The One Cent Problem PDF Print E-mail
Written by Jeff Wagg   

At the JREF, we have a few things in a shop online. No, this article isn't a plug for our store. Instead, I'd like to foster comment on an issue that I've found major disagreement on in the skeptical community. And that is: is it ethical to charge $99.99 for something?

At first glance, the answer is yes. You can charge whatever you want for your products. But consider the impact of $99.99 versus the $100.00. Even though there's a difference of only one cent, or 1/10,000th of the original price, studies show that more people will buy at $99.99 than at $100.00. The second figure seems much bigger.

For gasoline in the US, this manipulation is carried to the impossible level of 10ths of a cent. I paid $1.799 for a gallon of gas today, which rang up as $1.80 as it's impossible to pay fractions of cents in this country and the amount is rounded up. The 9/10ths of a cent is there only to make the price look lower than it actually is.

Given that the 1¢ is probably not the breaking point in a financial decision, what is? It seems obvious that it's psychology, and that people aren't really thinking about the price so much as having emotion about it.

If we accept all the above as fact, the question remains: is it ethical to manipulate your shoppers into purchasing products based on an emotional response to a price that looks lower than it actually is? I've heard two arguments:

1) Yes, caveat emptor rules the day, and as long as you're not outright lying to your customers, you're free to do as you like. In fact, this is how most business seems to run today. You can say that your product has fewer calories than the competitor, and leave out the fact that it's also a smaller serving size. It's up to the consumer to do his own research and determine the difference. Also, these days, people expect to see .99 suffixes (or even .87 at Wal•Mart) and seeing a price of $100 looks artificial and non-discounted.

2) No. If you want to charge $100 for your product, do so. Expose the integrity of your company by respecting your customers enough to give them full disclosure. You've made or procured a product, you've set a price, and so be it.

We've encountered this dilemma at the JREF. We know that we'll sell more if we use a .99 suffix, but it just doesn't seem right. We price our products at what we think they're worth, and that type of calculation doesn't involve cents. If you see cents on the price, you can surmise the reason they're there is to slightly manipulate you into purchasing the item. This is against the principals of critical thinking.

So there's the dilemma. I find both arguments compelling, which leads me to you. What do you think? Please leave a comment, and if you're a retailer, please let us know that as well. Thank you.