Ever since I was a kid, I have wondered why gasoline prices always end in 9/10ths of a Cent. What’s up with that? Nobody is permitted to pay their bill in fractions of a Cent. Why are gasoline purveyors permitted to charge in tenths of a Cent?
Wisegeek explains here that despite all of the folklore (about price wars, taxes, etc.) behind this longstanding practice, the fact of the matter is that consumers are more psychologically disposed to spend more when a product’s price ends in the number nine. He says that raising a price from $9.99 to $10.00 causes a significant drop in sales, but that raising a price from $5.00 to $5.99 results in almost no change in sales volume.
Gee, are we really that gullible? Well, yes, apparently we are. This principle works for just about any kind of product or service. Wisegeek says, “Ads for the best laptop under $600 (sold for $599.99), or the best car under $10,000 (sold for $9,999), actually do fool consumers into thinking they're spending less money.”
Perhaps I’m less susceptible to the psychological impact of nines pricing because my first career was in accounting. The actual price of something means a whole lot more to me than the perceived price.
I’ve got to believe that the practice of 9/10ths of a Cent pricing probably benefited gasoline retailers more in the days when prices were 47.9 Cents per gallon than today when prices push over $3 per gallon. How many people would really pump less gasoline if the price was $2.72/gallon instead of $2.719/gallon?
Wisegeek includes a fun discussion of how much money gasoline retailers make by charging 9/10ths of a Cent on each gallon ($1.7 billion annually). But this presumes that the entire 9/10ths of a Cent is merely extra fluff that would otherwise not be charged. Given my understanding of economics and of the gasoline retail industry, I seriously doubt this would be the case. Retailers today would be more likely to charge the extra 1/10th of a Cent than to cut the price 9/10ths of a Cent.
Not that it will do any good, but for the record, I think that setting gasoline prices to end in 9/10ths of a Cent is completely ridiculous and is rather noisome. I wonder what would happen if one national chain made a big ad campaign out of dumping this practice and telling customers that they’re not going to insult their intelligence with silly pricing games. I figure that it wouldn’t be long before everyone else followed suit. I would like this scenario, but I’m not expecting it to happen in my lifetime.