The Left Digit Effect in Pricing Strategy Essay Example for Free

The Left Digit Effect in Pricing Strategy Essay Have you ever come across price tags that have 9 endings? Have you ever bought those merchandise with 9 endings thinking that was the best deal and ended up with an enormous bill? Do you notice that the 9 endings are usually printed in a much smaller size than the digits on the left? This is a result of a psychological concept called â€Å"The Left Digit Effect† in which people tend to pay more attention to the left-most digits than the ones on the right. The idea has been widely used for decades for its great impact on consumers’ shopping behavior. Nine endings can easily be seen everywhere: stationeries of $1. 99, $4. 99 in bookstores, cars of $2,999, $5,999 in a dealership, real estates of $199,999, $299,999 on the market. It is interesting how such a small change can make a price tag seem significantly lower than another one of just one cent or one dollar higher, as well as greatly affect consumers’ decision. Even the smartest shoppers can fall for this little trick. For a lot of times I found myself wondering why I bought goods of the best prices but ended up with a large bill. Later I realized that I had fallen victim of the usage of the left digit effect in pricing strategy. However, it is fascinating to learn about how the application of such a simple effect turns out to have a great impact on people’s mind without their even being aware of it. The left digit effect can be simply defined as people’s paying disproportionate attention to the digits on the left compare to the ones on the right. This results from human’s instinct of reading from left to right. Another possible reason is that the encoding processes in human’s mind start before people even finish reading all of the digits. They tend to think fast in order to move on with other things, so they underestimate the importance of the right digits and make the digits on the left the magnitude. Taking advantage of that, companies and producers apply the effect in pricing strategy. That was the point when 9 endings were brought into the market. One reason to account for such a wonder that the 9 endings are doing to businesses is the difficulty of adding up odd numbers. People are more familiarized with the decimal number system which consists of 10 numbers. As a consequence, the appearance of 9 endings in prices is a great change in people’s ability to do the math. They make it much harder to control the total spending as people are used to dealing with round numbers. For example, it is obviously easier to add 300 and 200 than 299 and 199, as the first one is 500 and the second one is 498. When not being able to add up the prices, people are unaware of their total spending. Most of the times, consumers just ignore the 9 endings rather than do the proper rounding. Even though the cents are seen but they are partially ignored because the brain starts encoding information immediately after the left-most digits are read. A theory proposed by Keith Coulter – Associate Professor of Marketing at Graduate School of Management, Clark University – said that the effect can be enhanced provided the cents are printed in a smaller size than the dollar part, so the cents are more likely to be ignored or partially ignored by fast-thinking customers. A common viewpoint of the effect’s psychological impact is that the 9 endings lead consumers to believe that goods are marked at the lowest price possible and that it is the best deal out there. When they check out, that is when a concept called cognitive dissonance takes effect. In other words, when having to decide between two conflicting outcomes, people have a tendency to choose the one that makes them feel happier about their choice. Ending up with a huge bill, they often defend themselves that it’s worth the money and what they bought was a good bargain. Also, 9 endings play an important role when it comes to price bands. One cent or one dollar drop can make the price appear in the lower price bands and therefore be seen by more potential customers. For instance, an old car of $1,999 will still be placed in $1,000-$2,000 price band though it’s just a dollar to the next price band. As a result, it can be seen by customers who want cars in the $1,000-$2,000 range, besides the ones who want cars above $2,000. However, the left digit effect has been proved to only work if the left-most digit changes. In other words, consumers become more sensitive to price changes when the one cent drop results the left digit of the prices to change. To clarify the idea, in a small survey which I carried out in Southeast campus of Houston Community College with 21 students, when being asked to choose between two pens of $3 and $3. 99, the participants showed no clear preference over which one they like better. However, when the prices were changed to $4 and $3. 99, 17 out of 21 participants reported that they would choose the second pen because â€Å"it was cheaper†. Although there was a whole dollar difference compare to just one cent after the change in prices, the participants become more sensitive about how much money they spend when the left-most digit changes. When the brain quickly scans the prices, the same left digits will make one think that there is no significant difference between them although it was the right digits that determine the difference. However, if the left digits change, even though the right digits make them just one cent different, the brain automatically defines a big gap between the two prices and therefore lead people to choose the one whose left digit is lower. The research has provided me with an in-depth view of the psychological impact of the left digit effect in pricing strategy. Before conducting the project, all I thought of the 9 endings was that they would make prices seem lower and therefore more appealing to potential customers. However, after doing a deep research on the topic, I’ve learned a lot more than I thought I would. I’ve learned that the effect originates from human’s thought processes itself: the brain starts encoding the information immediately before we even finish reading all of the digits, and that the 9 endings don’t always work but need an important condition for them to take effect: the left digit changes as a result of the one cent or one dollar drop . It also amazed me how people’s decision and shopping behavior are influenced and determined by such a small effect without their being aware of it, and how the application of such a little thing can do wonder to businesses. The left digit effect itself is linked with other interesting psychological effects that trigger me to search for more knowledge. Rather than just a surface learning, I was able to go deep into the root of the issue and learn about its true nature. However, I think the most important thing that I was able to learn from doing this research is how to look at familiar things in a daily routine from a psychological viewpoint and analyze them through that viewpoint.