By Mark Bergen
While it has been traditional to view the price system as a kind of "economic autobahn," with prices adjusting rapidly to changes in supply and demand, new research has uncovered a surprising new stop light on the pricing superhighway - the number 9.
Over 8 years Professor Mark Bergen and colleagues weekly tracked scanned prices of 29 product categories sold at a Midwestern supermarket chain. They followed 474 consumer electronic goods sold on the internet for 2 years. The results showed that the number nine is the most frequently used end number for the penny, dime, dollar, and ten-dollar digit.
"Those 9-ending price points are quite resistant to change, acting like a stop light on price movement," says Bergen. The 9-ending values stay constant while other numbers change far more frequently. "When 9-ending prices do change, when the light turns green, the size of the change is larger, and is often in multiples of dimes, dollars, and ten dollar increments."
While the ubiquity of these 9-ending values, and their role in price rigidity, has been part of the folklore of pricing, the paper, "Price Points and Price Rigidity," by Bergen and co-authors Daniel Levy (Bar-Ilan University), Dongwon Lee (Korea University), Haipeng Chen (Texas A&M University), and Robert J. Kauffman (Arizona State University), is the first to document the link between price points and price rigidity across so many products, stores, price levels, and retail formats. This leads to entirely new ways of thinking about the price system.
"Perhaps it is better to think of prices as moving through city streets during rush hour, rather than a superhighway. They are often resting at price points, waiting there until the lights change, then moving quickly to the next stop light in intervals of dimes and dollars," says Bergen. "Look at the price of the products you buy," says Bergen, "check to see if it ends in a 9. More often than not it does. And the price may remain the same for a long time, but if it does change it won't be by just pennies."
Mark Bergen teaches the Strategic Pricing program for Carlson Executive Education.
Reprinted with permission of the Institute for Research in Marketing, Carlson School of Management, University of Minnesota. More information on the Institute can be found at www.carlsonschool.umn.edu/marketinginstitute