Does Pricing Stuff at $3.99 Really Still Work on the Modern Consumer?

Does pricing stuff at $3.99 instead of $4.00 (or whatever) really still work on the modern consumer? Isn’t the jaded 21st century shopper too sophisticated to be taken in by such an obvious trick? —Penny Dreadful

I dunno, Penny—I feel like any time you start a rhetorical question with some form of “isn’t the general public too smart to do x,” you’re asking for trouble. In any case, jaded sophistication is no match for “charm” pricing (so called because it sounds better than “deceptive” pricing or “fleece the suckers for everything they’re worth” pricing): Research shows it works even when people know it’s happening.

The best real-world argument for charm pricing’s continued effectiveness is the fact that people whose bottom line is at stake still use it. If you want the underlying theory, though, it’s based on something called “left-digit bias.” People intuit—not unreasonably—that the leftmost digit in a number is the most important. In our minds, “$3.99” becomes something more like “$3 plus some change.” This makes us perceive the difference between $3.99 and $4.00 as more significant than the difference between $4.00 and $4.01.

In other words, it works about like you’d imagine. (For what it’s worth, researchers have confirmed this common-sense view with eye-tracking studies and other feats of quantitative legerdemain.)

A side effect of all this is that over time charm pricing became associated with good value. These days when we see a price ending in .99, we understand that it’s at least supposed to be a good deal.

The reverse is also true—round-number pricing connotes luxury. That’s why fancy restaurants give their entrées prices like “$40.00” rather than “$39.99.” The fanciest go further still—“$40,” or even a bare “40,” unmoored to any currency symbol. (Forty what? If you have to ask, you can’t afford it.) The message is clear: “We’re all ballers here; we don’t need to count pennies like those poor slobs at Walmart.”

Finally, there’s an urban legend that $X.99 pricing was created to keep employees from stealing. The theory is that since the cashier would have to ring the transaction into the cash register—which wasn’t widely used at the time, but never mind—to give the customer their penny, they couldn’t slip the whole dollar amount into their pocket while not recording the transaction at all. Why the customer wouldn’t notice this (or, failing that, why the cashier couldn’t just keep a few pennies in his pocket) is not recorded, but I’m sure it’s all on the up-and-up.

Questions? Send them to dr.know@wweek.com.