$19.95 Pricing Explained

There’s an interesting Scientific American article out regarding Why Things Cost $19.95 and it delves deeper into a concept most people understand and generally regard as true. I always had thought that the purpose of pricing something at $19.95 or $19.99 rather than $20.00 was because it seemed psychologically “much cheaper” despite an actual difference of a few cents. While that may still be true, the article in Scientific American seems to paint a picture in which the impact is more subtle. If the original price is in round numbers and we try to guess the wholesale cost, our guess will be far lower than if the item were originally priced a few cents off. The $20.00 price puts our “increments” in whole dollars whereas a $19.95 price puts our “increments” in cents. The mental anchor, whether it’s a round or not-round number, really set the stage for how we guess.

To be honest, I never bought the concept that $19.95 seemed psychologically cheaper than $20.00 but this explanation seems far more plausible. If your eyes see a $20.00 item and your brain unconsciously guesses it’s worth $18.00, you’re less likely to buy it (because you want a good deal). You’re more likely to buy it if your eyes first see $19.95 and then your brain is tricked into thinking it’s worth $19.45, you are paying less of a premium (despite you actually not knowing how much of a premium you’re paying). The trick is far more subtle!

To extend this further, and this is now based on my experience (or perhaps I read this somewhere a long time ago) and not the article, I find that the Wal-Mart pricing structure is intended to give shoppers a sense that they are getting a deal. Now that people are tuned into $19.99 being actually $20 (or more, given sales tax), they gone to weird pricing like $19.43 and $19.57, because I think people see odd numbers and think discount! $19.99 is regular price, but if it’s $18.76, it probably means it’s cheaper because another retailer would probably price it at $19.95. I don’t know if this is actually what happens but I bet that’s what they’re banking on.

What do you all think?

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