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Author Topic: Why are prices always 1p under a round figure?  (Read 9136 times)

Jack

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Why are prices always 1p under a round figure?
« on: 22/05/2009 10:30:03 »

Great programme, I listen to it at work all the time on my mp3 player.

My question is, why do stores and tv advertisements show that the company is charging 99 cents or 9999 dollars for a car instead of rounding off to 10000 and making a slightly bigger profit?

Is this because some snap judgement in the mind sees fewer numbers, decides the amount is an order of magnitude less, and is more likely to buy because it seems significantly cheaper then it would expect?

What do you think?

Chemistry4me

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Why are prices always 1p under a round figure?
« Reply #1 on: 22/05/2009 10:37:00 »
Is this because some snap judgement in the mind sees fewer numbers, decides the amount is an order of magnitude less, and is more likely to buy because it seems significantly cheaper then it would expect?
Yes, I think you are 99.999% bang on!

Ophiolite

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Why are prices always 1p under a round figure?
« Reply #2 on: 22/05/2009 13:08:59 »
Yes, I think you are 99.999% bang on!
Don't go into advertising. In this instance he is 110% correct.

Chemistry4me

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Why are prices always 1p under a round figure?
« Reply #3 on: 22/05/2009 13:42:34 »

lightarrow

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Why are prices always 1p under a round figure?
« Reply #4 on: 22/05/2009 20:14:51 »

Great programme, I listen to it at work all the time on my mp3 player.

My question is, why do stores and tv advertisements show that the company is charging 99 cents or 9999 dollars for a car instead of rounding off to 10000 and making a slightly bigger profit?

Is this because some snap judgement in the mind sees fewer numbers, decides the amount is an order of magnitude less, and is more likely to buy because it seems significantly cheaper then it would expect?

What do you think?
Yes, but it doesn't explain why a price is, for example, 29.99\$ instead of 30\$. The reason in this case is that we tend to give more importance to the first figure and so we think the price is of the order of 20, instead of the order of 30.

Karsten

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Why are prices always 1p under a round figure?
« Reply #5 on: 25/05/2009 01:28:13 »
I saw this great T-shirt in a thrift store. Almost bought it, but at the time the message did not fit. It had written on it:

I am not 40, I am 39.95

Chemistry4me

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Why are prices always 1p under a round figure?
« Reply #6 on: 25/05/2009 04:59:24 »
Like this?

Bored chemist

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Why are prices always 1p under a round figure?
« Reply #7 on: 25/05/2009 10:09:07 »
I have heard an alternative explanation; it dates back to the days when people were less fussy about receipts.
If the goods are 9.99 and you hand over 10.00 the person at the till is obliged to open the till to get the 0.01 change. If they do that the sale is registered and they have to account for it. Without that safeguard the till operator could just pocket the 10.00 and the loss would be blamed on shoplifting.

Chemistry4me

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Why are prices always 1p under a round figure?
« Reply #8 on: 25/05/2009 10:12:10 »
That explanation sounds quiet reasonable.

Don_1

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Why are prices always 1p under a round figure?
« Reply #9 on: 25/05/2009 12:56:05 »
Its psychological, many retailers use 'price points'. They are usually .99, .95 .49 and .50 pence (or cents) and will also apply to the £/\$/€. Items bought for say 9.98, 9.75, 10.18 etc. will all fall into the 19.99 price point for retail. 19.99 is less than 20.00, OK only by 0.01, but the psychological effect works, because, as lightarrow pointed out, it is the whole £/\$/€ amount which catches the eye.

It has little or nothing to do with extra profit. For example, a retailer buys a matched top and skirt for their separates range. The top costs £15.58 and the skirt £10.70. If the retailer then prices them strictly according to their cost and the required mark up, the top will sell for £31.16 and the skirt for £21.40. It is very possible that the retailer will aim to maximise sales of the two pieces by retailing the top for £29.95 and the skirt for £24.95.

The total retail price based on cost and required mark up would be £52.56, by adjusting the individual prices, the total retail is now £54.90, less than £55.00 (as the shopper will see it) and the two item prices bare a relationship to each other.

There is no mathematics or science (as such) in arriving at the retail price of goods, it is the gut feeling of the buyer/merchandiser and a simplified pricing system, which the shopper can relate to.

DoctorBeaver

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Why are prices always 1p under a round figure?
« Reply #10 on: 26/05/2009 12:24:52 »
Everyone is right. Certainly in past times, having to open the till to give change was a factor. It's quite possible that it was noted that pricing something at £9.19s.11d induced more sales that pricing the same item at £10 and the psychology of pricing evolved from that.

Don_1

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Why are prices always 1p under a round figure?
« Reply #11 on: 26/05/2009 12:33:00 »
Here's a weird one I saw yesterday at a well known supermarket (other well known supermarkets are available).

500g own brand coffee whitener cost 30p MORE than the 1Kg pack of the same own brand product!!!

dentstudent

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Why are prices always 1p under a round figure?
« Reply #12 on: 26/05/2009 12:42:29 »
There was a time when buying a return ticket with British Rail was cheaper than the one-way fare.

DoctorBeaver

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Why are prices always 1p under a round figure?
« Reply #13 on: 26/05/2009 12:54:47 »
Here's a weird one I saw yesterday at a well known supermarket (other well known supermarkets are available).

500g own brand coffee whitener cost 30p MORE than the 1Kg pack of the same own brand product!!!

When I was last in Tesco 3 100g jars of their own brand coffee was less than 1 300g jar.

Bored chemist

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Why are prices always 1p under a round figure?
« Reply #14 on: 26/05/2009 15:31:51 »
There was a time when buying a return ticket with British Rail was cheaper than the one-way fare.
For a long time the return fare was the same as the one way ticket.
If they forgot to run a train for your return journey they generously refunded the difference between the cost of the single journey and the return.
This, of course, cost them nothing.
Having a rail system that is so disorganised that the price structure assumes that nobody ges home is quite an achievement.

Edster

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Why are prices always 1p under a round figure?
« Reply #15 on: 26/05/2009 18:19:46 »
It is these days a price point psychology thing.

As a small child Pre decimalisation newspaper adverts for things like settees and TV`s had prices marked in gns or gs.

This was 21shillings, not 20s as in a pound.

There was also snob value as it was an older more gentrified unit of money.

I was a little confused for a while after gran explained that gns were guineas, which was a gold coin worth 21 shillings. " Oh so you have to pay in those? "No you pay in pounds and shillings "why`s that?"

Because they don`t make them anymore  as they are worth more than 21s " How much more?" I don`t know, 24?

I think it was mum who spotted my puzzlement at how it could be 21 and unknown at the same time and explained it was made OF gold and the metal was worth more than the face value. DOH! not just the colour.
But at 4 years old the metals markets are a bit beyond you!

DoctorBeaver

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Why are prices always 1p under a round figure?
« Reply #16 on: 26/05/2009 20:13:25 »
Yes, Edster, guineas were a real pain in the proverbial. 20gns was, in fact, £21. I shall have to try to find the origin sometime.

Karsten

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Why are prices always 1p under a round figure?
« Reply #17 on: 28/05/2009 21:23:54 »

Chemistry4me

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Why are prices always 1p under a round figure?
« Reply #18 on: 29/05/2009 05:42:49 »
There are so many of them, all saying the same thing.

rosalind dna

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Why are prices always 1p under a round figure?
« Reply #19 on: 29/05/2009 10:04:54 »
I agree because when I go clothes shopping then sometimes the sum is rounded off to (eg) £9.99 which is plain daft. But it's been like this even before the UK went decimal in 1972 (I think)

Chemistry4me

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Why are prices always 1p under a round figure?
« Reply #20 on: 30/05/2009 07:16:19 »

Edster

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Why are prices always 1p under a round figure?
« Reply #21 on: 02/06/2009 01:49:49 »
^Rosalind
£9 19/11 rather than £10 I can just remember.
You are right it goes way back. I believe the practice originated in the US many years ago and you will probably find examples in US films pre ww2 onwards. The oldest reliable person I  know says that it only started in the uk in the late 1950`s  because rationing was still in force until then on most things and you couldn`t buy freely, so there was no competition and enticement for goods was a waste of effort.

^Doctor beaver
The guinea: thank god for insomnia sometimes.

From the Bank of England`s museum , some well known auction houses and numismatic collectors sites,  Fortunately my shorter version of the oed is solid as a rock.

From its withdrawal from circulation on the reintroduction of the sovereign, the term guinea was used as a "currency of account" by:  auction houses, the bloodstock trade ( horse racing), solicitors, architects, for "Professional services".

As far as I can find, it is not illegal to price something in Guineas still, as the legislation against displaying prices in old money specifically targeted pound shilling pence only.
There was a fishmonger where I lived as a kid who priced his stuff in real money, but did have both on display inside plus a by appointment in his window, who carried on till he retired sometime in the 80`s. They stupidly tried to prosecute him several times on reports without having gone inside, it appeared in national newspapers and the authorities  made themselves look silly.

The guinea itself is a complicated story which involves  the english civil war, bullion coins: silver vs gold, inflation and gentle robbery. Oh and the exploitation of the African subcontinent. here goes.........

They were called  guineas as the gold they were made from was from guinea, brought back by one of the worshipful companies whose emblem is responsible for  "elephant and castle" as that is where their spice warehouses were ( brewers dictionary of phrase and fable) and the sign was a stylised elephant and howdah ( hence the castle) this appears on some of the  early coins.

In days gone by going  back to the Romans, coins had intrinsic worth from silver, gold or even copper content, so the government could never rip you off, as a coin was worth that as a metal when melted down : "bullion coins".

The Guinea was a coin worth a pound, initially. But as a bullion coin its exchange value went to 21, 22 and at one point 30 shillings, there are 2 credible explanations probably both true, and both at the same time were responsible.

Charles the first got stuck into a foreign war, ran out of money and  went to parliament  for money via MORE taxes. His original  efforts had reduced the money in circulation, and some level of goods inflation was starting to bite.
At the same time no new silver coinage was being minted or at least not at a level that worked. There was no milled edge to coins and most silver coinage through wear and deliberate nicking or scraping a sliver of silver off the rim was underweight. So It could take  a few more than 20 silver shillings to weigh the same value.

When Charles 2 was reinstated more silver coins were minted and it stabilised.
It was declared to be 21/- and maintained at that with serious penalties for melting down, but soon after that the gold standard was established, and so  effectively its worth was fixed. It was withdrawn in the early 1800`s  when the gold sovereign was reintroduced. The last issue was to pay for supplies for wellington`s army abroad.

It is fascinating that the Bank of England`s own museum site makes an assertion that it has a "face value" (ie stamped on it!) 21 shillings that no photo I`ve seen  can support:

http://www.bankofengland.co.uk/education/museum/walkthrough/1817.htm

If you find one let me know!
night all.

« Last Edit: 02/06/2009 01:57:15 by Edster »

Don_1

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Why are prices always 1p under a round figure?
« Reply #22 on: 02/06/2009 07:06:22 »
I seem to recall that auction houses traded in guineas because that included their commission of 1/- for every £1 bid.

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Why are prices always 1p under a round figure?
« Reply #22 on: 02/06/2009 07:06:22 »