November 28, 2006
Where’d The 9/10ths Thing Come From?
I was filling up the gas tank today, and I was thinking about the price. $2.099/gallon. Why, in this day and age, do they have to finish all their prices with 9/10ths of a cent? If I were driving more than I do now, filling up my truck’s 19 gal gas tank once a week, and they just rounded it up to the next cent, it would cost me 1.9 cents per week. Over the course of a year, that’s less than a dollar. What’s the deal? Is it really that important when advertising the price of gas?
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Psychologically, yes it is. For some reason, when it comes to fractions of a cent, when the gross cost of an item us under 10 dollars, people will psychologically round down to “under 10 dollars”, and if it were $10.001 they would psychologically round up to “over ten dollars”.
They do the same thing at 20, 50, 100, 200, 500 1000, 5000, 10000, 20 and 25000, 50000 and 100000; only of course with differing orders of magnitude for the rounding.
This research started well over 100 years ago; and is currently used to great effect by Wal Mart, and gas stations.
Wal Mart has a policy; no price will ever be an even dollar amount, and they generally use .77 .88 and .97 as their decimal fraction.
That’s fine, Chris, but we’re talking about gas prices. We’re not talking about something that’s always $1.999 per gallon, you sit there and the gas station has it for $2.139 per gallon. Are you really going to feel the same psychological effect between $2.139 and $2.14? It’s not one of those easy cut-off prices, nor is it like (in the case of Wal-mart) trying to avoid even dollar amounts.
Brad, the same psychology applies. Unconcsiously, people round 2.13 and 9/10ths down to $2.13.
For quantities under ten dollars, this one cent rounding actually makes a noticable difference in people buying patterns.
But this is gasoline we’re talking about, not really what I’d call a discretionary purchase. Don’t you think a station selling gas at $2.498 would sell more gas than one across the street that’s got it for $2.499? Yet gas stations always drop by a full penny. So why not just drop the 9/10th all around? It’s gotta cause accounting nightmares somewhere along the supply line.