Identifying Patterns of Customer Response to Price Endings

Wagner R, Beinke K-S. Identifying Patterns of Customer Response to Price Endings. Journal of Product and Brand Management. 2006;15(5):341-351.Purpose: This paper introduces a new approach for the identification of price thresholds, which enables learning true thresholds from previous buying decisions recorded in POS scanner data. Design/methodology/approach: The methodology presented herein combines spline regression with generalized cross validation. Classical Chi-square testing confirms the separation of regimes of the price response function by our methodology. Five propositions concerning the consumers´ response to odd pricing in a Western-type market are evaluated. Findings: Despite the widespread retail practice odd prices are unlikely to flag the actual threshold in consumer response. The term odd price refers to prices with a non-zero ending in the cent digit, e.g., .95, .98 or .99, which are commonly used in Western-type markets. Moreover, we explicitly distinguish the simple odd price effects from odd-ending prices with the first number left of the decimal point set to an odd number. Our results show that even these prices not always flag a threshold in consumer response. Research limitations/implications: The discussion of the odd-price effect is confused by conflicting empirical results and related interpretations of the underlying mechanisms. In contrast to many previous investigations-which are restricted to the consideration of very few price endings-this study covers all reasonable prices. We find statistically significant odd-price effects for some brands, but not for all within the same category. Practical implications: We argue for checking the thresholds for each brand individually rather than generalizing by applying misleading rules of thumb. Originality/value: The paper provides researchers as well as practitioners with a methodology to evaluate price thresholds and outlines the shortcoming of contemporary retailers pricing practices in a detailed manner