Why You Fall For Charm Pricing

Joe Scaglione
The Technical
Published in
3 min readNov 2, 2021
Sales bags and shopping carts for charm pricing

The Dollar Tree, The Dollar Store, The Dollar General, 99 Cent Depot.

These companies are founded on the idea of saving shoppers every cent possible.

And they use a psychological tactic known as Charm Pricing.

Charm pricing is the science behind the “99” cent phenomenon.

It is anti-round number.

Instead of a $4 product, try $3.99.

Instead of $50, try $49.99.

The difference is subtle, and customers pay more than $49.99 once taxes are added.

But psychologically, $49.99 feels better.

A Study in Charm Pricing

The University of Chicago & MIT conducted an experiment with women’s clothing to test the left-digit effect.

The left-digit effect states that the leftmost digit of a price-tag, also known as the anchor, must drop to increase the chances of a purchase.

For example, the 3 in $3.00, changing to a $2 in $2.99.

Even though only a penny separates these prices, customers perceive the difference to be valued at a full dollar because the anchor digit drops.

Prices in the study were set to $34, $39, and $44.

The $39 price-tag was the best seller.

Better than the cheaper $34 price-tag.

What gives?

Well, psychologically, $39 feels like a better deal than $34 or $44.

The results of the study can be explained in 2 ways:

  1. Participants chose the middle price, which is a natural human tendency. When given the option to choose between a beginner, intermediate, or expert package, customers often choose the middle. Safety in numbers.
  2. Because the $39 price tag is close to $40, participants felt like they were getting a deal on a $40 item. The $34 item felt cheap and the $44 item too expensive.

But hold on a second, because there is a pricing theory opposing charm pricing.

Charm Pricing vs Prestige Pricing

Groceries in a market priced using prestige and charm pricing strategies
Prestige pricing prefers using round numbers, making it easier for customers to think.

Prestige Pricing rounds the numerical value of a price up.

If an item is $99.99, round it up to $100.

According to a 2015 study, round price-tags are easily processed and encourage customers to rely on feelings.

Non-rounded numbers are harder to process, forcing customers to think.

Simply put, it’s easier to read a round number, and customers don’t feel deceived.

What About The Anchor Digit?

But marketers favour charm pricing over prestige pricing because the anchor digit is lower.

Before we finish reading a price-tag, our brains know a price’s magnitude.

A price beginning with a 3 instead of a 2 has a larger perceived magnitude.

Our brains conclude the item costs more.

This is why there is a huge difference between a $3 price tag and a $2.99 price tag.

When setting a price, marketers want to create the smallest perceived magnitude possible.

If the anchor 3 doesn’t become a 2, customers will not notice a change in the price’s magnitude. .

The Value of Specificity in Charm Pricing

Another reason charm pricing works?

Specificity.

$2.99 appears more specific than $3, and when a price is specific, consumers believe it is accurate and fair.

Charm pricing’s Kryptonite?

Luxury goods.

The last thing you want is to sell a Rolex with economic value in mind.

If a customer is going to buy a Rolex, they’ll buy it whether the price tag ends in a 9,0, or 1.

Why Charm Pricing Wins

A discount at a clothing store using charm pricing
The lower anchor number holds more value than lowering a customers level of cognition.

The reality of charm pricing is that most retail outlets use it to offer perceived discounts to customers, and it holds greater value than prestige pricing.

Even the Dollar Store, which one would assume rounds their prices to the nearest dollar, offers items ending in .99 or .97.

So whether you’re filling up your virtual or physical shopping cart, take note of how charm pricing and anchor digits influence your purchase and how you can use them to increase the value of your products as a marketer.

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Joe Scaglione
The Technical

A content writer interested in what everyone else is interested in.