Why are products at x dollars and 99 cents?

[tamias6]

This may sound like one of those mysteries-of-the-universe questions. But when shopping I notice that most products are priced a penny below the next dollar such as $9.99 or $19.99. I been dying to know why this is so.

[suburban george3]

Having worked in retail and in the pricing world, most systems are always set to round to the 9's when setting pricing on items. The optimal retail for a category may say the item needs to be $5.84 but you will sell more at $5.79. Same thing at the lower end, if a product should be priced say at $1.03 for exact gross margin but you will sell more at $0.99. Customers respond to these pricing scenarios better as well.

This is a much better pricing strategy then pricing on direct gross margin calculation. What little you lose in gross margin you make up by a slight uptick in sales volume.

[Gusterfell]

^That's what I've always assumed. The customer feels that $4.99 is a better deal than $5.00 because they see a lower dollar number on the price tag, never mind that the difference is negligable.

Gas stations do this too. If you look closely at the pump the next time you fill up, you'll most likely see that you're not actually paying $3.07 per gallon, but $3.07 and 9/10 cents. On the signage it looks like a bargain compared to $3.08 per gallon.

[Rybak 187]

Yes, it is all about the perception of the consumer.

[wolverine]

What about when taxes are included in the price.

For example, while in college, I work at a retail store that uses nice rounded out numbers that includes tax. People still think they are getting a good value because the price they see is the price they actually pay, despite that its actually much lower for the product itself. Would this apply to pricing elsewhere? If I had an item that cost $1.84 and with 6% sales tax, cost 1.95, and then rounded up to $2.00, would the customer still perceive this as reasonable, just because tax was already included and even though I marked the item up 5 cents?

[Lowerdeck]

It would only be good if the rounding up actually equaled a dollar. Like you would make something 1.89 if you wanted it to be $2, or 94 cents for a dollar, etc...

*It's 6% here*

[Gusterfell]

^I would probably see that as reasonable. I've always thought that items should be marked with the total price, including sales tax, to give consumers a better idea of what they are actually paying. In your example, I'd consider the 5 cent mark-up more than worth the convenience of not having to fumble with change.

[Rybak 187]

What about when taxes are included in the price.

For example, while in college, I work at a retail store that uses nice rounded out numbers that includes tax. People still think they are getting a good value because the price they see is the price they actually pay, despite that its actually much lower for the product itself. Would this apply to pricing elsewhere? If I had an item that cost $1.84 and with 6% sales tax, cost 1.95, and then rounded up to $2.00, would the customer still perceive this as reasonable, just because tax was already included and even though I marked the item up 5 cents?