Psychological Pricing - Historical Comments

Historical Comments

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.

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.

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.

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.

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".

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.