Have Discounted Prices End In $1.99 or $2.99

You have one item in your store priced at $222.99 and another item priced at $199.99. You decide to discount each one $11, so the prices are now $211.99 and $188.99. Which one of the two is the better percentage discount? Researchers at Clark University and University of Connecticut found that your customers are likely to feel that the discount from $222.99 to $211.99 is better than the discount from $199.99 to $188.99. In fact, though, the first discount is about 4.9%, while the second discount is the better one, at about 5.5%.
     Our brains are not real good at working with percentages. Do you need more evidence? Okay, here's some, courtesy of researchers at University of Miami and University of Minnesota. Say you want to clear out a line of seasonal merchandise. You apply a 20% discount, but then when it's not moving well enough, you apply a 25% discount to the sale price. What is the total discount now off the original price?
     Maybe one more percentage will make you feel better: When university students were presented with that problem, 59% of them got it wrong. They added the 20% to the 25% and said the discount was 45%. The correct answer is 40%.
     There are times you'll want to do the calculations for your shoppers so they aren't misled. There are other times that trying to straighten it out could actually add to the shopper's confusion. You might decide to have discounted prices end in a $1.99 or $2.99 to maximize the impression on the shopper. The truth is that there really isn't that much difference between 4.9% and 5.5%. The difference looks larger because we pay extra attention to the number to the left of the decimal point. That's another distortion.