My 99 cents

Growing up in India in the early part of my life, I was used to seeing rounded prices. Coming to US however was a shift of sorts where everything was priced ending in .99 or .95. Being a creature of habit, I would always round it up to the next dollar value. So I used to wonder what is the point of this exercise. Why would you want your customers to take the additional trouble of trying to figure the real price. Turns out I am in a minority. Recently read an article on reveries.com that aroused my curiosity on this kind of pricing. There is an area of marketing called "Psychological Pricing". An interesting research quoted on the wikipedia site goes - "Kenneth Wisniewski and Robert Blattberg at the University of Chicago's Center for Research in Marketing showed that when the price of margarine was lowered from 89 cents to 71 cents, sales volume increased a mere 65%, but when it was lowered from 89 to 69 cents, sales volume increased by 222%"

Some common reason cited for this kind of pricing,

• Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored. Some suggest that this effect may be enhanced when the cents are printed smaller.
• Fractional prices suggest to consumers that goods are marked at the lowest possible price.
  Now that consumers are used to psychological prices, other prices look odd.
• When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.

My additional 1 cent - I think what you un-round (meaning changing .00 to .99) to may depend on the least used denomination of the currency in the society. For instance, I dont think in India something could be priced Rs 99.99. If the cashier has to tender change back he wont be able to give Rs. 0.01 (i.e. 1 paisa) back cause I have never seen one being used!!!! I guess the best I can see is Rs 99 instead of Rs 100. Ofcourse this may be changing as cash gets used less often and is replaced with credit cards.