The Lemonade Experiment

I want you to answer the following question with your gut response.

You’re walking through your neighborhood on a hot, sunny day when you come across a kid with two pitchers of lemonade sitting on crates on the sidewalk. There’s a little sign between the crates that says, “Lemonade, $0.99 and $1.00.” If you have a only a dollar bill in your pocket, and you don’t know if the kid will give you change, which lemonade do you buy?

I ask this because I’m fascinated by our $0.99 culture. Why is it that we are more inclined to purchase something at that price than $1.00? They’re virtually the same price. And $0.99 simply looks bigger. You’ve got the number 99 in there! That’s huge! That’s much bigger than 1!

Is it simply because we’ve come to accept $0.99 as the standard for things–particularly digital things–like iTunes songs? Or is it something built into our brains, some residual DNA left over from the days of cavemen when you’d much rather encounter .99 sabertooth tigers than 1?

With all due respect to $0.99, I’d like to think that some people would consider the extra cent required to get to $1.00 an increase in value. Why pay $0.99 for a new shoelace when you could pay $1.00 and get one that’s going to last 1% longer?

Let me know what you think about this. I’m working on pricing for the startup, and I’m trying to figure out if I should price things at the slightly unweildy, uneven $0.99 level or the clean, simple, but pschologically daunting $1.00 level.