Apr 15th, 2008
Why Things Cost $19.95
Scientific American has an article about Why Things Cost $19.95. They find that the more precise the price, the less likely people are to negotiate over the value. While the evidence they suggest supports what I believe, I disagree with their conclusions.
They say that we’re more likely to believe in “$19.95″ pricing because we’re “thinking in cents” rather than in dollars. I believe that it’s because we believe precise prices are derived from precise means - from accurate portrayals of time & materials and profit margins. When we see a round number we think “Oh, they just made that number up, we can negotiate that,” but when we see a precise number we think “Well, that must really be the value of it.”
Read my post on $19.99 vs. $20.
Read: Why things cost $19.95
I always get in shit from the wife because whenever I see a $169.00 price I always round down:
“It’s only $160″
“No, it’s $170 you ideeeeeot!!”
“Oh, yeah, right..”
I used to work in retail, and my boss, the CEO, told me that while consumer psychology is important, avoiding round numbers also helps reduce theft.
Basically, if something costs $20, you might just give the cashier a $20 bill. Since you don’t expect change, he puts the item in a bag and you walk away happy.
If it’s $19.95, you’re expecting 5 cents back, so the cashier has to ring in the purchase to open the register.
I heard the same thing about reducing theft. Beyond just not ringing something up, it’s more difficult to ring something up at the wrong price even if someone does give you exact change. For example, if you have products that are 19.99 and 18.95, but none that are 18.99, it’s difficult to ring up a product at the wrong price and just stick a dollar in your pocket. You’d have to constantly do penny-involved math & fill your pockets with change if you wanted the register to balance at the end of the day.
Nah, some people just see 19.95 as being a whole lot less than 20 bucks.
One thing that has always ticked me off is gasoline prices. If one buys precisely 1 gallon at 32.9 (that was the usual price when i started driving) how does one come up with 9/10 of a cent?
How did that ever get started and why is it legal?