12:00 AM


COLUMBUS, Ohio -- New research suggests that retail stores are doing a smart thing when they price their items to end with a nine -- like 89 cents or $1.79. A study of more than 13,000 actual yogurt and tuna purchases indicates that shoppers often ignore the last digit or digits of a price when comparing the costs of two items -- at least if the preceding digit is different. As a result, stores maximize profits by making the last digit a nine.

“In some situations, a consumer may not see any real difference between a price of $1.52 and a price of $1.59,” said Mark Stiving, co-author of the study and assistant professor of marketing at Ohio State University’s Max M. Fisher College of Business.

“If consumers are ignoring those pennies and not using them to make decisions, then the retailer is smart to take that last bit as profit.”

But consumers are not acting irrationally by ignoring the last digit, Stiving said.

“Shoppers are busy and they are looking for shortcuts to make complicated calculations simpler,” he said. “And shoppers get a lot more information by comparing the first digits than they do from counting the last few pennies.”

Stiving conducted the study with Russell Winer of the University of California, Berkeley. Their results were published in a recent issue of the Journal of Consumer Research.

For the study, the researchers examined price scanner data for tuna and yogurt products. They used data from 12,385 purchases of two national brands of tuna. The purchases covered 123 weeks in three stores. They also looked at 1,232 purchases of the two dominant national brands of yogurt. These purchases were made over 137 weeks at one store.

The researchers used complex statistical analyses to determine the best explanation for how consumers chose the brand of yogurt or tuna that they did. In their analysis, the researchers statistically accounted for factors such as brand loyalty, advertisements and the impact of in-store displays so they could focus just on how consumers processed the price information.

They found that the best explanation for the purchase decisions was that consumers processed prices from left to right -- and stopped at the first digit that was different when comparing two prices.

For example, if a consumer compared prices for two competing products -- one $1.59 and the other $1.64 -- she would notice the difference between the middle digits (the “5” and the “6”) and not pay attention to the final digits of the prices. In this example, the retailer would have been smart to price the more expensive product at $1.69 rather than $1.64, because the shopper wouldn’t notice the difference.

However, if the prices were $1.50 and $1.59 the consumer would take notice of the 9 cent price differential.

The research also examined and rejected two competing theories: that people look at the whole price when making cost comparisons or that they simply round down the price, say from $2.49 to $2.00. “It makes sense for consumers to place more weight on the first digits of a price,” Stiving said. “The second digit of a price has approximately 10 percent of the value of the left hand digit. And the third digit has only about 1 percent of the value of the first digit, so its easy to see why consumers process prices the way they do.”

A good example of how retailers and consumers use price information is gasoline, according to Stiving. He noted that the price of a gallon of gas nearly always ends with nine-tenths of a cent.

“Every gas station adds that extra nine-tenths to the price, so it makes no sense for consumers to look at that last digit. When you compare prices, you know that if you ignore that last digit you will still get a fair, even comparison. And retailers are maximizing their profits by adding that extra nine-tenths.”

While this study only examined two relatively inexpensive products, Stiving believes the results would be similar for higher priced items, all the way up to cars and houses.

“Even for houses you’ll see prices like $159,500,” he said. “The reason is that sellers hope potential buyers will see the price as $150,000 rather than almost $160,000.”


Contact: Mark Stiving, (614) 292-2901; Stiving.1@osu.edu Written by Jeff Grabmeier, (614) 292-8457; Grabmeier.1@osu.edu

Return to the current month abstract page