can be discovered. This is an indication of market power and the potential to set prices
independently of the competitors behaviour. On a competitive market, similar pricing
patterns would not occur under ceteris-paribus conditions as input costs would af
(FENGLER/WINTER 2001, p. 100). Furthermore, it is elaborated that individual psychological
prices matter for the dynamics of the general price adjustment.
The marketing literature
The marketing literature on psychological prices has a different focus
Thomas, M., Simon, D. H. & Kadiyali, V. (2007). Do Consumers Perceive Precise Prices to be Lower
than Round Prices? Evidence from Laboratory and Market Data. Cornell University, Johnson
School Research Paper Series No. 09-07.
Thomas, M., Simon, D. H. & Ka
Table 1 lists more than fifty principles for the marketing and pricing established products discussed in
this paper along with some example applications and recommendations. Most of these principles appear
to enhance the willingness of buyers to pay. Alth
PSYCHOLOGICAL PRINCIPLES FOR PRICING
Save instead of Spend Less
Buy X, Get Y Free
Multiple Unit Pricing
$3 for 3 Units instead of $1 Each
Buy 5 and Save a Trip
different firms, but never for B and F. In two of these cases, a significant share of all observed
prices were reached (28.4 % for the price 1.65 DM of brand 11 and 23.1 % for the price 2.85
DM of brand 18, both at firm D).
Table 2: Concentration Ratios o
exceptions may exist for the partitioning principle. First, including charges in lower-quality product prices
may be beneficial (Love, 2012). Second, if perceived price-quality relationships are low, such as for very
familiar brands, partitioning may be l
slope dummies shows that there are firm-specific effects of price actions on price rigidity for
firms A, B and E which are at least significant at the 90 %-level.
If differential effects of sales on price rigidity are introduced in the regression model, t
McKechnie, S., Devlin, J., Ennew, C. & Smith, A. (2012). Effects of Discount Framing in Comparative
Price Advertising. European Journal of Marketing, 46, (11-12), 1501-1522.
Mace, S. (2012). The Impact and Determinants of Nine-Ending Pricing in Grocery Re
PSYCHOLOGICAL PRICES AND PRICE
RIGIDITY IN GROCERY RETAILING:
ANALYSIS OF GERMAN SCANNER DATA*
- Selected Paper, American Agricultural Economics Association 2005, Annual Meeting,
July 24-27, 2005, Providence, Rhode Isl
At each kink, it is then optimal to leave the price unchanged for at least some variation in
marginal costs. Hence, psychological pricing points are a cause of price rigidity if firms are
BLINDER et al. (1998) came up with some very int
LOY, J.-P. and C. WEISS (2003), Staggering and Synchronisation of Pricing Behaviour: New
Evidence from German Food Retailers. Agribusiness An International Journal, Vol.
18, No. 4, S. 437-457.
MADAKOM GMBH (ed.) (1999a), Madakom Pool fr Scannerdaten. Colo
Psychological Pricing Principles for Organizations with Market Power
Ronald B. Larson
Western Michigan University
Variations in the pricing approaches firms employ may partially explain why observed industry prices
appear inconsistent with economic theory
Although psychological prices are significant in all grocery-retailing firms and for all brands,
there are substantial differences in the psychological-pricing strategies across brands and
firms. Table 3 summarizes to which extent pricing is concentrated
We can conclude from the analysis of the pooled data set that, as expected, the number of
price promotions is a significant determinant of the rigidity of food prices. An increasing
number of promotions reduces price rigidity the most in retailing firms w
the normal price. After more than four weeks, such low prices are counted as normal price
It has to be stressed that this is a unique dataset at the individual retailers level. Substantial
work in recent years is based on consumer panel d
percent may be needed to attract customer attention (Gupta & Cooper, 1992). In many circumstances,
brands and stores with shallow, noticeable, frequent discounts will be perceived to have lower average
prices than brands and stores with deep, infrequent d
Raghubir, R. & Srivastava, J. (2009). The Denomination Effect. Journal of Consumer Research, 36, (4),
Schindler, R. M. (2006). The 99 Price Ending as a Signal of a Low-Price Appeal. Journal of Retailing,
82, (1), 7177.
Schindler, R. M. & Kibarian
Davis, D. D. & Millner, E. L. (2005). Rebates, Matches, and Consumer Behavior. Southern Economic
Journal, 72, (2), 410-421.
DelVecchio, D., Krishnan, H. S. & Smith, D. C. (2007). Cents or Percent? The Effects of Promotion
Framing on Price Expectations and
Price congruency refers to strategically adjusting the information communicated by a price with the
messages from other sources so that the combination boosts willingness-to-pay. Buyers usually believe
their purchases are good values
Inman, J. J., Peter, A. C. & Raghubir, P. (1997). Framing the Deal: The Role of Restrictions in
Accentuating Deal Value. Journal of Consumer Research, 24, (1), 68-79.
Janiszewski, C. & Cunha, M., Jr. (2004). The Influence of Price Discount Framing on the
level effect, also stressed by SCHINDLER/KIBARIAN (1996) and SCHINDLER/KIRBY (1997), is
due to rounding down. Consumers are expected to round down prices and, thus, an incentive
exists for firms to utilize just-below prices ending at digits 9 or 99. Anoth
Primacy and Recency
Give Buyers Intended First and Last Impression
List Units in Large Transactions before Price
Reveal Most Attractive Items First
Show High-Priced Products First and Adjust Message
There is increasing evidence from scanner data that branded foods in the grocery retailing
sector contain a substantial amount of price rigidity (HERRMANN/MSER 2003). One of the
many alternative explanations for price rigidity is the existe
Rather, pricing seems to be consistent with the arguments forwarded by cognitive psychology,
e.g. rounding down or left-to-right comparisons.
In Tables 2 and 3, concentration ratios are presented for the five (two) most important
psychological prices for
3 Data and Empirical Evidence on Price Rigidity
In this section, the scanner dataset is described and empirical findings on price rigidity for the
20 selected food brands are summarized. The evidence on price rigidity is based on these
scanner data as is
ANDERSON, E. T. and D. I. SIMESTER (2003), Effects of $9 Price Endings on Retail Sales:
Evidence from Field Experiments. Quantitative Marketing and Economics, Vol. 1,
Issue 1, pp. 93-110.
BILS, M. and P. J. KLENOW (2002), Some Evidence on the I
Appendix 1: Foods Brands Included in the Statistical Analysis
170g-bottle of coffee cream with 12% fat
Baerenmarke "Feine 12", 170g
170g-bottle of evaporated milk with 8% fat
Baerenmarke Kaffeetraum 8%, 170g
suggesting a demand curve kink. A study that allowed for demand curve kinks found that 76 percent of
the brands studied had kinks or thresholds at historical prices, competitor prices, or both (Pauwels,
Srinivasan & Franses, 2007).
When showing two attrac