As is often the case with good questions, the answer is: it depends. Is your goal to sell more of this item, or entice shoppers to upgrade? Does your pricing have “Easter eggs” in it, e.g., prices that end in 97 cents are on clearance and won’t be back? It’s a big question. The right answer? It depends.

Does this principle hold for products other than coffee and for non-student consumers?

This is a very insightful finding. It would be interesting to find out the effect of the price difference (99 cents vs. $1) on volume though. Most retailers set “charm pricing” primarily to increase volume, not to motivate upgrades.

Funny we should discuss this as I was in a new coffee shop recently with prices on the menu as, “Coffee: 2”, “Roll: 3”, “Sandwich: 5” etc. and I felt like it was a huge relief. “5” — ’nuff said. I totally get the 99 cent stuff from back in the day, but in this time, with our new customers (Generations Y, Z, A), I think it’s time to stop the tomfoolery and move on to simplicity. The “psychology” of 99 cents is dead!

I still follow old school retail standards: Prices ending in .00 indicate full price and 97 cents/99 cents indicates the item is on sale or a special buy. White price stickers are preferred and red neon stickers mean “This stuff sucks and we can’t give it away.” How you price your merchandise says a lot about the store.

I could write an entire paper on last digit pricing.

I do not like prices like $2.06 – it’s an odd price. I get more positive reaction from $1.99, $2, and 2/$4

I will agree that once you break a price point you take the risk of the customer not buying the item. As I said, I love this topic – lots of different ways to slice the bread.

Okay, here is a story my friend and fellow analyst (now retired) told me. The 99 cent ending did not start as a “charm pricing” concept. It started as a shrink prevention measure. By forcing the clerk to “make change” it made him or her less easily able to just pocket the cash, and instead had to open the register which, one way or another, kept track of the number of transactions.

Does it work? In my mind, I always just round up. The house is $699,000? In my mind, that’s $700k. The item is 99 cents? It’s a buck.

For me, it’s a nothing burger. And the 97 cent ending that Georganne mentioned was used by some chains so that sales associates could quickly identify markdowns, not shoppers.

Does it juice some people? I don’t know. I did recently hear that if you break the price of items out at dollar stores into unit pricing, they’re actually more expensive. Who knew?

Georganne, great perspective based on your over 30 years of ground level retail experience. Right on!

Let’s make it even more interesting with the Williams Sonoma three bread makers example covered in Dan Ariely’s Predictably Irrational. Williams Sonoma only had two models, and the lower-priced one sold better. Williams Sonoma introduced a top tier option, and then the sales of the now mid-tier model took off exponentially because it looked like a better value. I think pricing is one of those things for which just one study can’t set the benchmark, as there is a lot of difference between a cup of coffee at $1.29 and a washer at $1,290.29.

Not the best designed study in the world. College students, brewed coffee, and not answering whether they buy or not, just which size. Stay with charm pricing.

“Going from $19.99 to $25 may seem like it will cost more than going from $20 to $26, even though it is actually less,” said one of the doctoral students conducting the study. Yes, but what about going from $19.99 to $24.99? If the test results are limited to sales of cups of coffee, was the study comprehensive enough to draw any conclusions one way or the other?

Way back in the day, similar studies indicated there was a perception that the 99, 97 or 95 cents had value. Shoppers would round $9.99 to $9 not $10. I never understood that, but the handful of studies were very consistent. Maybe then if you saved 1 cent, you could buy a piece of candy?

Today that penny has a value of about one-sixtieth of what in was in 1970. Essentially meaningless. Even today when you ask someone “oh, how much was that?” they will respond “$9” to what actually cost $9.99.

The 99 cent price point is unique to the U.S. I have been to many countries and find most every retailer prices at the rounded number. (What do they do in Canada?)

Maybe in the study, with the round pricing, people would think the upgrade is only a quarter more — but they can’t do the math which comes with 99 cents.

Red denotes value. It is a retailer’s best friend. The next time you’re in the grocery store, look carefully at the packaging; 90 percent of packages do have red on them.

I’m a fan of the “charm” pricing, but question the effectiveness as you get into more expensive items. A suit at a clothing store that’s $1950 or $1,995 versus $2,000 may not have as big of an impact as lower priced items. People spending that much money may not be impacted by an odd number. I’d like to see the study at different price points, from very low to very high. Even into the thousands of dollars.

The problem with the study is that it has two competing pricing theories involved, one with the charm pricing, one with anchoring, where a separate price point ($1.20) sets the high point and value of the product. A broader spread between price points could greatly change the outcome. Not sure of the reliability of the study in suggesting charm pricing limits upgrades.

Price relativity and price illusions play a big role in our decision-making. We’ve long known that there is a distinct difference between what people say and what they do. Behavioral economics is the field that has shown us this on multiple occasions. Interestingly, this “study” only had one real-world field application so it’s hard to extrapolate it to all fields and all businesses. But one takeaway is to constantly test and shake consumers out of their automatic behavior.

We’ve spent several decades teaching the consumer that a .99 ending is a “sale” price and a round number is a “regular” price. It’s not surprising that there is a reluctance to go from a higher perceived value to a lower perceived value. If I am a “value” retailer I don’t see dropping the .99 ending anytime soon. And if I’m Nordstrom I don’t see converting the day in/day out pricing to 99 cents any time soon.

I’m surprised that no one is mentioning the price of gas game. $2.85 and nine-tenths is ridiculous but the industry has successfully hidden that last nine-tenths from consumer conciousness. And that is brilliant if annoying. “How much did you pay for gas at Costco?” my wife asks. An incorrect answer is $2.85. Where else among retail products could we do that? Has to be an oft-repeated purchase in order to make it invisible. If you’re going to try it on milk or bread for example, make sure the “nine-tenths” part is very tiny.

Pricing on a relative basis a “good, better, best” assortment to facilitate trade ups makes a lot of sense. And here I thought the 99¢ price point was due to someone in finance calculating how much more gross revenue a company would make by changing all their 95¢ price point products to 99¢….

Actually, a number of retailers use the price point ending as an internal guide to when an item is really marked down, on clearance, a test product … or a multitude of other price point ending to product status mapping.