Quick answer
Psychological pricing is setting prices to fit how shoppers read numbers: charm prices that end in 9 or 99, odd or round endings, and a higher anchor price shown next to the real one. Field experiments found that use of a $9 price ending increased demand in all three experiments, and that the use of 99 endings led to increased consumer purchasing. In the US, any reference price you show must follow the FTC's Guides Against Deceptive Pricing.
Nation, an AI store builder, publishes this page. It is pre-launch, with a waitlist on withnation.ai, so it is not in any comparison here. See where Nation fits.
What psychological pricing is
Psychological pricing means choosing a price for the way people read and compare numbers, rather than only for cost and margin. The product and the cost stay the same; what changes is the last digits of the price, or the other prices a shopper sees next to it.
Three tactics carry most of the published evidence. Charm pricing ends a price just below a round number. Odd-even pricing is the wider choice between odd endings and round, even ones. Price anchoring shows a higher number first, so the real price looks smaller next to it. The table sets out each one, what the research measured, and the rule that limits it.
Charm pricing: what the $9 ending experiments measured
Charm pricing is the habit of ending a price in 9 or 99. Anderson and Simester open their paper by noting that the use of $9 price endings is widespread amongst US retailers, and that there was little evidence it worked. That raised the question they set out to test: does the ending still change what people buy?
Eric Anderson and Duncan Simester ran three field-studies in which price endings were changed on purpose and demand was compared. Their first conclusion was that use of a $9 price ending increased demand in all three experiments. Their second was that the increase in demand was stronger for new items than for items that the retailer had sold in previous years.
The same paper reports that $9 price endings are less effective when retailers use “Sale” cues. The authors read the pattern this way: $9-endings may be more effective when customers have limited information. A shopper who does not know what a product should cost leans on cues such as the ending digit. A shopper who already knows the price, or who sees a sale sign, has less need for that cue.
For a small online store, this points to where charm prices are most likely to matter: new products, products without an obvious market price, and listings that are not already marked as on sale.
Odd even pricing: 99 endings against round prices
Odd-even pricing is the choice between a price with an odd ending, usually 9, 99 or 95, and a round or even price. Charm pricing is one kind of odd ending, so the two terms overlap.
Robert Schindler and Thomas Kibarian tested the choice directly with a direct-mail women's clothing retailer. They compared prices that end in the digits 99 rather than 00, for example $29.99 rather than $30.00. Their published result is that the use of 99 endings led to increased consumer purchasing.
Round prices are still a choice some sellers make, for example on gifts or premium items, on the idea that a round price reads as simple and complete. The studies on this page measured sales from odd endings; they did not test whether round prices build a premium image, so treat that idea as something to test on your own store.
Price anchoring: why the first number counts
Price anchoring rests on a finding from Amos Tversky and Daniel Kahneman's work on judgment. They described a mental shortcut called adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available. Shortcuts like this are usually effective, but they can lead to systematic and predictable errors.
In a store, the anchor is the first price a shopper sees. A crossed-out compare-at price, a premium version listed first, or a bundle price next to the single-item price all give the shopper a number to adjust from. The selling price is then judged against that number rather than in isolation.
Anchors that come from your own range are the safest to use. A premium version that you really sell, at a price you really charge, anchors the standard version without any claim about savings. A crossed-out former price is a savings claim, and that is where the FTC rules apply.
FTC limits on reference prices and sale claims
The FTC's Guides Against Deceptive Pricing, published as 16 CFR Part 233, set out when a higher reference price next to a selling price is honest. They cover three kinds of comparison.
- Your own former price. It gives a legitimate basis for a comparison when it is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time. A former price is not necessarily fictitious merely because no sales at the advertised price were made, but it must have been openly offered in good faith.
- An inflated price raised only to be cut. The FTC's own example is a pen marked up and then advertised as Were $10, Now Only $7.50, which the guides call a false claim.
- A token reduction. The guides say a seller who claims an item was reduced to $9.99 when the former price was $10 is misleading shoppers, because a sale claim implies a real saving.
- Other sellers' prices. When you say others charge more, you should be reasonably certain that the higher price he advertises does not appreciably exceed the price at which substantial sales of the article are being made in the area.
- List or suggested retail prices. A reduction from a list price can mislead when the list price does not match prices at which a substantial number of sales of the article in question are made.
The guides are federal; states have their own consumer protection and price advertising laws, and some are stricter, so rules vary by state. This page is general information, not legal advice.
How to test psychological pricing on your own store
The studies above changed one price ending at a time and compared demand. A small store can run a simpler version. Example: a candle shop that sells a candle at a round price and wants to try a charm price.
Pick one product and one change
Change only the price ending, or only the anchor. If you change the photo or the description at the same time, you will not know which change moved sales.
Choose products where the cue can work
The catalog experiments found that the increase in demand was stronger for new items than for items that the retailer had sold in previous years. Start with a new product or one with no well-known market price.
Keep sale signs out of the test
Because $9 price endings are less effective when retailers use “Sale” cues, test charm prices on full-price listings, not on items already marked down.
Run each price for a set period
Example: four weeks at the round price, then four weeks at the charm price, with no promotions in either period. Compare orders and revenue, not only conversion rate, since the charm price is slightly lower.
Check any reference price before you show it
If the test adds a crossed-out price, make sure it is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, and keep a record of when you charged it.
What the studies do not tell you
The charm and odd-even results come from field tests at specific retailers, one of them a direct-mail clothing seller. They show that price endings can change demand; they do not give a number you can expect on your own store, and the effect was stronger for new items and weaker next to sale cues.
Anchoring research explains why a reference number shapes judgment, but it says nothing about whether a given anchor is legal. That question is answered by the FTC guides and state law, not by the psychology. Use the research to decide what to test, and use your own sales data to decide what to keep.
Where Nation fits
Nation
Category: an AI store builder
Nation says one description of what you make builds the store, then agents handle orders, customers and delivery and run ads, content and social posts, with you approving the work. Because pricing is not announced yet, it is not part of this guide.
Limits today
- Status: pre-launch, with a waitlist on withnation.ai.
- Pricing and fees: not announced yet.
- Shopper marketplace: no shopper marketplace has been announced.
- Track record: no independent reviews or public stores yet.
Nation publishes this page. The pricing research and rules here apply to any store, on any platform.
Describe what you makeQuestions about psychological pricing
What is psychological pricing?
Psychological pricing is setting a price for how shoppers read numbers. The common tactics are charm prices ending in 9 or 99, the choice between odd and round endings, and price anchoring with a higher reference price. Field experiments found that use of a $9 price ending increased demand in all three experiments.
Does charm pricing actually work?
Charm pricing has measured effects in field experiments. Anderson and Simester found that use of a $9 price ending increased demand in all three experiments, and that the increase in demand was stronger for new items than for items that the retailer had sold in previous years. They also found some evidence that the effect was weaker when the retailer used sale signs, so results depend on the item.
What is odd even pricing?
Odd even pricing is the choice between odd price endings, such as 9 or 99, and round or even prices. Schindler and Kibarian compared prices that end in the digits 99 rather than 00 at a direct-mail women's clothing retailer, and found that the use of 99 endings led to increased consumer purchasing.
What is price anchoring?
Price anchoring is showing a higher number first so the selling price is judged against it. It draws on the heuristic Tversky and Kahneman described as adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available. In a store, the anchor can be a premium version, a bundle or a former price.
Is it legal to show a crossed-out compare-at price?
A crossed-out compare-at price is covered by the FTC's Guides Against Deceptive Pricing. A former price gives a legitimate basis for the comparison when it is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time. States add their own rules, and this is general information, not legal advice.