Psychological pricing (also known as ‘price ending’ and ‘charm pricing’) is a pricing/marketing strategy based on the theory that certain prices have a psychological impact. Consumers tend to perceive ‘odd prices’ as being significantly lower than they actually are, mentally rounding to the next lowest monetary unit. Thus, prices such as $1.99 are associated with spending $1 rather than $2. Now that many customers are used to odd pricing, some restaurants and high-end retailers psychologically-price in even numbers in an attempt to reinforce their brand image of quality and sophistication.
In a traditional cash transaction, fractional pricing imposes tangible costs on the vendor (printing fractional prices), the cashier (producing awkward change) and the customer (stowing the change). These factors have become less relevant with the increased use of checks, credit and debit cards and other forms of currency-free exchange; also, the addition of sales tax makes the pre-tax price less relevant to the amount of change (although in Europe the sales tax is generally included in the shelf price).
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The Daily Omnivore 