Sunday, May 10, 2009

Why do we set Prices at e.g. 99 cents (or 98 cents) rather than 1 Dollar or 1 Euro or 1 Pound or any other Currency?

Commerce has a lot to do with psychology.

Why for example do we price retail products at 99 cents (or 98 cents) rather than 1 Dollar or 1 Euro or 1 Pound or "one" of any other Currency?

The obvious - but not necessarily correct - reply that a price like $99.99 is not equal to $100 misses the main issue, by assuming that the buyer is more likely to buy at a price of $99.99 because he or she thinks that the price is then less than $100 and closer to $99 rather than $100. But the buyer knows EXACTLY what the price is. The buyer is not confused on this score.

Rather, a cent or two is given in return to the buyer by the seller, so that the actual psychology at work here is perhaps something different.

The seller or retailer is trying to get as much price out of a bill of currency as he can without taking it all, leaving the buyer with at least "something" in return, even if it is a penny. Essentially, that one cent is a form of "rebate" to assuage the buyer's loss. At least, that is our theory.

Cecil Adams has a factual analysis at The Straight Dope.

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