Why do so many price tags end in $0.98 or $0.99?
That’s a question I have asked myself many times over the years. It always seemed strange to me — wouldn’t it make more sense to choose a round number?
Maybe. But it wouldn’t be a great strategy.
Because as it turns out, those odd prices aren’t chosen because the retailer is going for quirky.
It’s part of a very intentional pricing strategy known as charm pricing.
Here’s how it works.
What is charm pricing?
Charm pricing is about how the brain processes the numbers.
This strategy suggests that, when a price doesn’t end in a round number, the brain will round the entire price down — even if it should round up.
For example, $7.99 becomes $7 — even though, in reality, it is closer to $8.
People way smarter than me have written about why the brain responds this way and how it can be made even more effective for businesses.
What I can say is this: this is totally something I do. When I look at a price tag in the store, my brain ignores the digits to the right and zeros in on the left instead. As a result, I round down — aggressively, and without even thinking about it.
Why charm pricing tricks the brain
I like to think I am a smart consumer who engages in critical thinking when making purchases.
So how in the world is it that I manage to fall for such a common pricing strategy over and over again?
After thinking about it, I’ve arrived at a few conclusions.
- It’s easier to think in round numbers, as opposed to worrying about the cents.
- Cents are becoming increasingly obsolete, with rounding becoming the new norm.
- Rounding, especially down, makes it easier to pretend items are cheaper than they are.
That last one is significant. Rounding down distorts the actual cost of an item, making it easier to justify bad spending habits.
How do you break free from charm pricing?
Easy: read the prices — and round up instead of down.
That sounds simple, and maybe to some people it is. Personally, I find it challenging.
For me, doing this has meant being more intentional with the way I shop. It requires slowing down and taking time to look at all the digits on the price tag, paying particular attention to how the numbers on the right impact the number on the left.
This is not something that comes naturally to me. That said, the more time I spend focusing on it, the more alert I have become to just how prevalent the practice of charm pricing is — and the most success I have had in retraining my brain to see prices as they are, not as I wish they were.
Old habits die hard. Rounding down feels natural, but the first step to breaking free from charm pricing is to start seeing prices for what they are.
It takes time, but your budget will thank you for it.
Do you round prices up or down?