According to the Journal of Consumer Research, "shoppers pay a disproportionate amount of attention to the leftmost digits in prices and these leftmost digits impact whether a product's price is perceived to be relatively affordable or expensive"
In one experiment, the researchers took two price points ($2.00 and $4.00) and lowered one price by one cent turning $4.00 into $3.99 and keeping the $2.00 price point. As a result, the researchers found when a set of the same products were priced at $2.00 and $3.99, 44 percent of the participants choose the higher priced product! However, when the products were priced at $1.99 and $4.00, only 18 percent choose the higher priced product.
Here's how the researcher explains the result above:
"The larger perceived price difference between the pens when they are priced at $1.99 and $4.00 led people to focus on how much they were spending and ultimately resulted in a strong tendency to select the cheaper alternative."
The study also tested round numbers and you can read the rest of the findings at ScienceDaily.com.
At the end of the day, shoppers should be paying attention to all prices period, but given some of the unconscious effects of the "left digit" phenomena pay special attention to price points at $24.99 or $49.99, for example.
What an interesting study, Vincent! Thanks so much for sharing it with me.
I'm going to go check out the rest of your site now. I'm really intrigued by how being raised by immigrants might have shaped your perspectives on finance.