Why things cost $19.95
Are we really persuaded when retailers price something at $19.95, rather than $20?
Yes we are!
University of Florida marketing professors Chris Janisewky and Dan Uly investigated the way the human brain thinks about value and shapes bidding.
Their research is reported in Scientific American Mind (April/May 2008). When people judge an opening price they create mental measuring sticks. If they see a $20 Kettle they wonder why it is worth $19 or $18. That is rounded numbers.
But why the starting point is $19.95 our mental measuring sticks change. When we think about what it is worth, we start thinking about nickels and dimes instead of dollars, so a fair price for a toaster might be envisioned as $19.75 or $19.50.
The psychologists also looked at five years of real estate sales in Alachua County, Florida comparing list prices and actual sales prices of homes. They discovered that sellers who listed their homes more precisely at say $495,000 as opposed to $500,000 - consistently got closer to their asking price.
In other words, buyers are less likely to negotiate a price when they encounter a precise opening price.
So, the lesson is, if you are in a buyers’ market you should start with an exact list price.
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