Why do prices always end with 99 cents?

Being the intelligent, observant, and contemplative person that makes you a reader of Commonplace Fun Facts, you have undoubtedly noticed something about prices. They always seem to end with 99 cents. It’s true of steampunk sunglasses ($14.99), alligator clips ($6.99), and the Blu-Ray version of the first season of Doctor Who ($35.99). That’s the Christopher Eccleston first season, not the William Hartnell first season. For that one, you’re not going to find it on Blu-Ray, but it is available with a BritBox subscription ($6.99 per month).

Why do prices always seem to end that way? The short answer is that unlike you, most people are not intelligent, observant, or contemplative. Most people, when looking at a price, focus on the numbers before the decimal point, ignoring what follows. Psychologically, most consumers see little difference between $7 and $7.99, but they perceive a massive difference between $7.99 and $8.

Recognizing this, most products are now priced, using what is known as “just-below pricing.” Approximately 60% of all items available for resale bear a price tag that is just under the next-highest whole number. Gas stations have made this practice into a science. The next time you fill up your car, take a close look at the price.

It may seem unusual, or even unnecessary, but there is a long history — and a subtle marketing strategy — behind gas prices ending in 9/10 of a cent. In the adjacent photo, showing the prices of four different types of gas, you would likely be outraged that any of them have climbed to over $4. The price of diesel is an unbelievable $4.99! Or is it? Take another look, and you see that it is $4.99 plus 9/10 of a cent. Since no one carries around 1/10 of a cent currency, one gallon of diesel will cost you $5.

Fractional prices first appeared in the early 20th century as states began levying sales taxes on gas. The taxes were established in tenths of a cent. At the time, the average cost of gas was 10 cents per gallon. Adding a full cent to the price was a huge deal — an overnight 10% jump in the cost of driving. Instead, gas station operators added the fractional cent increase, and it became an almost-hidden price increase.

The prevalence of just-below pricing has led to another psychological trick for pricing. Consider the sunglasses in the adjacent photo. Aside from the price, you likely don’t notice too much of a difference. The prices differ in two ways. The more expensive Ray-Ban model is priced in whole dollars. The less expensive J+S model uses the just-below pricing style of ending its price with 99 cents.

Ray-Ban has a reputation for quality. For some reason, consumers tend to equate the whole-number pricing with quality products. Perhaps it comes from the notion that it’s worth paying more for something that will last. It could also be sending a subtle message to the consumer: “Our product is so good that we don’t have to trick you with sneaky pricing gimmicks.”

Increasingly, merchants are using a technique of random or irregular pricing. The next time you are in Walmart, notice how many prices end with seemingly-random amounts such as 63 cents, 42 cents, or 77 cents. Because we have grown accustomed to seeing prices end with 99, the presence of an unexpected number makes us stop, notice, and consider it. The use of an unexpected number is, essentially, an advertisement that costs the seller the difference between that number and 99 cents.

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