Psychological Pricing

Psychological pricing, also called price ending or charm pricing, is a pricing and marketing strategy based on the theory that certain prices carry their own psychological impact on a buyer. Under this pricing method, a retail price is often expressed as a just-below number, a number set just a little under a round figure, such as 19.99 dollars or 2.98 pounds, since there is evidence that consumers tend to perceive a just-below or odd price as lower than it actually is, rounding it down to the next lowest monetary unit in their own mind, so that a price such as 1.99 dollars may become associated in a buyer's mind with spending only 1 dollar rather than 2. The theory driving this practice holds that pricing methods of this kind produce greater consumer demand than would result if consumers were making a perfectly rational calculation, and psychological pricing is considered one of the underlying causes of price points more generally.