Editing Psychological pricing (section)

==Overview==
According to a 1997 study published in the ''Marketing Bulletin'', approximately 60% of prices in advertising material ended in the digit 9, 30% ended in the digit 5, 7% ended in the digit 0 and the remaining seven digits combined accounted for only slightly over 3% of prices evaluated.<ref>[http://marketing-bulletin.massey.ac.nz/V8/MB_V8_N1_Holdershaw.pdf The Widespread Use Of Odd Pricing In The Retail Sector], ''Marketing Bulletin'', 1997, 8, Research Note 1, J Holdershaw, P Gendall and R Garland. {{ISSN|1176-645X}}</ref>  In the UK, before the withdrawal of the [[British halfpenny coin|halfpenny coin]] in 1969, prices often ended in {{frac|11|1|2}}d (elevenpence halfpenny: just under a shilling, which was 12d); another example (before 1961) was £1/19/{{frac|11|3|4}}d. (one pound, nineteen shillings, and elevenpence three farthings) which is one [[Farthing (British coin)|farthing]] under £2.  This is still seen today in gasoline (petrol) pricing ending in {{frac|9|10}} of the local currency's smallest denomination; for example, in the US the price of a gallon of gasoline almost always ends at US$0.009 (e.g. US$3.599).

{| class="wikitable infobox" style="margin:0 0 0 8px;"
!Digit<br />ending||colspan="2"|Proportion in the 1997<br />''Marketing Bulletin'' study
|-
|align="center"|0||align="right"|{{bartable| 7.5|%|4|1.5em}}
|-
|align="center"|1||align="right"|{{bartable| 0.3|%|4|1.5em}}
|-
|align="center"|2||align="right"|{{bartable| 0.3|%|4|1.5em}}
|-
|align="center"|3||align="right"|{{bartable| 0.8|%|4|1.5em}}
|-
|align="center"|4||align="right"|{{bartable| 0.3|%|4|1.5em}}
|-
|align="center"|5||align="right"|{{bartable|28.6|%|4|1.5em}}
|-
|align="center"|6||align="right"|{{bartable| 0.3|%|4|1.5em}}
|-
|align="center"|7||align="right"|{{bartable| 0.4|%|4|1.5em}}
|-
|align="center"|8||align="right"|{{bartable| 1.0|%|4|1.5em}}
|-
|align="center"|9||align="right"|{{bartable|60.7|%|4|1.5em}}
|}

In a traditional cash transaction, fractional pricing imposes tangible costs on the vendor (printing fractional prices), the cashier (producing awkward change) and the customer (stowing the change). These factors have become less relevant with the increased use of checks, credit and debit cards, and other forms of currency-free exchange; also, in some jurisdictions the addition of sales tax makes the advertised price irrelevant and the final digit of the real transaction price effectively random.

The psychological pricing theory is based on one or more of the following hypotheses:

* Thomas and Morwitz (2005) coined the term ''left-digit effect'' and suggested that this bias is caused by the use of an anchoring heuristic in multi-digit comparisons.
* Another rationale for just-below pricing is prospect theory. This theory holds that consumers facing uncertainty in decision making base the value of an alternative on gains or losses offered by the alternative relative to some reference point, rather than on final absolute states of wealth or welfare. The theory also incorporates evidence that small deviations from a reference point tend to be over-valued. So, based on prospect theory, pricing something only a few cents under a whole dollar could be beneficial to the seller. This theory works well because of how the reference point is established by the consumer. The reference point for something that is $19.98 would be $20. This leads the just-below price to be seen as involving a gain, thus making it feel like a better deal.
* Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored. Keith Coulter, Associate Professor of Marketing at the Graduate School of Management, Clark University, suggests that this effect may be enhanced when the cents are printed smaller (for example, $19<sup>99</sup>).<ref>{{cite news|url=http://www.clarku.edu/gsom/documents/ConnectWinter2012.pdf|page=5|newspaper=Connect: News from the Graduate School of Management at Clark University|publisher=[[Clark University]]|date=Winter 2012|title=Keith Coulter|access-date=2019-01-31|archive-url=https://web.archive.org/web/20160309162422/http://www.clarku.edu/gsom/documents/ConnectWinter2012.pdf|archive-date=2016-03-09|url-status=dead}}</ref>
* Fractional prices suggest to consumers that goods are marked at the lowest possible price.
* When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.

The theory of psychological pricing is controversial. Some studies show that buyers, even young children, have a very sophisticated understanding of true cost and [[relative value (economics)|relative value]] and that, to the limits of the accuracy of the test, they behave rationally. Other researchers claim that this ignores the non-rational nature of the phenomenon and that acceptance of the theory requires belief in a subconscious level of thought processes, a belief that economic models tend to deny or ignore. Results from research using modern scanner data are mixed.

Now that many customers are used to just-below pricing, some restaurants and high-end retailers psychologically-price in even numbers in an attempt to reinforce their brand image of quality and sophistication.<ref>{{Cite journal|title = Hospitality Managers' Price-Ending Beliefs A Survey and Applications|journal = Cornell Hospitality Quarterly|date = 2011|pages = 421–428|volume = 52|issue = 4|doi = 10.1177/1938965511421168|language = en|first1 = Robert M.|last1 = Schindler|first2 = H. G.|last2 = Parsa|first3 = Sandra|last3 = Naipaul|s2cid = 155067146}}</ref>