It’s so common that many choose it by default: an item price that ends with 99 cents, the idea being that by cutting the figure by one penny, consumers will be tricked into perceiving the product as cheaper than it actually is. This little psychological exploit may backfire, however, at least according to a new study out of The Ohio State University.
It’s common to, for example, see an item priced at $19.99 rather than an even $20. Though that may get someone to purchase an item they’d otherwise turn away from if it started with a “2,” the new study from OSU found that it can also make additional small-fee upgrades seem more expensive than they really are. Someone is, the researchers found, less likely to buy an upgrade or more expensive version of something if the base amount ends with 99 cents.
One example given is the use of $19.99 instead of $20; in this case, consumers may perceive the price increase from $19.99 to $25 as more expensive than from $20 to $26 dollars even though it’s the cheaper option. The researchers refer to this as the threshold-crossing effect, noting that it can apply to everything from getting the larger-sized coffee to buying a trim upgrade for a car.
To test this, the study involved selling coffee to college students on the OSU campus. At times the coffee could be priced at $0.95 for a small cup and $1.20 for a large cup; at other times, it would be priced at $1/small and $1.25/large. These prices are the same, yet nearly twice as many people opted to upgrade to a large coffee when the small cup started at $1.
This effect has to do, in part, with how humans perceive the cost of things and the emotional component of perceiving whether the price feels right and fair. The effect doesn’t always manifest when it comes to purchases, however, with the study noting that consumers familiar with a product’s typical costs aren’t vulnerable to this perception, nor are those who purchase an expensive item where the price differences are small.