If you’ve ever wondered why so many prices end in 0.99, you can blame the left-digit effect.
The left-digit effect is a cognitive bias which causes people to focus more on the first digit of a number than the rest of the value. Because most people read numbers from left to right, the brain processes the first digit and starts making conclusions, before it finishes with the rest of the price. As a result, when you see a price like $3.99, your brain focuses on the 3. Even though $3.99 is essentially the same price $4.00, your subconscious perceives it as being closer to $3.00 – making the item feel like a better deal.
An fMRI study discovered that, when a price drops just enough to change the leftmost digit, there is a spontaneous decrease in activity within the brain’s visuospatial processing regions. Essentially the brain is taking a shortcut upon seeing the first digit, reducing the effort it spends on the rest of the numbers. Your brain is essentially telling your eyes: “We already got the most important part of the information; no need to work hard on the rest.”
A 2005 study demonstrated the left-digital effect by giving participants a hypothetical budget of $73.00 to buy a basket of products. One set of participants looked at items with round numbers, such as $4.00 or $5.00, while another saw the exact same items priced one cent lower, at $3.99 or $4.99. Even though the actual difference in cost was only a penny, consumers looking at the prices ending in 99 estimated they could afford significantly more items.
Retailers have used the left-digit effect for so long that consumers have been conditioned to associate these prices with discounts, clearances, or the lowest possible price the retailer can offer. In fact, retailers could raise the price of an item from $5.50 to $5.99 and many consumers would assume it had been put on sale. In principle, this works for higher priced items as well; consumers likely view an item priced at $199 as much more affordable than at $200.
Given the effect is so strong, why don’t all prices leverage the left-digital effect?
In a nutshell, businesses don’t always want their products to feel like a bargain. High-end retailers and luxury brands typically round their prices to the nearest whole dollar because it conveys prestige, high quality, and sophistication. Research has shown that rounded prices ($1,000.00) drive emotionally driven purchases, while non-rounded prices ($987.75) drive rationally driven purchases.
However, in most situations, retailers want their customers to think they are getting a deal. The left-digit effect explains why there are so many prices that end in 0.99.
No comments yet.