What is the term for pricing items just below a significant value (e.g. $19,995)

Question

What is the name for the pricing strategy where the item price is just below a psychologically significant amount? For example $199 instead of $200, $2.95 instead of $3, $49,990 instead of $50,000.

Answer 1

The Pricing Strategy article (from the NetMBA Business Knowledge Center) mentions those kinds of price in the section:

Psychological pricing -

base the price on factors such as signals of product quality, popular price points, and what the consumer perceives to be fair.

So I would argue for: "price points" or "popular price points" if you want to be specific about those "popular" ".99" cents.

Answer 2

I've heard the terms just-below pricing and off-dollar pricing used to describe this phenomenon, but I don't know how frequently those terms are used in the world of economics.

Wikipedia has a pricing strategies entry that labels such pricing as psychological pricing. There's an entire entry on psychological pricing, as well:

Psychological pricing or price ending is a marketing practice based on the theory that certain prices have a psychological impact. The retail prices are often expressed as "odd prices": a little less than a round number, e.g. $19.99 or $2.98. The theory is this drives demand greater than would be expected if consumers were perfectly rational. Psychological pricing is one cause of price points.

Answer 3

While going to school I worked retail, and I agree with the "psychological pricing" reason; people really did say things priced $19.99 were "nineteen dollars".

However, there is another influence for the retailer's benefit. Retailers, especially franchises, have all kinds of weird pricing rules they must follow; for example, a product might retail for full price for 6 months before you could offer a discount, promotional pricing did not apply to certain products, some products were on consignment and we couldn't do returns, et al.

Now it's hard for teenagers to remember these rules for each product, the till did it but we couldn't change the rules the till used, so we would change the prices.

For example (this is going off decades-old memory) full prices always ended in .98, so the store owner had some latitude for discounts. Prices ending in .X9 were discounted and no further price cuts were allowed. Products which you got via promotions or "free gifts" had prices ending in .95 or something, products with no returns had prices ending in .66 or something.

Few of the staff knew the rules, but the till did. If you bought something for $19.99, it wouldn't allow you to use a discount or card. You couldn't get a refund for something priced $2.95, or return something for which you were charged $9.66.

This method also allowed the manager some leeway in changing the pricing rules.

This was many years ago at an independent business, and I do not know how common this practice still is.

Answer 4

I hope I can help here.

The answer to your question is 'Odd Pricing'. There are several reasons quoted for how it came about, including the psychological effect, but also to combat theft by shop workers who have to open the till to give a small amount of change.

'Price Points' were mentioned above, but this is something else. This is where you describe different options for a purchase using it's price. For example you could buy a $400 laptop computer, a $600 one, or a $800 one. These are price points.

Read a bit more about pricing on our website - www.wellmeadow.co.uk

David Parry