Psychological pricing

Retail prices are often so-called psychological prices or odd prices: a little less than a round number, e.g. $ 6.95. There is some evidence to support the firm belief which exists amongst retailers that greater than expected demand occurs at such prices. Theories about the cause include:

• For simplicity the consumer ignores one or more of the least significant digits; amounts like $ 6 and $ 7 are more easily handled than $ 6.95, and ignoring part of a number is easier than proper rounding; this effect is enhanced when the cents are printed smaller. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored.

• Psychological prices suggest to consumers that goods are marked at the lowest possible price.

• Now that consumers are used to psychological prices, other prices look odd.

Another advantage is that in most cases the consumer does not hand over the exact amount and therefore has to be given change. This reduces the risk of personnel stealing from the shop owner by not recording a sale on the cash register and pocketing the money, in the case that the customer does not require a receipt.

It is said to have been invented in 1875 by Melville E. Stone, the publisher of the Chicago Daily News, who introduced it in cooperation with his advertisers.

see also pricing, marketing, marketing mix, price, price points, retailing, microeconomics

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