Example of psychological pricing at a gas station

Psychological pricing or price ending is a marketing practice based on the theory that certain prices have a psychological impact. The retail prices are often expressed as "odd prices": a little less than a round number, e.g. $19.99 or £2.98. The theory is this drives demand greater than would be expected if consumers were perfectly rational. Psychological pricing is one cause of price points.

Overview[link]

According to a 1997 study published in the Marketing Bulletin, approximately 60% of prices in advertising material ended in the digit 9, 30% ended in the digit 5, 7% ended in the digit 0 and the remaining seven digits combined accounted for only slightly over 3% of prices evaluated.^[1] In the UK, before the withdrawal of the halfpenny coin in 1969, prices often ended in 99¹⁄₂. This is still seen today in gasoline (petrol) pricing ending in ⁹⁄₁₀ of the local currency's smallest denomination; for example in the US the price of a gallon of gasoline almost always ends in US$0.009 (e.g. US$3.289).

In a traditional cash transaction, fractional pricing imposes tangible costs on the vendor (printing fractional prices), the cashier (producing awkward change) and the customer (stowing the change). These factors have become less relevant with the increased use of checks, credit and debit cards and other forms of currency-free exchange; also, the addition of sales tax makes the pre-tax price less relevant to the amount of change (although in Europe the sales tax is generally included in the shelf price).

The psychological pricing theory is based on one or more of the following hypotheses:

• Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored. Some^[who?] suggest that this effect may be enhanced when the cents are printed smaller (for example, $19⁹⁹).
• Fractional prices suggest to consumers that goods are marked at the lowest possible price.
• When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.
• Judgments of numerical differences are anchored on left-most digits, a behavioral phenomenon referred to as the left-digit anchoring effect (see Thomas and Morwitz 2005). This hypothesis suggests that people perceive the difference between 1.99 and 3.00 to be closer to 2.01 than to 1.01 because their judgments are anchored on the left-most digit.

The theory of psychological pricing is controversial. Some studies show that buyers, even young children, have a very sophisticated understanding of true cost and relative value and that, to the limits of the accuracy of the test, they behave rationally. Other researchers claim that this ignores the non-rational nature of the phenomenon and that acceptance of the theory requires belief in a subconscious level of thought processes, a belief that economic models tend to deny or ignore. Research using results from modern scanner data is mixed.

Now that many customers are used to odd pricing, some restaurants and high-end retailers such as Nordstrom psychologically-price in even numbers in an attempt to reinforce their brand image of quality and sophistication.

Research[link]

Kaushik Basu used game theory in 1997 to argue that rational consumers value their own time and effort at calculation. Such consumers process the price from left to right and tend to mentally replace the last two digits of the price with an estimate of the mean "cent component" of all goods in the marketplace. In a sufficiently large marketplace, this implies that any individual seller can charge the largest possible "cent component" (99¢) without significantly affecting the average of cent components and without changing customer behavior.^[2]

The euro introduction in 2002, with its various exchange rates, distorted existing nominal price patterns while at the same time retaining real prices. A European wide study (el Sehity, Hoelzl and Kirchler, 2005) investigated consumer price digits before and after the euro introduction for price adjustments. The research showed a clear trend towards psychological pricing after the transition. Further, Benford's Law as a benchmark for the investigation of price digits was successfully introduced into the context of pricing. The importance of this benchmark for detecting irregularities in prices was demonstrated and with it a clear trend towards psychological pricing after the nominal shock of the euro introduction.^[3]

Another phenomenon noted by economists is that a price point for a product (such as $4.99) remains stable for a long period of time, with companies slowly reducing the quantity of product in the package until consumers begin to notice. At this time the price will increase marginally (to $5.05) and then within an exceptionally short time will increase to the next price point ($5.99, for example).^[4]

Research has also found psychological pricing relevant for the study of politics and public policy.^[5] For instance, a study of Danish municipal income taxes found evidence of "odd taxation" as tax rates with a nine-ending were found to be over-represented compared to other end-decimals.^[6]

Historical comments[link]

Exactly how psychological pricing came into common use is not clear, though it is known the practice arose during the late 19th century. One source speculates it originated in a newspaper pricing competition. Melville E. Stone founded the Chicago Daily News in 1875, intending to price it at one cent to compete with the nickel papers of the day. The story claims that pennies were not common currency at the time, and so Stone colluded with advertisers to set whole dollar prices a cent lower—thus guaranteeing that customers would receive ample pennies in change.^[7]

Others have suggested that fractional pricing was first adopted as a control on employee theft. For cash transactions with a round price, there is a chance that a dishonest cashier will pocket the bill rather than record the sale. For cash transactions with an odd price, the cashier must make change for the customer. This generally means opening the cash register which creates a record of the sale in the register and reduces the risk of the cashier stealing from the store owner.^{[citation needed]}

In the former Czechoslovakia, people called this pricing "baťovská cena" ("Baťa's price"), referring to Tomáš Baťa, a Czech manufacturer of footwear. He began to widely use this practice in 1920.^[8]

Price ending has also been used by retailers to highlight sale or clearance items for administrative purposes. A retailer might end all regular prices in 95 and all sale price in 50. This makes it easy for a buyer to identify which items are discounted when looking at a report.^{[citation needed]}

In its 2005 United Kingdom general election manifesto, the Official Monster Raving Loony Party proposed the introduction of a 99-pence coin to "save on change".^[9]

Wal-Mart, a major retailer, makes use of .98 price endings as opposed to .99 endings.

A recent trend in some monetary systems is to eliminate the smallest denomination coin (typically 0.01 of the local currency). The total cost of purchased items is then rounded up/down to, for example, the nearest 0.05. This may have an effect on future "odd-number" pricing to maximize the rounding advantage for vendors by favoring 98 and 99 endings (rounded up) over 96 and 97 ending (rounded down) especially at small retail outlets where single item purchases are more common. Australia is a good example of this practice where 5 cents has been the smallest denomination coin since 1992, but pricing at .98/.99 on items under several hundred dollars is still almost universally applied (e.g.: $1.99 – $299.99) while goods on sale often price at .94 and its variations. It is also the case in Finland, the only country using the euro currency which does not use the 1 and 2 cent coins.

See also[link]

• Pricing
• Price point
• Marketing mix
• Mental accounting
• Microeconomics
• Take a penny, leave a penny
• Numerical cognition

References[link]

External links[link]

• The Left-Digit Effect in Price Cognition
• Heuristics in Numerical Cognition
• 99-cent pricing hooks shoppers
• Nine-ending Price and Consumer Behavior: An Evaluation in a New Context (PDF)
• Image communicated by the use of 99 endings in advertised prices
• The Effect of $9 Price Endings (PDF)
• Get smart for just $9.99
• The Psychology of Online Pricing'

Wallace Spearmon

Wallace Spearmon on 2010 Weltklasse Zürich
Personal information
Nationality	United States
Born	(1984-12-24) December 24, 1984 (age 27) Chicago, Illinois, U.S.
Residence	College Station, Texas, U.S.
Height	6 ft 3 in (1.91 m)
Weight	175 lb (79 kg)
Sport
Sport	Running
Event(s)	100 meters, 200 meters
Medal record Men’s athletics Competitor for the  United States World Championships Bronze 2009 Berlin 200 m Bronze 2007 Osaka 200 m Gold 2007 Osaka 4×100 m relay Silver 2005 Helsinki 200 m Competitor for Americas Continental Cup Gold 2010 Split 200 m Gold 2010 Split 4×100 m relay

Wallace Spearmon, Jr., (born December 24, 1984 in Chicago, Illinois, USA) is a sprint athlete, who specializes in the 200 meters. He is a two-time NCAA outdoor champion in the 200 m and won the silver medal in the event at the 2005 World Championships in Athletics. He has a personal best of 19.65 seconds for the distance, currently the seventh fastest runner of all-time and he also holds the indoor American record.

He has won the bronze medal twice at the World Championships in Athletics in 2007 and 2009. He also finished third at the 2008 Summer Olympics, but was later disqualified for stepping out of his lane.

Career[link]

Spearmon is a graduate of Fayetteville High School and attended the University of Arkansas, where he competed collegiately for two seasons before turning pro. While at Arkansas, he won the 200 meters NCAA Outdoor title in 2004 and 2005 as well as the NCAA Indoor 200 m title in 2005. In August 2005, he won the silver medal in the 200 m at the 2005 World Championships and in August 2007, he won the bronze medal at the 2007 World Championships. Spearmon won the 200 m at the USA outdoor athletics championships in 2006 and finished second in 2007. At the 2009 World Championships in Berlin he won another bronze. He ran a world best time of 31.88 for the 300 m indoors in February 2006.^[1]

His personal best in the 200 m is 19.65 seconds. This time (achieved in Daegu, Korea) made him the third fastest man over the distance at that point.^[2] He is currently ranked as the seventh fastest runner ever. Only world record holder Usain Bolt (19.19), Yohan Blake (19.26), Michael Johnson (19.32), Walter Dix (19.53), his training partner Tyson Gay (19.58), and Xavier Carter (19.63) have run faster. Despite the fact that he normally runs a "slower" first half of his 200 m races and goes on to pass people down the stretch, his 100 meters personal best is 9.96 s. He set that mark running in Shanghai on September 28, 2007, beating 100 m world champion Tyson Gay.

Spearmon initially finished in the bronze medal position in the 200 m in the 2008 Summer Olympics in Beijing, but was disqualified for stepping out of his lane. The second place finisher, Churandy Martina of the Netherlands Antilles, was also disqualified, giving Americans Shawn Crawford and Walter Dix the silver and bronze medals, respectively.^[3]

He posted a quick time of 19.98 seconds in the 200 m in Kingston, Jamaica in April 2010, finishing behind Usain Bolt.^[4] He reached the 2010 IAAF Diamond League 200 m final at the Weltklasse Zurich meeting, and (in the absence of points leader Walter Dix) he won the first Diamond Race Trophy with a meeting record of 19.79 seconds.^[5] Following the Diamond League win, he ran 19.85 seconds to win at the Rieti IAAF Grand Prix.^[6]

At the start of the 2012 season, he broke Michael Johnson's 200 m meet record at the Drake Relays with a run of 20.02 seconds.^[7]

Personal life[link]

Spearmon's father, Wallace Spearmon, Sr, also was a sprinter. He was the 1987 bronze medalist in the 200 meters at the Pan American Games.

He was engaged to fellow American track athlete Monica Hargrove, but is no longer.^[8]

On an April 2011 episode of MythBusters, he worked with Adam Savage and Jamie Hyneman to investigate the possibility of a human running on water.

Personal bests[link]

Spearmon at the 2007 World Championships

• All information taken from IAAF profile.

References[link]

External links[link]

Wikimedia Commons has media related to: Wallace Spearmon

• IAAF profile for Wallace Spearmon Jr.
• DyeStat profile for Wallace Spearmon
• USA Track & Field: Wallace Spearmon
• Flotrack Interviews of Wallace Spearmon (video)
• USATF Athlete of the week: January 2005, July 2005, February 2006, October 2006

Achievements
Preceded by Shawn Crawford	Men's 200 m Best Year Performance 2005	Succeeded by Xavier Carter