Theory that certain prices have a psychological impact
Example of psychological pricing at a gas station
Psychological pricing (also price ending, charm pricing) is a pricing and marketing strategy based on the theory that certain prices have a psychological impact. In this pricing method, retail prices are often expressed as just-below numbers: numbers that are just a little less than a round number, e.g. $19.99 or £2.98.[1] There is evidence that consumers tend to perceive just-below prices (also referred to as "odd prices") as being lower than they actually are, tending to round to the next lowest monetary unit.[2][3] Thus, prices such as $1.99 may to some degree be associated with spending $1 rather than $2. The theory that drives this is that pricing practices such as this cause greater demand than if consumers were perfectly rational. Psychological pricing is one cause of price points.
^Manning, Kenneth (2009). "Price Endings, Left-Digit Effects, and Choice". Journal of Consumer Research. 36 (2): 328–335. doi:10.1086/597215. JSTOR 10.1086/597215.
^Strulov-Shlain, Avner (2023). "More than a Penny's Worth: Left-Digit Bias and Firm Pricing". The Review of Economic Studies. 90 (5): 2612–2645. doi:10.1093/restud/rdac082. ISSN 0034-6527.
^Bizer, George Y.; Schindler, Robert M. (2005). "Direct evidence of ending-digit drop-off in price information processing". Psychology and Marketing. 22 (10): 771–783. CiteSeerX 10.1.1.585.1030. doi:10.1002/mar.20084.
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