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In your last trip to the grocery store, you probably noticed many prices end in “99.” Why do marketers price products this way instead of rounding prices to the nearest whole dollar? While it may seem surprising, such pricing strategies have been very effective in increasing sales by taking the advantage of the left-digit bias. The left-digit bias describes a phenomenon in which consumers’ perceptions and evaluations are disproportionately influenced by the left-most digit of the product price. But when is this bias more likely to exert influence on consumers?
In their recent research article published in the Journal of Marketing Research, Tatiana Sokolova, Satheesh Seenivasan, and Manoj Thomas examined this question and found that the secret lies in whether a salient reference price is provided. If the reference price is available and is shown next to the focal price, consumers are more likely to rely on perceptual representations of the prices and process the precise digits in sequence. As a result, the left-digit bias has a stronger impact on consumers’ judgments and decisions. However, if the reference price is not presented, consumers retrieve a reference price from their memory when they evaluate the focal price. This leads consumers to rely more on conceptual representations of the prices and process the focal price as a whole-dollar amount. In these cases, consumers are less susceptible to the left-digit bias.
After reading the article, we reached out to the authors to understand their perspective on a few aspects of their research. We wanted to gain insight on how this idea came about and what they hoped the readers, be it marketing practitioners, consumers, or academicians, would learn from their research.
Inception of the Idea and Collaboration Across Continents
The idea of this research project originated when Dr. Sokolova visited Dr. Thomas at Cornell University in Spring 2013. Dr. Thomas had some data from an exploratory study showing that the left-most digit bias affected consumers’ evaluations sometimes but not at other times. Dr. Sokolova had an intuition that the presentation mode (i.e., two numbers on the screen, one above the other) was making the left-digit bias stronger. They decided to follow up on this intuition in a pilot study and subsequent studies.
Dr. Sokolova and Dr. Thomas began the project with Dr. Seenivasan joining shortly after, completing the team of three authors from three different continents. This was quite fascinating and although a little challenging, it helped the project eventually, ensuring that one of the authors was always working on it.
Takeaways for Marketers
The authors noted that the major takeaway from their research is that just-below pricing is more likely to work when consumers evaluate multiple prices side by side, instead of comparing a given price to a reference price retrieved from memory. Specifically, left-digit pricing will be more effective during promotions when consumers see the compared prices on the same tag and are more likely to make side-by-side price comparisons. Take, for example, the price of a jar of peanut butter. The original price may be $3.49, but when it goes on sale for $2.99, printing its original price on the same price tag can make the discounted price more attractive than presenting only the discounted price.
While there are benefits associated with the 99-pricing strategy, the authors also caution managers against blindly applying it. For example, reducing product prices from $3.00 to $2.99 may encourage more purchases, but it also imposes a decrease in the net margin. Blindly adopting the 99-pricing strategy could backfire when this reduced margin is not offset by increased sales. This can be especially detrimental for multibillion-dollar companies operating in high-volume, low-margin categories, where the increase in demand needs to be rather sizable.
Takeaways for Consumers
So, what does this research mean for consumers? They would be well advised to stop comparing prices digit-by-digit. Many consumers may be inclined to do so because it creates the feeling of being more accurate and thorough. However, digit-by-digit number processing may backfire, as it can actually exacerbate the left-digit bias and lead to more (unintended) spending.
Additionally, some consumers may be more susceptible to the impact of left-digit pricing than others. For example, the authors find that consumers who are less knowledgeable about product prices are less likely to retrieve the reference prices from their memory. Thus, compared with those who have better price knowledge, these consumers are more likely to rely on perceptual representations of prices and, ultimately, are more vulnerable to the influence of the left-digit bias.
Thoughts on Conducting MTurk Studies
We were also interested in knowing the authors’ perspectives on the use of Amazon’s Mechanical Turk (MTurk) studies, given that five of their six studies were conducted on this platform. The authors stated that while MTurk panelists may not pay a lot of attention to product descriptions, neither do many consumers shopping for fast-moving consumer goods. As such, a phenomenon like the left-digit bias, which does not assume that consumers carefully process all the information, can be studied on MTurk and provides meaningful results. Overall, MTurk can be a very convenient forum for data collection, at least for some types of research projects. However, to ensure the reliability of results, it is important to have a multi-method approach so that the researchers can seek convergent validity for their results using other sources of data. For example, in their research, the authors were encouraged by the fact that the results of their MTurk studies were consistent with the results from their scanner panel study.
Tatiana Sokolova, Satheesh Seenivasan, and Manoj Thomas (2020), “The Left-Digit Bias: When and Why Are Consumers Penny Wise and Pound Foolish?” Journal of Marketing Research, 57 (4), 1–18.