Duncan Simester of the MIT Sloan School of Management is known for fascinating research on consumer buying behavior, much of it specific to the direct marketing industry. I’ve written about some of his studies in the past, including the surprising long-term impact of discounting and the long-term impact of traditional circulation plans.
I recently came across another interesting study by Simester on the use of $9 price endings. This study was done on two women’s clothing catalogs. In four separate tests, randomly selected samples of customers received catalogs that had different prices on several items.
Study results showed that a price ending in $9 increased demand by as much as 10% to 20% over prices both $5 higher and $5 lower (for instance, $49 vs. $54 and $44). The increase was greatest for new products and those that were purchased infrequently. It appears that, when consumers don’t know what a “normal” price is, they view a $9 price ending as a cue for a sale, and respond accordingly.