The Price is Right

The Price is Right

Economists and psychologists have long been studying consumer behaviour. It seems that it all begins with the price tag.

The first price tags

Commerce was once conducted primarily by haggling, or bargaining, over prices. Today, this remains customary in the West, mainly in open-air markets and, occasionally, for costly items like cars. Otherwise, fixed prices are the norm. It is John Wanamaker who is often credited with pioneering fixed pricing and the price tag in 1861 in his men’s clothing shop in Philadelphia. To help customers accept fixed prices, he also offered them refunds in cash for items that were returned. He retained these practices when, in 1876, he opened Wanamaker’s, one of the first American department stores. Eventually, fixed prices and price tags became common throughout the States and abroad.

Comparison shopping

Nowadays, it’s quite common to see “explicit comparison” displays in shops. These highlight the price differences between similar products. Unlike what you might assume, however, these don’t necessarily work in favour of the lower-priced products. Some economists and psychologists believe that this occurs because explicit comparison displays make consumers question the quality of the lower-priced items. However, the results are very different with “implicit comparison” – that is, when customers compare prices themselves.

Prices ending in 9

Would you be more likely to buy a pizza if it cost €7.99 instead of €8.00? Well, in one French study, that one-cent drop in a pizza price increased sales by 15%! This is an example of “the 99 effect”, and the usual explanation for it is that customers pay more attention to the main figure in a price than to its ending.

But there’s more to it than that. While researching adverts, Robert Schindler, an expert on “the 99 effect”, found that in the late 19th-century, American shops used the 99-cent ending only for items that were on sale. It was about a century ago that it became common for regular prices – presumably to imply that something was a bargain. A non-decimal 9 also seems to work: in one experiment done in the US, a dress originally priced at $34 had a 33% increase in sales when its price was raised to $39!

The next time you shop, pay attention to how displays and price tags affect your choice of purchases.

(Living English 2 Bachillerato Workbook, Elizabeth Grant and Kaitlin Edwards, Burlington Books)