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Posted by on in Rajan Sambandam
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Is $2.99 the same as $3.00?

How often do we as consumers see “just below” retail prices such as $2.99 or $29.99 or $299.99? All the time, right? It seems like we rarely ever see “round prices” for anything. The obvious reason why retailers and others do it is because of the belief that the left digit dominates and people are likely to see say, $2.99 as being significantly more than a penny less than $3.00. There are two issues here. The first is whether people actually perceive a difference and the second is whether it has an effect on what they purchase. Both of these issues can be studied experimentally and that’s what two sets of researchers did.

The first set of researchers (Manoj Thomas and Vicki Morwitz) ran a series of experiments designed to understand the impact of the left digit on price perceptions. They obtained price perceptions on identical products where the prices differed by a penny. But they did this for two sets of prices -- $2.99 and $3.00 and $3.59 and $3.60. Given that the latter two prices were seen as the same they were able to clearly establish that what is happening is a left digit phenomenon. They were also able to show that this was a general number problem that people have and not just a price problem.                   

But a practical question for marketers is whether this will have an impact on purchasing. That’s what a second set of researchers (Kenneth Manning and David Sprott) decided to find out. They used four pairs of prices to study how the purchase of the product would be affected. In this case two pens were used one of which was implied to be of a slightly higher quality in the description. The purchase intentions of the participants are shown below in the table.

 

Prices tested ($)

Difference in left-most digit ($)

Proportion selecting lower priced pen (%)

2.00/2.99

0

56

1.99/3.00

2

82

1.99/2.99

1

70

2.00/3.00

1

69

   

Note that the practical difference between the two prices in every case is only about a dollar. Yet there are significant differences in the purchase intentions of the lower priced product. The difference in purchase intention between the first two sets of prices (56% and 82%) is particularly telling. And, of course, that’s where the maximum difference between the left digits (2) also occurs.

The purchase intentions for the last two price sets with the same left digits (1) are virtually identical (70% and 69%). But the percentage differences between the left digits are very different. That is, the difference between 1 and 2 is much more (100%) compared to the difference between 2 and 3 (50%). It may not manifest here because the absolute dollar amounts are so small. But would they show up if the amounts were higher? Time for the next experiment!

In testing a higher set of prices ($29.99/$39.99 and $30.00/$40.00) the authors decided to include another variable: buying for a friend or buying for an acquaintance. The idea here is that when buying for a friend, a person may not be as focused on price or savings, and hence more likely to focus on the symbolism of the gift and the nature of the relationship with the friend. Is that what happens? Let’s find out.

          

Shopping goal

Prices tested ($)

Proportion choosing lower priced product (%)

Acquaintance

29.99/39.99

75

30.00/40.00

50

Friend

29.99/39.99

53

30.00/40.00

42

 

In the above table, the absolute differences between price sets are all about $10. But the proportions are different when using the left digits. The difference between the first set ($29.99/$39.99) is 50% ((30-20)/20), while the difference between the second set ($30.00/$40.00) is 33% ((40-30)/30). Unlike in the previous experiment, the prices here may be high enough that these proportional differences could be clearly noticeable.   

As shown in the third column this makes a huge difference in the case of buying for an acquaintance (75% versus 50%). It seems to have no effect when buying for a friend (53% versus 42%).

So what have we learnt here about pricing and people? Left digit effects do occur, so don’t kid yourself.

How do you avoid it? Perhaps by consciously rounding up every time you see a just-below price.

Or maybe you could pretend you are buying gifts for friends all the time.

Manoj Thomas is an Assistant Professor of Marketing in Cornell University and Vicki Morwitz is Professor of Marketing at New York University. Kenneth Manning is Professor of Marketing at Colorado State University and David Sprott  is Professor of Marketing at Washington State University. Both of these research articles were published in the Journal of Consumer Research.  

Comments

  • Ed Olesky
    Ed Olesky Monday, 24 June 2013

    Thank you for this! I was thinking it might be a myth. Good to know that some research has been done. I have always rounded up, as do most people I know, which added to my skepticism. There is definitely a left digit bias, as the research clearly shows. Cheers!

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Guest Wednesday, 25 November 2020

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