BUSI 330 Week 5 Discussion Board Forum 3 Thread and Replies Example

Discussion Board Forum 3: Psychological Pricing and Price Perception

BUSI 330 Principles of Marketing, Discussion Board Forum 3 Thread and Replies

Thread by [Student Name]

The prompt, the store examples and the classmates are composites; the textbook and research cited are real.

Thread

The practice

Walk through almost any store and prices end in 9: $4.99, $19.99, $499. Kerin and Hartley (2020) describe this as odd-even pricing, a psychological approach that sets prices just below round numbers so they appear lower. Because nearly every retailer does it, few managers stop to ask whether it pays. The research suggests it does, but for reasons more specific than shoppers simply being fooled.

What experiments show

Thomas and Morwitz (2005) studied how people perceive price differences. They found that when the leftmost digit of a price changed, for example from $3.00 to $2.99, people judged the difference between two prices as larger than when the left digit stayed the same, even though the actual difference was identical. People process the left digit first and anchor on it. A one-cent change that alters the first digit can feel like a much bigger bargain than a ten-cent change that does not. The effect appeared mainly when people compared prices quickly rather than calculating carefully.

What a field experiment found

Laboratory results do not always hold in real stores, so field evidence matters. Anderson and Simester (2003) worked with a women's clothing catalog and mailed different versions in which the same items carried different prices. Items priced to end in 9 sold more than the same items priced slightly lower at other endings, and the effect was stronger for items new to the catalog, where customers had less idea of what the price should be.

Where it fits

The evidence supports odd-even pricing for value and discount positioning, especially for products whose fair price customers do not know well. It fits less well with a premium brand. A luxury retailer that prices a watch at $4,999 may signal discounting rather than prestige, which is why many high-end brands use round prices such as $5,000. A marketer should therefore choose price endings to match positioning, not out of habit. Restaurants offer a familiar example: casual chains print menu prices ending in 9, while upscale restaurants often drop the dollar sign and cents entirely, writing simply 28, so that price recedes behind the experience. Both are applying the same psychology in opposite directions.

There is also an ethical boundary. Kerin and Hartley's discussion of pricing ethics warns against practices that mislead, and a 9 ending is not deceptive because the full price is visible. Practices that hide fees until checkout or advertise a price few customers can obtain cross that line, and a marketer who relies on them trades short-term sales for lasting distrust.

Reply to Tyler

Tyler, your report argued that the athletic shoe brand should sell more directly to consumers online to capture the retailer's margin, and your margin calculation was clear. Kerin and Hartley discuss this shift toward direct marketing channels, and the financial logic is sound.

I would add the risk of channel conflict, which the channels chapter describes as arising when one channel member believes another is engaging in behavior that prevents it from achieving its goals. When a brand sells direct at lower prices or with exclusive products, its retail partners may respond by giving the brand less shelf space, promoting competitors or demanding better terms. For a shoe brand, losing prominent placement in sporting goods stores could cost more sales than the online channel gains, especially among customers who want to try shoes on.

Many brands manage this by offering different products online and in stores, keeping prices consistent across channels, or using retailers for fulfillment and returns. Those approaches let the brand grow its direct channel without signaling to retailers that it intends to replace them.

How do you think the brand's major retail partners would react if its online store offered prices 10 percent below theirs? I suspect the answer depends on how much of the retailers' traffic the brand drives, since a brand customers seek out has more bargaining power than one they discover on the shelf.

Reply to Brianna

Brianna, your report set the price for a new line of granola bars using cost-plus pricing, adding a 40 percent markup to unit cost, and your cost breakdown was thorough. The textbook presents cost-plus pricing as simple and widely used, which is a fair reason to start there.

I would add what the method leaves out. Kerin and Hartley note that cost-oriented approaches ignore demand and competitors' prices. If similar granola bars sell for $1.25 and your cost-plus price is $1.75, the markup may be accurate yet the product may not sell. If your bars have a distinctive feature, such as high protein from a recognized brand, customers might pay $2.00, and cost-plus pricing would leave money on the table.

The research on price endings adds another consideration. Thomas and Morwitz (2005) found that people judge prices by their left digit, so $1.99 might be perceived very differently from $2.05 even though the difference is small. Checking demand and competitors' shelf prices before settling on the markup would make the price more defensible.

What price do competing bars sell for in the stores where you plan to launch? A quick visit to two or three stores, photographing the shelf tags, would give you a demand check at almost no cost, and it would also show whether competitors use 9 endings, which tells you what shoppers in that aisle are used to seeing.

References

Anderson, E. T., & Simester, D. I. (2003). Effects of $9 price endings on retail sales: Evidence from field experiments. Quantitative Marketing and Economics, 1(1), 93-110. https://doi.org/10.1023/A:1023581927405

Kerin, R. A., & Hartley, S. W. (2020). Marketing: The core (8th ed.). McGraw-Hill Education.

Thomas, M., & Morwitz, V. (2005). Penny wise and pound foolish: The left-digit effect in price cognition. Journal of Consumer Research, 32(1), 54-64. https://doi.org/10.1086/429600