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Related Experiment Videos

Mind your pricing cues.

Eric Anderson1, Duncan Simester

  • 1Northwestern University's Kellogg School of Management, Evanston, Illinois, USA.

Harvard Business Review
|September 11, 2003
PubMed
Summary
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Consumers often lack accurate price knowledge and rely on retailer cues like "sale" signs and prices ending in 9. These pricing strategies significantly influence purchasing decisions and demand.

Area of Science:

  • Consumer Psychology
  • Behavioral Economics
  • Marketing Science

Background:

  • Consumers frequently lack precise knowledge of product prices.
  • Despite imperfect market knowledge, consumers continue to make purchases.
  • Consumers rely on retailers for price guidance and deal assessment.

Purpose of the Study:

  • To review common pricing cues used by retailers.
  • To analyze the effectiveness of various pricing signals on consumer behavior.
  • To understand how pricing cues influence purchasing decisions.

Main Methods:

  • Review of common retail pricing strategies.
  • Analysis of consumer responses to pricing cues.
  • Empirical tests using mail-order catalogs and clothing sales data.

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Main Results:

  • The word "sale" next to a price can boost demand by over 50%.
  • Prices ending in 9, like $39 versus $34, increased demand by 33% in a clothing catalog study.
  • Pricing cues are powerful but require careful application.

Conclusions:

  • Retailer pricing cues significantly impact consumer purchasing decisions.
  • Judicious use of pricing cues can enhance demand.
  • Inappropriate use of pricing cues can erode trust and brand equity.