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Austin, TX
Experience: Advanced
Platform: TradeStation
Trading: Futures
Posts: 839 since Mar 2011
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The "left digit" phenomenon is the same phenomenon that we find in sales/marketing.
Why is it that virtually everything that's advertised or sold, is done so 1 tick below?
Gasoline for example...is rarely $3.19 a gallon (it's $3.19 and 9/10ths). Why don't they just call it $3.20 a gallon?
Cars sell for $29,995.00 (instead of $30,000.00). Furniture, clothing, infomercials...you name it...extensive research in the area of psychology has been done for marketing that tells the seller to undercut the whole number....because I guess they believe that if something is $2.99, it's more attractive than if it's $3.00.
The psychology breaks for things like "a buck" which has it's own unique association. That's why you have McDonald's that features "The Dollar Menu" (and "Dollar Menunaires") and Wendy's that features "My 99" or the $.99 menu. I guess McDonald's thought there was significant recognition around the concept of a single dollar bill. Subway now features the "$5 footlong" so there are obviously exceptions to the rule where the distinction of a commonly exchanged monetary amount, (and rememberence) trumps the reluctance try to minimize the appearance by making it $4.99 instead of $5.00 (i.e., it's much more catchy to say $5 footlong than to say $4.99 footlong).
It brings up an interesting subject of the cost of coin manufacture. In 2006, we actually passed the point where it costs more money to make a penny and a nickel than they're worth. At this point, not only does it cost more money to make a penny, the metal contained in the penny is more than it's worth. I wonder with inflation picking up momentum, how long we'll continue to have pennies and what the impact will be on businesses and marketing/advertising when everything begins being rounded to the nearest nickel. (nickels are in the same boat, as they cost more than $.05 to produce). I'm sure they can change the composition of the nickel to get it down again, but still....
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