Price endings: magic and math

Abstract

Purpose

This paper aims to improve understanding of the effects of price endings on consumers' choice behavior. The research study described here was driven by three central questions. First, do consumers process a price holistically or process each digit as a stimulus? Second, do consumers “round” prices? Third, do price endings such as 9 or 0 have specific effects on purchase intentions?

Design/methodology/approach

The study is based on a discrete choice experiment where consumers responded to two‐digit prices. Tomato soup and backpacks were the two product categories selected for the study. A total of 188 university students who had purchased these products completed an online survey indicating their choices for one of the four alternative products, with an option of not purchasing anything. Tomato soup prices were varied from 40 cents to 99 cents (every potential price ending was included) and backpack prices varied from $30 to $59 (no pennies). Each respondent made 20 choices for each product and the resulting database was used to construct the nested logit models.

Findings

Estimated models suggest that consumers do not process price holistically. In other words, respondents processed prices by splitting numbers into two parts. Furthermore, the use of truncation and the effects of “odd/even” and “0” appeared to be statistically significant for both canned soup and backpack products. Although there was rounding of prices for the soup category, there was no statistically significant support for that in the backpack category. Finally, the effect of a 9‐ending was statistically significant for the backpack category but not for the soup category.

Practical implications

The findings suggest that consumers may not process prices holistically. This, in turn, means that price endings are likely to influence consumer price sensitivity and both retailer and manufacturer profits.

Originality/value

This is the first paper that examines price endings for all numbers from 0 to 9. In addition, the use of a discrete choice modeling method to infer individual choice behaviour in this context is new and innovative.

Citation

Liang, J. and Kanetkar, V. (2006), "Price endings: magic and math", Journal of Product & Brand Management, Vol. 15 No. 6, pp. 377-385. https://doi.org/10.1108/10610420610703702