A recent analysis of prices charged in a major American supermarket revealed an interesting fact. About 80 percent of the store’s products were given a price ending in the number 9. This finding wasn’t just limited to a single store or even a particular chain of stores. It seems that most retailers adopt a similar policy. The practice of pricing goods with odd-ended numbers is not a cultural anomaly solely reserved for the American market, either. Studies in Germany, Great Britain, and New Zealand have found similar pricing patterns.
So where did this strange practice of odd-ended pricing originate? One potential explanation can be traced back to the standardization of the American currency in 1891. When imported goods from Britain underwent a currency conversion from pounds to dollars, they would end up with an odd price. The perception that British goods were often considered to be of a higher quality meant that odd price endings became associated with a mark of superiority. Another commonly cited reason for the introduction of odd price endings was that it was a pretty good strategy to reduce employee theft. Odd pricing would force employees to issue change, therefore making it more difficult for them to pocket a payment without recording the transaction on a sales slip. Records show that when the department store Macy’s adopted 99-cent sales in the early twentieth century, they reported a rise in sales, leading to the practice then being adopted by retailers around the world.
Given the almost ubiquitous practice of 99-cent prices it is interesting to note that another well-known retailer recently made the decision to buck this pricing norm. In 2011 Ron Johnson, a former senior vice president at Apple, joined JCPenney as its new CEO and a short time later launched an “Everyday” pricing policy across its stores. The cornerstone of his initiative was a decision to use whole numbers on price labels rather than the more familiar .99 endings. For example, a pair of denim shorts previously tagged at $18.99 or $19.99 would be priced at $19 or $20, respectively. The rationale given for the idea was a simple one: Prices ending in round numbers are clear and straightforward and convey a simple and honest message. JCPenney’s small shift in pricing strategy, while a setback for the copper cent, would surely be a victory for common sense. Most importantly, though, JCPenney thought it would be a victory for their customers who would surely vote with their wallets.
And vote with their wallets they did. The following year JCPenney’s sales tanked by almost 30 percent.
Given that the economy, at the time, was still in the early stages of recovery and could be described, at best, as fragile, it would be absurd to suggest that JCPenney’s decision to move to round number price endings was wholly responsible for the monumental slump in its sales. There was likely a multitude of other factors that contributed to its nose-diving sales. But there is good evidence that JCPenney’s “Everyday” pricing policy probably didn’t help. And it certainly didn’t help Mr. Johnson, who was soon removed from his CEO position.
At first glance the idea that shifting a customer’s attention from a precise price ending (for example, $0.99) to a round price ending (for example, $1.00) appears to be one that should have little impact on whether a positive purchase decision is made or not. After all, the difference is a paltry penny. The saying may advocate “take care of the pennies and the pounds will take care of themselves,” but the value of a penny these days is so small it hardly seems worthy of attention at all.4
In such a context JCPenney’s pricing shift should have made little if any difference. But as we have consistently shown in this book, small changes can lead to a big difference—even if that small change concerns one penny on a sales tag.
But why?
One reason is that a .99 price ending acts as a signal for “a good deal.” Research by Charlotte Gaston-Breton and Lola Duque suggests that this can be especially effective with younger consumers or when there is low involvement in the decision to purchase, such as with lower-value items. Other research has found that products that have .99 endings tend to cause a “leveling down” effect when it comes to perceptions of price bands. In other words, a product sold at $19.99 can be categorized in the “less than $20” band but the moment it costs a penny more it’s in the “$20 and above” band, creating a subtle but important contrast.
In addition to influencing the price category that a product falls into, a one-cent change in price ending might also serve to signal another important feature of the price—the left-most number. In the previous example, not only does a product priced one cent cheaper at $19.99 fall into the “less than $20” category, but the left-most number also changes from 2 to 1. It turns out that this “left-digit effect” is important primarily because it is what people typically pay attention to first.
Researchers Kenneth Manning and David Sprott provide compelling evidence for how a small change in price ending that affects the left-most number in the price can have a dramatic influence on people’s purchasing decisions. In Manning and Sprott’s studies, participants were given the opportunity to purchase one of two pens that were presented to them side by side. Pen A was the lower-priced option and Pen B was the higher-priced option because of a couple of extra features it had. The participants were then asked to evaluate the two pens and make a choice about which one they would like to purchase. The researchers had assigned participants to one of four different price conditions:
| Pen A | Pen B | |
| Condition 1 | $2.00 | $2.99 |
| Condition 2 | $2.00 | $3.00 |
| Condition 3 | $1.99 | $2.99 |
| Condition 4 | $1.99 | $3.00 |
Despite the fact that the difference across the first three price conditions was very small (there is just a one-cent difference between conditions 1 and 2) the impact was very large indeed. Pen A was selected by 56 percent of participants in condition 1, but by 69 percent in condition 2 and 70 percent in condition 3.
Why such a big uplift? Notice that compared to condition 1, where the left-most digit is the same for both Pen A ($2.00) and Pen B ($2.99), in conditions 2 and 3 the left-most digit is different, making Pen A seem like a much cheaper pen relative to Pen B in those two conditions.
But now let’s consider condition 4, where a small change has resulted in the difference between the left-most digits being two dollars—Pen A ($1.99) and Pen B ($3.00). It turns out Pen A fared best of all with this combination, with nearly 82 percent of participants purchasing Pen A. This is a neat demonstration of how a small change to the left-most digit can have a big effect on resulting choices.
We bet that Ron Johnson now wishes he and the rest of the JCPenney team had understood the science of persuasion before embarking on his “Everyday” round-ended pricing policy. This research shows that changing the price of, say, a pair of socks from $8.99 to $9—that is, making it a penny more expensive—has the effect of making the socks actually seem nearly a dollar more expensive because consumers are so focused on the left-most digit.
More generally, the implications of this study have a variety of potential applications for those looking to influence the choices and decisions of others. Most obviously, those responsible for setting prices in retail environments may benefit from the knowledge that a small shift in price—which might literally be just one cent upwards or downwards—can disproportionately alter a consumer’s judgment of the cost of that product as well as their purchasing decision. For example, a business that sells lower-priced, high-margin products such as own-brand goods may be able to improve their profitability by making small changes to the price endings of their products that increase the perceptual difference between the left-most digit of their price and that of a premium product. Of course, should it be the case that the goal is to increase the likelihood that people will choose a more expensive product, then the opposite would be true. Notice that in the pen study many more folks chose the more expensive pen when the left-most digit was the same for both options.
Less obviously, there might be other ways to use the intriguing influence that numbers that are slightly less than whole numbers often have on others’ decisions. A personal trainer might find that a client is a little more compliant to a training program framed as 9.9 kilometers on the treadmill rather than a round-ended 10 kilometers. A doctor may measure helpful differences in a patient’s adherence to exercise by advocating a slightly lower number of steps on their pedometer—say 9,563 rather than the more usual 10,000. In these scenarios, these goals should seem disproportionately more attainable to the client or patient, and therefore they should be more motivated to work to achieve them.
Finally, a small change to the way times and agendas are framed may result in more acceptances and fewer declines for future meetings you are hosting. While speculative on our part, changing that upcoming 2-hour gathering to one that is scheduled for 1 hour 55 minutes might result in a few extra attendees.
Perhaps this small, but important, change informed by persuasion science will spawn a completely new approach when it comes to persuading people to attend your meetings. But before you think about contacting Apple, Microsoft, or Google to suggest they change the default settings on their electronic calendars, be aware that we have already copyrighted “The 29-Minute Meeting.”
4 Given that the penny is typically the smallest denomination in most currencies, another common saying, “See a penny pick it up and all day long you’ll have good luck,” might prompt you to wonder whether picking up a penny off the street is worth the time and effort at all. It turns out economists have studied this and a clear answer emerges—it isn’t. There’s also no evidence to support the idea that finding a penny brings good luck either, but given that’s a rather tricky thing to test, that’s a decision you should probably make yourself, leaving the scientists out of it.