Psychology of Pricing: Why $9.99 Still Works
The nine ending is the best known trick in pricing and one of the smallest. Six levers, one book and seven studies show what else a price does to the person reading it.
Answer to the question
What is the psychology of pricing?
The psychology of pricing explains how buyers judge a price beyond its amount. A 9.99 ending works because shoppers read the leftmost digit first, and research shows that reference prices, the feeling of paying, price as a quality signal, per-day or bundled framing and a sense of fairness each shape the decision as well.
Key takeaways
- Tridib Mazumdar, S. P. Raj and Indrajit Sinha (2005) reviewed reference price research and set out how a comparison price forms, is retrieved and shapes purchases.
- Akshay Rao and Kent Monroe (1989) pooled 36 studies and found a positive, moderate effect of price on perceived quality.
- Stephen Atlas and Daniel Bartels (2018) found across eight laboratory experiments and one field study that a daily framing can raise perceived benefits.
- Lisa Bolton, Luk Warlop and Joseph Alba (2003) found that people tend to believe asking prices sit well above fair ones, and that corrective information moved this only a little.
In Your Money's Worth, Stuart Chase and F. J. Schlink argued that the modern buyer had lost any reliable way to tell good goods from bad, and that shoppers came to rely on what sellers chose to show them. The psychology of pricing studies one of the things sellers show. A price states a cost, and it also invites a comparison, sets off a feeling at the moment of payment, hints at quality and gets judged for fairness. The price that ends in nine, just under a round figure, is the most familiar example, and it is a small corner of a larger map.
Where the nine ending fits in the psychology of pricing
The nine ending works at the level of reading a number. Shoppers give the leftmost digit more weight than its place deserves, so a price just under a round figure registers as part of the lower band. Our earlier article on why prices ending in nine work sets out the experiments and field data behind that left-digit effect, and The Price That Isn't Round covers the separate pull of precise figures. Neither needs repeating here. The point for this piece is narrower. A nine ending changes how big a price looks, and it leaves untouched the other judgements a buyer makes about the same figure, which is where most of the psychology of pricing sits.
Few buyers know what a product ought to cost. What they carry instead is a reference price, a figure from memory or from the shelf against which the asking price looks high or low. Tridib Mazumdar, S. P. Raj and Indrajit Sinha reviewed the research on it for the Journal of Marketing in 2005. Their framework follows the reference price through three stages (the first price a buyer sees is one source, which Why the First Price You See Decides What You Pay treats on its own): how it forms, how it is retrieved and used at the moment of choice, and how it shapes purchases and the rating of a deal.
They also describe how a buyer's purchase history and the context of the purchase, including the occasion, promotions in the shop and the product category, change the size of those effects.
This is why the same price can feel like a bargain in one setting and a stretch in another. The number on the tag has not moved, and the comparison has. A shopper who bought the item last month on promotion, a shopper seeing it for the first time and a shopper standing beside a dearer alternative are each measuring against a different figure. Of all the findings in the psychology of pricing, this one accounts for the most everyday surprise.
Paying, spreading and bundling the cost
The pain of paying has a formal account. In 1998 Drazen Prelec and George Loewenstein proposed that paying for something reduces the pleasure of consuming it, and that consumption feels less costly when the payment was made in advance. Their double-entry model of mental accounting predicted a dislike of debt, a preference for paying ahead and a liking for flat-rate prices, and their survey results favoured it over a standard discounting model for most respondents. The idea is often called the pain of paying.
The method of payment matters because it changes how vivid the payment is. In two experiments reported in 2001, Dilip Soman found that past payments dampened later purchase intentions most strongly when the payment method made people write down the amount, and when the money left their account at once instead of later. A payment that is rehearsed and immediate is remembered and felt, while one that is neither leaves less trace on the next decision. Why Paying by Card Feels Cheaper follows the card side of this in detail. For the psychology of pricing, the same amount can carry a different weight depending on how and when it is paid, before any question about the figure itself.
How a total is divided changes what buyers picture. Periodic pricing, where a yearly cost is expressed as a daily or other frequent amount, was tested by Stephen Atlas and Daniel Bartels in eight laboratory experiments and one field study published in the Journal of Consumer Research in 2018. They report that a charity request framed as a small daily amount led people to think about the benefits of many small gifts, which they often found more appealing than one large gift. Periodic pricing can raise perceived benefits, they found, especially for the first few units, which people value more than later ones.
Bundling works on the other side of the same ledger. Dilip Soman and John Gourville found in four studies that a bundled price loosens the tie between what was paid and what was received, an effect they called transaction decoupling. In two laboratory studies, people holding a four-day ski pass were less likely to ski on the last day than people holding four separate day tickets. In a field study, theatregoers with multi-performance tickets were more likely to miss a given show than those with single tickets.
A bundle can make the purchase feel lighter and, by the same route, make each part feel less like something already paid for. Charges split out from a headline price, covered in Why Drip Pricing Still Works, are a related case.
What a price says about the product and the seller
When buyers cannot judge quality directly, price becomes evidence about it. Akshay Rao and Kent Monroe pooled 36 studies in an integrative review published in 1989 and found that price had a positive effect on perceived quality, of moderate size and statistically reliable. The same review examined brand names and store names as cues alongside price.
That complicates the usual intuition about low prices. A cut can attract a buyer who is comparing like with like, and the same cut can worry one who is using the figure to guess what is inside. Why the Dearer Wine Tastes Better covers the experiments on taste. The practical consequence for the psychology of pricing is that, in a category where quality is hard to see, a price change also changes what the product appears to claim about itself.
Every lever so far operates inside a judgement about whether the price is fair, a theme The Price Rise Everyone Saw takes further. Lisa Bolton, Luk Warlop and Joseph Alba reported in 2003 that people tend to believe asking prices sit well above what would be fair. Buyers in their studies were sensitive to past prices, competitors' prices and the cost of goods, yet they underestimated inflation, attributed price differences to profit and overlooked the full range of costs a seller carries. Giving them historical prices, explanations or cost information moved the belief only a little.
A price can therefore be well framed and still be judged on grounds the framing never touches. For a buyer, the sense of fairness is a real input to choice even when it rests on an incomplete picture of costs, and for a seller it is the part of the psychology of pricing that a clever ending cannot reach.
The six levers side by side
| Lever | What the buyer does with the price | Source in this article |
|---|---|---|
| Price ending | Reads the leftmost digit first | Why do prices ending in 99 work |
| Reference price | Compares it with a remembered or nearby figure | Mazumdar, Raj and Sinha (2005) |
| Pain of paying | Feels the payment, more when it is vivid and immediate | Prelec and Loewenstein (1998); Soman (2001) |
| Quality signal | Infers quality from it when quality is hard to judge | Rao and Monroe (1989) |
| Framing | Pictures benefits by the period or package it is quoted in | Atlas and Bartels (2018); Soman and Gourville (2001) |
| Fairness | Judges it against what seems a fair margin | Bolton, Warlop and Alba (2003) |
Of the six, the nine ending is the only lever that works purely on the number. The other five work on the remembered figure, the act of handing money over, the product's standing or the relationship with whoever set the price, so a price can carry a nine ending and still disappoint, or carry a round figure and do well. Anyone setting or paying a price can usefully name which of the six it leans on. The next check is whether the other five agree.
Common questions
What is the psychology of pricing?
The psychology of pricing is the study of how people judge a price beyond its amount: against a reference price, through the feeling of paying, as a signal of quality, through the way it is framed and by whether it seems fair. The 9.99 ending is one small part of it.
Why does $9.99 still work?
A price ending in 99 is read by its leftmost digit, so it registers as part of the lower band. That effect concerns how big a price looks. It works alongside reference prices, quality inferences and fairness judgements, and any of those can outweigh it.
Does a higher price signal better quality?
Often, when quality is hard to judge. Rao and Monroe's 1989 review of 36 studies found a positive, moderate effect of price on perceived quality, which is most relevant where buyers have little else to go on.
Sources
Chase, S., & Schlink, F. J. Your Money's Worth. Seed book; vault hub Books/Your Money's Worth.
Mazumdar, T., Raj, S. P., & Sinha, I. (2005). “Reference price research: Review and propositions.” Journal of Marketing, 69(4), 84-102. doi:10.1509/jmkg.2005.69.4.84 https://doi.org/10.1509/jmkg.2005.69.4.84
Prelec, D., & Loewenstein, G. (1998). “The red and the black: Mental accounting of savings and debt.” Marketing Science, 17(1), 4-28. doi:10.1287/mksc.17.1.4 https://doi.org/10.1287/mksc.17.1.4
Soman, D. (2001). “Effects of payment mechanism on spending behavior: The role of rehearsal and immediacy of payments.” Journal of Consumer Research, 27(4), 460-474. doi:10.1086/319621 https://doi.org/10.1086/319621
Rao, A. R., & Monroe, K. B. (1989). “The effect of price, brand name, and store name on buyers' perceptions of product quality: An integrative review.” Journal of Marketing Research, 26(3), 351-357. doi:10.2307/3172907 https://doi.org/10.2307/3172907
Atlas, S. A., & Bartels, D. M. (2018). “Periodic pricing and perceived contract benefits.” Journal of Consumer Research. doi:10.1093/jcr/ucx127 https://doi.org/10.1093/jcr/ucx127
Soman, D., & Gourville, J. T. (2001). “Transaction decoupling: How price bundling affects the decision to consume.” Journal of Marketing Research, 38(1), 30-44. doi:10.1509/jmkr.38.1.30.18828 https://doi.org/10.1509/jmkr.38.1.30.18828
Bolton, L. E., Warlop, L., & Alba, J. W. (2003). “Consumer perceptions of price (un)fairness.” Journal of Consumer Research, 29(4), 474-491. doi:10.1086/346244 https://doi.org/10.1086/346244