If you automatically reach for a $39.99 sweater or load up on $11.99 albums on iTunes, you’re not alone. The strategy of ending prices with 99 cents has worked its magic on all of us.
Merchants use a variety of strategies to get us to spend more — from labeling prices without dollar signs to setting a per-customer limit. These practices are used with all kinds of products, including clothes, food, toys, cars and houses.
Whether you’re shopping for the holidays or for everyday items, it’s easy to fall for simple pricing tricks, warns Money Talks News money expert Stacy Johnson:
“While you probably don’t stop to consider the pennies on a price tag, let me assure you, your friendly merchant does.”
Here are seven common pricing traps — and how to avoid them.
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1. Prices ending in ‘9,’ ’99’ or ’95’
Known as “charm prices,” tags that end in “9,” “99” or “95” make items appear cheaper than they really are. Since people read from left to right, they are more likely to register the first number and make an immediate conclusion as to whether the price is reasonable.
When professor Robert Schindler of the Rutgers Business School studied prices at a women’s clothing store, he found the 1 cent difference between prices ending in “.99” and “.00” had “a considerable effect on sales,” with prices ending in “.99” far outselling those ending in “.00.”
This works to the last digit on a product as small as a $1.29 iTunes download. But it’s also effective on anything from a pair of jeans to a car or house. Homes selling for $299,000 often sell faster than those listed for $300,000. The reason? It’s under, rather than at, the upper limit of those shopping for houses in the $250,000 to $300,000 price range.
Pricing that doesn’t end in “9” also tells our minds a story. If a price ends in “4” or “7,” for example, it’s likely to stand out because it doesn’t end in “9.” And it subliminally suggests the seller has seriously considered the price.
2. Dollars without cents
If you see prices stated as whole-dollar amounts and no change, the retailer or restaurateur is sending the message that you’re in a high-end place. The implication is that if you’re concerned about pocket change, you should move on.
3. Prices without dollar signs
In a Cornell University study, guests given a menu with only numbers and no dollar signs spent more than those who received a menu with either prices showing dollar signs or prices written out in words.
The same tactic translates to retail stores. When items are marked “20” without the dollar sign, retailers are hoping customers won’t associate the amount with money. Thus, they will be less likely to keep a running tally of how much they’re spending as they shop.
4. ’10 for $10′ trick
Stores push deals like “10 for $10,” aiming to get shoppers to buy items like soup, cereal, etc., in bulk. But here’s something stores don’t advertise: You don’t always have to buy in bulk to get the deal. In many cases, you can just as easily buy one for $1. Ask your retailer before loading up your cart.
Related: How to Get the Best Possible Deal on Car Insurance
5. Per-customer limits
When stores add limits to products — like “limit of four per customer” — it tricks shoppers into thinking the product is scarce, the price is low or both. It also gives the impression of big demand. You find yourself buying several, when you would normally buy just one, to avoid missing out.
6. ‘Free’ promotions
Retailers know “free” is the magic word. So, they roll out deals like “buy one, get one free,” sometimes persuading us to buy things we normally wouldn’t. Free-shipping incentives requiring us to spend at least a certain amount of money also draw us in.
7. Simple prices
Simple prices, especially on products susceptible to future markdowns, allow shoppers to quickly compare how much they’re saving. It’s easy to compute the discount on a product originally priced at $50 that now costs $35, as opposed to an item originally priced at $49.97 that is now on sale for $34.97.
The bottom line
The psychology of shopping affects virtually everything you buy. These tricks are so simple, it’s easy to believe you’re too sophisticated to fall for them. However, odds are that you do — and so do millions of other people. Otherwise, retailers wouldn’t use these practices.
But being aware they exist — and work — may help you overcome them, and make you a smarter shopper.
Jim Gold contributed to this report.
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The Psychology of Pricing
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Gallery: You Should Never Buy These 12 Things New (Money Talks News)
You Should Never Buy These 12 Things New
1. Timeshares
Don’t ever pay full price for a timeshare. Some people are practically giving them away because they’re so desperate to get out from under the annual fees.
As Money Talks News founder Stacy Johnson puts it in “Ask Stacy: How Can I Sell My Timeshare?“:
“I’d chop off my own foot with a dull ax before buying a timeshare, especially a new one from a developer.”
4. Books
We could take this category one step further and say you shouldn’t buy books at all. Many of us live near a public library system that can meet most of our reading needs.
However, we won’t go quite to that extreme. I personally enjoy having a well-stocked home library. I also realize that some books, such as college textbooks, have to be purchased. But that doesn’t mean you have to pay full price.
Check out “11 Places to Find Free E-Books,” or head to Amazon to find cheap used books, which are often as good as new.
5. Big toys like boats, motorcycles and RVs
That advice about buying a used car can apply to any type of vehicle.
Virtually anything with an engine — from off-road vehicles to yachts — will depreciate over time. So, in most cases, you’ll get more bang for your buck by purchasing used.
New boats, for example, depreciate quickly. So, even if you buy a vessel that’s just 1 year old, you stand to save a boatload.
6. Houses
Your house is another big-ticket item that it makes sense to buy used rather than new. Not only can you save money, but older homes also may have better “bones” than some new construction.
If you love the idea of new construction, remember that an existing home doesn’t necessarily have to be 50 years old. If you want an energy-efficient home with new amenities, you can probably find it at a lower price if you’re willing to be owner No. 2 or 3.
7. Movies and CDs
Many of the same places that sell used books also sell used DVDs, Blu-ray discs and CDs. No need to spend money for a new disc when you can get a used one for less money online, at a garage sale or in the thrift shop.
Of course, there’s also your public library, where movies and music are free for the (temporary) taking and cheap when the library holds a sale.
8. Sports gear
Raise your hand if your kids have ever started a sport and quit after one season. I’m right there with you.
Instead of spending tons for new equipment, go to a specialty store like Play It Again Sports and buy used items. You can also scour garage sales, thrift stores and Craigslist for bargain finds.
Don’t forget to look for fitness equipment for yourself, too. Buying new weights and kettlebells, for example, doesn’t make sense if you can get used ones for a fraction of the price.
9. Musical instruments
Musical instruments are another parental purchase that could be money down the drain.
To avoid purchasing something overpriced or broken when buying used, consider spending a few dollars to have it appraised by a local music store. Or, better yet, buy a used item directly from a shop.
Renting an instrument is another option. However, keep in mind that renting a clarinet for three years could end up costing you more than if you purchased a used one in the first place.
10. Jewelry
Jewelry is also better bought used than new. Before buying off Craigslist or from a private seller, however, be sure to get an appraisal, particularly if a significant amount of money is involved.
You can also find quality used baubles by shopping for estate jewelry from jewelers or reputable pawn shops.
11. Gift cards
Here’s one you probably haven’t thought about. Some people receive a gift card to a retailer they don’t like. Others use a portion of a gift card, but have no reason or desire to spend down the remaining balance.
You can find unwanted gift cards by going to a site like Raise. Buying “used” gift cards in this fashion can save you a bundle, as we detail in “How Unwanted Gift Cards Save Me Hundreds of Dollars a Year.”
12. Pets
Some of you might disagree, but there really is no reason to spend a lot of money on a brand-new pet from a breeder when plenty of preloved (or not so loved) animals need homes.
My local animal shelter and Humane Society regularly have free or almost-free adoption days, during which you can bring home everything from dogs and cats to bunnies and birds. Your local shelter might offer the same.
Unless you’re planning to show your pet, spending hundreds or even thousands on a purebred animal is probably not money well-spent. The $50 puppy from the pound is just as likely to smother you with wet kisses and stare at you with unbridled adoration.
Sponsored: Earn more interest on your savings
Are you earning as much interest on your savings as you could be? Grow your savings faster with banks offering rates that are significantly higher than the national average! Find the best rates and start earning more interest on your savings by using the Money Talks News savings and CD account comparison tool.
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