Why do they set the prices ending in 7?

There is a whole academic field called Pricing Psychology, and they test all kinds of things. It was not just Ted Nicholas confirming the power of prices ending in 7.

Here is a short article I wrote for my newsletter on some of the less-known discoveries in this field.

Taking the Pain Out of Prices

by Marcia Yudkin

A price is a price, right? Not really, according to Cornell
University researchers, who tested whether restaurant owners
would profit most when menu prices were formatted as $20.00,
20.00 or twenty dollars.

To their surprise, the 20.00 format netted the most, with
customers spending 8 percent more when menus used numerals
to represent prices, minus any dollar signs.

Without the dollar sign or the word "dollars," diners were
apparently reminded least that what they were ordering was
making them a tiny bit poorer.

Specialists in the field of "menu engineering" have also
discovered that menus bring in more revenue when they insert
prices at the end of each small paragraph describing the
item, rather than all lined up in a column that can be
quickly scanned from top to bottom.

Likewise, those who study these things tell us that we
tend to perceive $23 to be less than $23.00.

One more finding: When looking at menus, we take prices
like $20.00 as indicative of higher quality food than
prices like $19.99.

[taken from The Marketing Minute, www.yudkin.com/markmin.htm]

Yes, I agree with you Memo, that the total price would definitely play a part with the $7 technique actually working.

With a pricing of $10 vs $7, you would require a of 30% increase in conversion just to break even.

Rather than $100 vs $97 where anything over 3% increase in conversion will be a larger profit.