Sunday, August 7, 2011

Why The $.99 Price Point?

99 cent sale image from Bobby Owsinski's Music 3.0 blog
Did you ever wonder why Apple chose $0.99 as the base price for a song on iTunes? There's actually some sound retail psychology behind it.

Many studies (such as ones from Northwestern University's Kellogg School of Management and MIT's Sloan School of Management) have shown that a price ending in $x.99 makes a product's price look more attractive than one that's rounding up to a full $x.00 amount, which is why you see so many prices at stores in the mall end in either $.99, $.98, or even $.95. If a piece of clothing is priced at $9.99, it has a much better chance of selling than at $10.00, according to the theory. You even see this with high ticket items like cars, with prices like $24,995 because it doesn't break the psychological barrier of $25k.

When it comes to buying a song, $0.99 cents just seems a lot less than a dollar, even though it's almost the same. The same holds true of Amazon song pricing at $0.69, which still seems less than $0.70. We've been trained by years of buying at retail to look for that "9" at the end of the price tag. It's just comfortable to us.

That said, in this age of credit card, Paypal and Square transactions where no physical currency changes hands, it would seem that perhaps this practice is heading for scrap heap. When you purchase something at a store with currency and get change back, even if it's a penny, you feel like you've somehow received a deal. Purchase the same item with a credit card in a currency-free transaction, that feeling no longer exists.

What do you think? Is the $x.99 price a relic of the past? Do you feel better purchasing at that price instead of a full even-dollar amount?
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