Blog
The 99p effect
24th July 2008
The BBC news magazine explores the psychological basis for retailers pricing their products at £1.99 or £3.99 and the disproportionate effect this kind of price point can have on our buying behaviour. It is a great article to use when introducing consumer behaviour and in explaining the non-linearity of demand curves when teaching price elasticity of demand.
“According to a French study the phenomenon still swings a considerable number of shoppers. Researchers found that lowering the price of a pizza from 8.00 euros to 7.99 euros boosted sales by 15%......Robert Schindler, professor of marketing at Rutgers Business School in the US, has published several papers on the “99 effect”. He expresses it slightly differently, observing that people overweigh the left hand number.”
I like this explanation. There are many more price point effects other than the 99p option. I am surprised how often 87p is used. And why is petrol nearly always sold at £1.19.9 or £1.32.9 on the forcourts?
And Dan Ariely has written persuasively of the power of the word “FREE” when attached to a good or a service. Here he is explaining this behavioural experience on You Tube - “The Cost of Zero”
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.