An Empirical Analysis of Price Endings with Scanner Data

Abstract

Several consumer behavior theories have been offered to explain the preponderance of prices that end in the digit 9. This study attempts to incorporate these proposed behaviors into the implicit utility function of consumer choice models, resulting in both a more accurate tool for managerial decision making and additional insights into how consumers actually behave toward price endings. An attempt is made to compensate for both level effects (those effects in which consumers may underestimate the value of a price) and image effects (those effects in which consumers may infer meaning from the right-hand digits). The models are estimated using scanner panel data for two frequently purchased products, tuna and yogurt. The results support the importance of accounting for the digits in consumer choice models, providing evidence for both image effects and level effects.