When I was about six years old or so, I recall I asked my mom why all prices end with a ninetynine. Because they want you to believe it's cheaper than it is, I was explained. If they print 1.99 it's actually 2, but they hope you'll be fooled and think it's "only" one-something.
I found that a good explanation when I was six, but twentyfive years later I wonder if even six year's old know that can it be a plausible reason? Why keep stores on doing that? Do they really think customers are that stupid? Or has it just become a convention?
Now coincidentally, I recently came across this paper
- Precision of the Anchor Influences the Amount of Adjustment
By Chris Janiszewski and Dan Uy
Psychological Science 19 (2) , 121–127 (2008)
via Only Human. The study presented in this paper examines the influence of a given 'anchor' price on the 'adjusted' price that people believe to be the actual worth of an object if the only thing they know is the adjusted price is lower than the retail price. A typical question they used in experiments with graduate students sounds like this
"Imagine that you have just earned your first paycheck as a highly paid executive. As a result, you want to reward yourself by buying a large-screen, high-definition plasma TV [...] If you were to guess the plasma TV’s actual cost to the retailer (i.e., how much the store bought it for), what would it be? Because this is your first purchase of a plasma TV, you have very little information with which to base your estimate. All you know is that it should cost less than the retail price of $5,000/$4,988/$5,012. Guess the product’s actual cost. This electronics store is known to offer a fair price [...]"
Where the question had one of the three anchor prices for different sample groups: a rounded anchor (here $5,000), a precise 'under anchor' slightly below the rounded anchor, and a precise 'over anchor' slightly above the rounded anchor. Now the interesting outcome of their experiment is that consistently people's guess for the adjusted price stayed closer to the anchor the higher the perceived precision of this price, i.e. the less zeros in the end. Here is a typical result for a beach house, the anchors in $, followed by the participants' mean estimate
- Rounded anchor: 800,000
Mean estimate: 751,867
Precise under anchor: 799,800
Mean estimate: 784,671
Precise over anchor: 800,200
Mean estimate: 778,264
What you see is that the rounded anchor results in an adjustment that is larger
than the average adjustment observed with the precise anchors. Now you might wonder how many graduate students have much experience with buying beach houses, or plasma TV's for 5,000. But they used a whole set of similar questions, in which the measure to be estimated wasn't always a price, but possibly some other value like the protein value of a beverage. There even was a completely context-free question "There is a number saved in a file on this computer. It is just slightly less than 10,000/9,989/ 10,011. Can you guess the number?". The results remain consistent, the more significant digits the anchor has, the less the adjustment. For the context free question the mean estimate was 9,316 (rounded) 9,967 (precise under) 9,918 (precise over).
The paper further contains some other slightly different experiments with students to check other aspects, and it also contains an analysis of behavior in real estate sales. The author's looked at five years of real estate sales somewhere in Florida, and compared list prices with the actual sales prices of homes. They found that sellers who listed their homes more precisely (say $494,500 as opposed to $500,000) consistently got closer to their asking price. The buyers were less likely to negotiate the price down as far when they encountered a precise asking price.
I find this study kind of interesting, as it would indicate that the use of ninetynineing is to fake a precision that isn't there.
Bottomline: The more details are provided, the less likely people are to doubt the larger context.
TAGS: SCIENCE, PSYCHOLOGY, 99