There's a sneaky reason why the new iPhone X costs $999 instead of $1,000

Source: Apple

Apple's new iPhone X is not only making headlines for its sleek redesign, but also for its steep $999 price tag.

But although this is the most expensive iPhone to date, Apple's decision to price the product at $999, rather than a round $1,000, is already positioning it to attract consumers.

That's because there's something about ending a price in a nine or 99 that psychologically tricks customers into believing they're getting a deal.

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One study from Robert M. Schindler, a professor of marketing at the Rutgers School of Business, cited by The New York Times says that consumers "perceive a 9-ending price as a round-number price with a small amount given back." In consumers' minds, the 99 acts as a cue that says, "This is a low price."

Other research suggests that "odd number pricing," in which prices fall just below a full dollar amount, creates the illusion that the item is cheaper than it really is.

"This gives the psychological impression to the customer that the price is not $0.20 or $0.50 or $20, but less," writes Gregory Passewitz in a paper published by the Southern Rural Development Center at Mississippi State University.

The 99 tactic was first used by R.H. Macy, founder of the eponymous department store, who advertised black silk for 99 cents in a newspaper in 1880, The New York Times reports.

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Liquor store owner Dave Gold realized in the 60s that his wine sales improved dramatically when bottles were sold for $0.99, rather than $0.79 or $0.89, according to The Times. He decided to scale the idea by founding 99 Cents Only stores with his wife, and they are now worth $1.55 billion.

This isn't the first time Apple has used this pricing strategy, either. When the tech giant first launched iTunes in 2003, then-CEO Steve Jobs priced every song available through the service at just $0.99, to an unexpected result: People began to pay for music rather than illegally downloading it.

As The Times puts it, Jobs "built a commercially viable digital delivery business for music" and "arguably saved the music industry from oblivion."

Now it looks like Apple is betting on the 99 again.

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