Retailers Use Your Mind Against You

The following piece is a guest post from The Happy Rock:

Retailers spend millions figuring out how our minds operate so that they can become more effective. As consumers it helps to examine some of the ways in which retailers are using research to hone their tactics. One such set of research deals with the role that the ending number in a price can have on consumers.

In 2000 Duncan Simester, an MIT professor, and Eric Anderson released their research on "Why Stores May Sell More at $49 than at $44". The study used a direct mailing catalog with three different prices on an item ($44, $49, $54). The result was that the $49 version sold 30% more than the version that was $5 cheaper. The results were easily replicated in two follow up experiments. The experiments also found a less significant increase in quantity sold when the number of items that the ended in 9 increased and when used in conjunction with sale signs. Sounds crazy, right? Like me, you are probably saying that I would never pay $49 for something that I could for $44.

The research suggests that we are wrong. Price endings serve an informational role to alert consumers that the price provides greater value. This is true because retailers have used the ending 9 to signify deals in the past. As consumers we know that on December 15th Christmas decorations are probably full priced, but as Christmas approaches and passes the price of the decorations will drop. A wreath that used to cost $25 is reduced to $19, and so on. On December 23rd when we see a $19 wreath, we assume that the price has probably been reduced.

The real issue is that consumers do not have very good price recall. Even with groceries that are purchased every week, consumers are usually only correct 50% of the time when asked about prices. The problem is exacerbated with larger priced items which can vary in price, quality, and features from store to store. Retailers use this to their advantage by signaling the consumer that something is a good value, even though it may not be a great value. Usually by slapping a 'Sale' sign on an item and not even changing the price, retailers can sell more. Consumers think they are getting better value, but the truth is they don't know. The 9 dollar price ending signals similar value to that of a 'Sale' sign. When the retailer put a 'Sale' sign or 9 dollar ending on too many items, the signal strength weakens. Consumers then realize that not everything can be a good deal, and the increase in sales drops off.

As consumers we need to arm ourselves with some of this research, so that we can make more educated purchases. In this particular case, the real solution is to find a better way to gauge the actual price and value of items. Armed with a deeper knowledge of the 'real' price, we will not be as susceptible to retailers pricing strategies.

Comments

[Tim]

they use 9, because the brain can see it's closeness with the next higher whole number. when we see $19, we are thinking it isn't $20 thereby thinking we are getting a discount. other numbers don't have the close proximity and relation to the whole even number.

[Lord]

I thought it was because many people truncate rather than round.