We have already observed this visual effect countless times. Still, it is astonishing how a mere cent subtracted from a round price can make it appears completely different. The examples below illustrate such effect and, at the same, help us to define some crucial terms to understand the psychological pricing.
For the sake of simplicity, just one currency symbol will be used in the examples. The chosen symbol is the dollar ($), not only because many currencies use it, but also because the American dollar is the most traded currency in the world. Nevertheless, what the rationale employed in this page and next ones is strictly the same if we replace ‘$’ for ‘€’, ‘£’, ‘¥’, ‘R$’, ‘руб’, ‘₹’, or any other currency symbol.
Psychological pricing can be defined as the marketing strategy of selecting prices that are just below a round value. To make use of it, the seller may choose to show a $200-price, for instance, as $198, $199, $199.90, or even as $199.99. All these alternative prices have two things in common:
- Very short real distance to $200 (similar content)
- Long apparent distance to $200 (different form)
The very short real distance of an alternative price to $200 means that the subtraction between $200 and it results in a tiny value. For instance, the real distance between $200 and $198 is only two dollars (200 – 198 = 2). The most impressive example is $199.99. Its distance to $200 is the mere cent of page title (200.00 – 199.99 = 0.01).
On the other hand, the long apparent distance of an alternative price to $200 means that its number has few or even none digits in common with the round price. In case of 198, all the three digits are different from 200 — even if 198.00 and 200.00 share the same ending (“.00”). Again, the $199.99 is impressive. All its digits are different than both $200 and $200.00.
In fact, one of the secrets of psychological pricing is to change the leftmost digits in order to increase the sales and, at same time, taking advantage of ’99’ and similar endings, so that the decrease in the profit per unit is very small, even negligible. Researches confirm that the increase in sales surpasses greatly the tiny decrease of profit per unit.
That is what we’ll see next: