 --> 00:06:13.120
Very clever.
00:06:13.360 --> 00:06:14.720
There's just one problem.
00:06:14.959 --> 00:06:19.839
It's one of those stories that gets repeated far more confidently than the historical evidence deserves.
00:06:20.000 --> 00:06:25.839
There are other origin stories involving newspaper pricing, department stores, and competitive retailing.
00:06:26.000 --> 00:06:32.079
And there's no wonderfully convenient documents saying, On Tuesday we invented 99 cent pricing.
00:06:32.240 --> 00:06:39.040
So the cash register explanation is plausible and wonderfully neat, but we shouldn't pretend the history is completely settled.
00:06:39.199 --> 00:06:49.519
Which is disappointing, because I really wanted this entire global pricing strategy to have originated because Victorian shopkeepers didn't trust Kevin behind the till.
00:06:50.079 --> 00:06:58.079
Still, whether or not it explains the entire origin, the cash register story tells us something interesting about retail.
00:06:58.319 --> 00:07:01.519
Pricing has never just been about what is this thing worth.
00:07:01.680 --> 00:07:11.680
Prices do jobs, they control behavior, they communicate information, they manage inventory, they influence perception, they can even help manage employees.
00:07:11.920 --> 00:07:15.040
A price isn't simply a number, it's part of the system.
00:07:15.199 --> 00:07:21.920
And once retailers began using odd prices, something else became apparent, consumers seemed to respond to them.
00:07:22.079 --> 00:07:27.600
Now the penny wasn't just useful for making change, it was useful for making the price feel different.
00:07:27.759 --> 00:07:30.800
And at that point, the penny became immortal.
00:07:31.040 --> 00:07:33.199
Which is extraordinary when you think about it.
00:07:33.439 --> 00:07:39.680
We live in an age where you can pay for a$1,500 laptop by tapping a watch against a machine.
00:07:39.920 --> 00:07:40.639
No cash.
00:07:40.800 --> 00:07:43.600
No register drawer, no penny changing hands.
00:07:43.839 --> 00:07:44.639
And the price?
00:07:44.879 --> 00:07:47.839
$1,499.99.
00:07:48.639 --> 00:07:55.519
The original mechanical problem, if that story is even correct, has completely disappeared, but the penny survived.
00:07:55.759 --> 00:07:57.120
Hello again, Quarty.
00:07:57.360 --> 00:07:59.040
There's another interesting effect.
00:07:59.279 --> 00:08:03.120
Over time, prices ending in nine didn't just look slightly lower.
00:08:03.279 --> 00:08:04.720
They began to mean something.
00:08:04.959 --> 00:08:11.519
Researchers have found associations between 99 endings and things like discounts or low price appeals.
00:08:11.839 --> 00:08:16.879
In other words, we've seen so many sale signs next to prices ending in nine.
00:08:17.199 --> 00:08:20.560
That nine itself can start to feel a little bit like a sales sign.
00:08:20.959 --> 00:08:21.600
$50.
00:08:22.319 --> 00:08:23.680
That sounds like the price.
00:08:26.399 --> 00:08:28.480
That feels like somebody has done something for me.
00:08:28.800 --> 00:08:29.360
They haven't.
00:08:29.519 --> 00:08:30.720
They've removed a penny.
00:08:30.879 --> 00:08:32.399
Please don't send a thank you card.
00:08:32.639 --> 00:08:34.399
But this association matters.
00:08:34.639 --> 00:08:37.200
Retailers teach us how to interpret their prices.
00:08:37.440 --> 00:08:41.039
And eventually, we start doing some of the work ourselves.
00:08:41.360 --> 00:08:42.879
Nine can say value.
00:08:43.039 --> 00:08:45.120
Discount, deal, affordable.
00:08:45.279 --> 00:08:49.279
Which is why you'll often see prices like was$79.99.
00:08:50.159 --> 00:08:52.080
Now$59.99.
00:08:52.639 --> 00:08:54.159
Look at that, two nines.
00:08:54.559 --> 00:08:56.159
This must be serious.
00:08:56.399 --> 00:08:58.559
But here's where it gets really interesting.
00:08:58.720 --> 00:09:00.399
Not everyone wants to look cheap.
00:09:00.639 --> 00:09:04.080
Imagine walking into an extremely expensive jewelry store.
00:09:04.320 --> 00:09:05.360
Beautiful lighting.
00:09:05.600 --> 00:09:06.720
Glass cabinets.
00:09:06.960 --> 00:09:10.000
Someone wearing a suit that probably costs more than your car.
00:09:10.159 --> 00:09:16.159
You look at a watch, price tag$17,999.99.
00:09:17.039 --> 00:09:19.679
Suddenly, something feels wrong.
00:09:20.000 --> 00:09:23.279
At that level, the penny starts looking desperate.
00:09:23.519 --> 00:09:27.039
Luxury brands often use rounder pricing because the message is different.
00:09:27.200 --> 00:09:30.320
They're not necessarily trying to say, well look how cheap this is.
00:09:30.559 --> 00:09:31.600
Quite the opposite.
00:09:31.759 --> 00:09:33.919
A clean price can communicate confidence.
00:09:34.080 --> 00:09:35.360
Premium quality.
00:09:35.679 --> 00:09:36.799
Exclusivity.
00:09:37.039 --> 00:09:38.320
$17,000.
00:09:39.120 --> 00:09:40.320
No apology.
00:09:40.559 --> 00:09:43.440
No little ninety-nine desperately clinging to the end.
00:09:43.679 --> 00:09:47.919
If you need to ask about the missing penny, this may not be the shop for you.
00:09:48.159 --> 00:09:52.639
So pricing psychology isn't simply nine's good, zero's bad.
00:09:52.879 --> 00:09:55.759
The ending helps communicate what kind of product you're buying.
00:09:56.000 --> 00:09:58.799
A discount shop wants you thinking bargain.
00:09:59.039 --> 00:10:04.000
A luxury brand may prefer you thinking, I have made some questionable financial decisions.
00:10:04.159 --> 00:10:05.600
But look at this watch.
00:10:05.919 --> 00:10:08.720
And retailers don't even need the ninety-nine cents.
00:10:08.960 --> 00:10:11.120
Sometimes the nine alone does the job.
00:10:11.279 --> 00:10:11.919
$39.
00:10:12.639 --> 00:10:13.200
$49?
00:10:13.919 --> 00:10:15.039
$199?
00:10:15.840 --> 00:10:17.120
$499?
00:10:17.840 --> 00:10:19.200
No cents required.
00:10:19.440 --> 00:10:22.960
There have been fascinating experiments involving nine-ending prices.
00:10:23.200 --> 00:10:28.879
In one well-known catalogue experiment, researchers tested different prices for the same clothing item.
00:10:29.039 --> 00:10:33.919
And remarkably, a price ending in nine could sometimes outperform a lower price.
00:10:34.159 --> 00:10:35.120
Think about that.
00:10:35.360 --> 00:10:38.639
The retailer effectively says, Would you like this cheaper?
00:10:38.879 --> 00:10:39.600
Consumer.
00:10:39.840 --> 00:10:40.159
No.
00:10:40.639 --> 00:10:43.919
Retailer, what if I make it slightly more expensive?
00:10:44.159 --> 00:10:45.759
But put a nine on the end.
00:10:46.000 --> 00:10:46.720
Consumer.
00:10:46.879 --> 00:10:48.159
Now you're talking.
00:10:48.480 --> 00:10:50.240
Human beings are magnificent.
00:10:50.399 --> 00:10:52.559
We built the large Hadron Collider.
00:10:52.720 --> 00:10:54.240
We landed people on the moon.
00:10:54.399 --> 00:10:56.159
We mapped the human genome.
00:10:56.320 --> 00:11:02.399
And then somebody puts$39 on a sweater, and apparently we're like, well that seems reasonable.
00:11:02.639 --> 00:11:07.039
Of course, 0.99 is only one part of the strange language of retail pricing.
00:11:07.200 --> 00:11:08.080
We've all seen this.
00:11:08.320 --> 00:11:09.919
Regular price$100.
00:11:10.720 --> 00:11:11.279
Sale.
00:11:11.600 --> 00:11:13.279
$69.99.
00:11:14.000 --> 00:11:16.000
Save$30.10.
00:11:16.240 --> 00:11:17.919
$30 and$10.
00:11:18.159 --> 00:11:18.879
Excellent.
00:11:19.120 --> 00:11:21.679
I shall put the one cent toward retirement.
00:11:21.919 --> 00:11:24.080
But what's doing the psychological work here?
00:11:24.320 --> 00:11:26.799
The$100 gives you an anchor.
00:11:26.960 --> 00:11:28.399
Now you have a reference point.
00:11:28.559 --> 00:11:32.320
$69.99 isn't just a price, it's a price compared with$100.
00:11:32.480 --> 00:11:34.879
And suddenly, you aren't spending$70?
00:11:35.519 --> 00:11:36.879
You're saving$30.
00:11:37.120 --> 00:11:40.240
This is one of retail's greatest linguistic achievements.
00:11:40.399 --> 00:11:42.399
You walk into a shop with$100.
00:11:42.879 --> 00:11:44.080
You leave with$30.
00:11:44.639 --> 00:11:48.240
And somehow the receipt congratulates you on saving$70.
00:11:48.960 --> 00:11:50.399
No, I had$100.
00:11:50.879 --> 00:11:53.279
Now I have$30 and trousers.
00:11:53.440 --> 00:11:55.200
Let's maintain some perspective.
00:11:55.440 --> 00:11:58.879
You might think online shopping would have killed this, after all.
00:11:59.200 --> 00:12:00.480
There's no physical till.
00:12:00.639 --> 00:12:01.679
No cashier.
00:12:02.000 --> 00:12:03.279
No need to make change.
00:12:03.519 --> 00:12:05.600
Prices can be changed instantly.
00:12:05.919 --> 00:12:08.159
Algorithms can test different values.
00:12:08.399 --> 00:12:11.279
Consumers can compare dozens of retailers in seconds.
00:12:11.519 --> 00:12:17.200
Surely this would be the moment when humanity finally said, you know what, let's just make it twenty dollars.
00:12:17.759 --> 00:12:22.240
No,$19.99 survived perfectly well.
00:12:22.480 --> 00:12:23.519
Of course it did.
00:12:23.759 --> 00:12:26.159
At this point it's not merely a pricing technique.
00:12:26.320 --> 00:12:27.679
It's cultural furniture.
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Amazon, online retailers, apps, subscriptions, streaming services, software, digital products that have never existed physically still end in nine.
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Nobody is handing you a penny.
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There isn't even a penny.
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The penny is theoretical.
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We have reached a stage where the missing scent exists purely as a concept.
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Somewhere a nineteenth century shopkeeper would be enormously proud.
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Then the subscription economy made things even more fun.
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$9.99 a month?
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That sounds manageable.
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Because we're focusing on the monthly number.
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Ten dollars, basically.
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But annually?
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That's about$120.
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Then you add another service.
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$14.99.
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Another.
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$7.99.
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Cloud storage.
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An app.
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Music.
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Television.
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Something you subscribed to three years ago and no longer remember what it does.
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Each individual price feels small.
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$9.99.
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$4.99?
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$7.99.
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Nothing alarming.
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Until one day you look at your credit card statement and discover you're apparently financially supporting 17 technology companies.
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This is one of the great talents of modern pricing.
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Take a large annual number, break it into 12 smaller numbers, put 0.99 on each one, and suddenly everything feels delightfully affordable.
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Now before we conclude that retailers possess a magic penny capable of controlling the human mind, the evidence isn't that simple.
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Not every study finds exactly the same effect.
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Context matters, the product matters.
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How carefully you're comparing prices matters.
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Whether you're buying something cheap or expensive matters.
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Whether the price is signaling a discount or premium quality matters.
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And some experimental research has failed to reproduce a strong, left-digit effect in particular settings.
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So this isn't.
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$9.99 guarantees more sales.
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It's human beings don't always process prices as perfectly rational mathematical objects.
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Which, if you've ever visited a supermarket while hungry, you already knew.
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Pricing interacts with perception, expectation, context, comparison, habit, and emotion.
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The fascinating part isn't that we can't tell the difference between$9 and 99 cents and$10.
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Of course we can.
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It's that the way the price is presented can still influence how that difference feels, even when we know exactly what they're doing.
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There's also a wonderfully simple defense against all of this.
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Roundup.
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$9.99?
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$10.49.99?
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$50.
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$299.99?
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$300.
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Congratulations, you've defeated approximately a century of retail psychology.
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Although I say this, and then I'll walk into a shop tomorrow, see something reduced from$99.99 to$79.99.
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And then think, ooh, that's only 70 something.
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No, Steve, it isn't.
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We literally just recorded an entire podcast about this.
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But that's the point that these techniques don't require us to be stupid.
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They work with the shortcuts our brains naturally use.
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We're busy.
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We're comparing products.
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We're thinking about whether we actually need the thing.
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We're wondering whether there's free shipping.
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We're trying to remember the password to an account we apparently created in 2014.
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And somewhere in all that mental noise, the first digit gets through, nine.
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Good enough.
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So, why do prices end in point?
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Nine nine?
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Partly because odd pricing became embedded in retail practice a long time ago.
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Its exact historical origin isn't as neat as some stories would have you believe.
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The famous cash register explanation may be part of the story, but we shouldn't treat it as proven fact.
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What we do know is that retailers discovered something important.
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How a price is written can affect how a price is perceived.
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That one cent difference can move the left-hand digit.
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$10 becomes$9.99.
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$100 becomes$99.99.
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And even though we understand perfectly well that the mathematical difference is trivial, our brains don't always treat the psychological difference as trivial.
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Then repetition did the rest.
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Nine ending prices became associated with bargains.
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Retail systems adopted them.
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Advertising reinforced them.
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Consumers became accustomed to them.
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And eventually, ninety-nine stopped looking strange.
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Ten dollars began looking strange, which is perhaps the greatest trick of all.
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So, why do prices end in.99?
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Not because$19.99 is meaningfully cheaper than$20.
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It isn't.
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You cannot retire on the difference.
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Not because there's a law requiring retailers to preserve the world's supply of nines.
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And probably not because one single clever shopkeeper invented the entire system one afternoon.
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The historical origin is messy.
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But the reason it survived is much clearer.
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It works with the way we perceive numbers.
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We read from the left, we respond to boundaries, we associate certain price endings with bargains, and sometimes a one cent difference can make a price feel more different than it really is.
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Retailers learnt that, and once they did, the nine became almost impossible to kill.
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Cash registers changed, credit cards arrived, online shopping arrived, smartphones arrived, we stopped using cash for half the things we buy.
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And still,$19.99.
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So next time you see something priced at$9.99, don't say it's only$9.
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It's$10.
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Just say$10.
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The retailer will be fine, but they've still got your penny.
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I'm Steve.
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And apparently there's a reason for almost everything, even if it isn't a particularly good one.
