The effect of price endings on consumers: an eye-tracking analysis of the left-digit effect
Creators: name: Saborowski, Wencke
name: Loschelder, David
name: Frech, Marie-Lena
Publisher: name: Open Science Framework
Year: 2022
Subjects: subject: Social and Behavioral Sciences

description: The price "[…] is a marketing activity fundamentally different than the others" (Schindler, 2012, p. 5). It is considered to be the most powerful instrument to a marketer and consequently assumes a unique position (Han et al., 2001; Diller, 2008; Pechtl, 2014). The price is the only marketing instrument that produces revenue instead of costs (Kotler, 2000) and moreover, it is a central criterion for customers' purchase decisions (Winer, 2005). Due to this exceptional position, consumers' price perception is of high interest for marketers, retailers and economists alike. One central issue in pricing is the way "a price is expressed when it is communicated to potential customers" (Schindler, 2012, p. 9). This form of expression is known as the price format (Schindler, 2012). One can differentiate the following three price formats: just-below prices (e.g., 3,99€), round prices (e.g., 4,00€) and precise prices (e.g., 4,12€) (Lambert, 1975; Kreul, 1982; Schindler, 1991; Gendall et al., 1997; Manning &amp; Sprott, 2009; Wieseke et al., 2016). In practice, just-below prices have dominated retail for decades (Twedt, 1965; Kreul, 1982; Suri et al., 2004; Levy et al., 2011) because traditional marketing theory as well as retailers generally assume a superiority of 9-ending prices (Gendall et al., 1997). Consumer behavior theories serve as an explanation for this phenomenon. According to these theories, the ‘level effects’ also known as ‘underestimation effects’ of just-below prices refer to behaviors and processes that bias consumers' price perception (Stiving &amp; Winer, 1997). The level effects comprise three psychological mechanisms that explain why two prices of (essentially) the same level are perceived as noticeably different: rounding down, left-to-right comparison and memory effects (Stiving &amp; Winer, 1997; Wieseke et al., 2016). Focusing on the left-to-right comparison, it is claimed that consumers process price digits from left to right giving the leftmost digit greater emphasis. Further, in the situation of price comparisons, consumers primarily compare the first – that is leftmost digits – of two prices. Right-hand digits are said to be ignored as soon as different leftmost digits appear (Coulter, 2001; Stiving &amp; Winer, 1997). Additional theoretical explanation for this phenomenon derives from the left-digit effect that claims leftmost digits have a disproportionately larger influence on the price perception (Thomas &amp; Morwitz, 2005; Manning &amp; Sprott, 2009). A second theory within the consumer behavior theories refers to the meaning that different price endings imply. These effects are called image effects. They can be categorized into price image and quality image (Schindler, 1991; Stiving &amp; Winer, 1997). In line with this theory, just-below prices are associated with an advantageous price image (e.g., “on sale” or the “lowest price around”) and a disadvantageous quality image (e.g., low quality) (Schindler &amp; Kibarian, 2001). Empirical findings from prior research are rather heterogeneous (e.g. Schindler &amp; Warren, 1988; Schindler &amp; Kibarian, 1996; Homburg &amp; Koschate, 2005; Bray &amp; Harris, 2006; Choi et al., 2014) and there is only limited empirical evidence that would strongly support the currently used practice and 9-ending predominance (Anderson &amp; Simester, 2003; Wieseke et al., 2016). In addition, empirical research has primarily focused on contrasting just-below with round prices so far. Precise prices have only been considered sporadically. Moreover, price perception – nor the left-to-right comparison – have not been investigated via eye tracking analysis so far. Thus, the present research seeks to expand and contribute to the behavioral pricing literature by investigating the generally assumed superiority of just-below prices via an alternative research method — eye tracking. It also extends the past focus by considering all three price formats (9-ending, 0-ending, and precise). Thereby, the current study attempts to close a research gap and examines the following research questions: Do just-below prices significantly outperform alternative price endings like round and precise prices in terms of purchase intention, price image, and quality image? Furthermore, how do price endings affect consumers' focus of attention? Are the left-digit effect, and thus the left-to-right comparison, empirically verifiable based on consumers' eye movement? And finally, the current research tries to answer the question, whether just-below prices are still recommendable for pricing from the perspective of perceptual psychology?