Question

Why might marketers use market-penetration pricing? Explain the psychology behind a price of $9.99 instead of $10.00. Why does it work?

Answer 1

Marketers generally use market-penetration pricing to rapidly gain market share by setting an initially low price to entice customers to switch from competitors and create a following of their own. Such a strategy is favoured by new entrants to compete effectively with existing market players. One of the goals could be creating brand loyalty or trying to drive competitors out of the market by setting very low prices.

Marketing strategies also play on the psychology of the consumers. A  price of $9.99 instead of $10.00 is called odd-even pricing where prices are set as fractions and not whole numbers. This creates the illusion that the product is cheaper than it actually is in the minds of the customers. Such pricing methods exploit the fact that consumers do not always act rationally and play with the psyche of the customers.It makes the customer feel that the product is not very expensive although a penny should ideally not make much of a difference.

Also studies have found that people suffer from the left-digit effect- our brain tricks us into thinking 9.99 is less than it actually is. When we round up this number, we tend to focus on the 9 (which is lesser than 10) and thus do not register the .99 in the price.