Systematic surveys of the pricing strategy of retailers in the retail advertisement confirm the familiar observation that retailers are likely to prefer the prices that fall below a round number (Schindler and Kirby 1997, Kreul 1982). This strategy results in the frequent use of the digit 9 among the right most digit of a price, for example $12.99 rather than $13.00. Although, it has been expected that such pricing strategy (i.e. $12.99) can increase the sales substantially compare to the other pricing method (i.e. $13.00) (Kalyanam and Shively 1998). However, it has not been clear how actually it occurs. One possible explanation of increased sales is the image that 99 price ending communicate to consumers. If the 99 pricing communicate the favourable image, and that is not counteracted by the unfavourable quality image that might increase the sales.
A favourable price image to the retailer is the impression of the consumer that the price is comparatively low. It has been argued that the 99 price ending communicate such low price image to consumers (Harper 1966, Bliss 1952). One of the reasons for perceived low price image of the 99 price ending is that consumers pay less attention to the rightmost digits of the price, and underestimate the level of price (Schindler and Kibarian 1993). On the other hand, consumers create meaning from how price endings are used in the market by the retailer. The nine-ending prices are more often used for the discount prices rather than for regular prices, and seem to used more often by lower priced retailers than the higher priced retailers (Stiving 2000, Huston and Kamdar 1996).
Previous literature provides the support that 99 ending price communicate a low price image. In one of the studies, Quigley and Notarantonio (1992) have compared the responses of the undergraduate students to retail advertisement that used 00 ending, a 99 ending, or a 98 ending pricing strategy. They reported that those subjects exposed to ad with 99- or 98-ending price were significantly more likely to evaluate the advertised product “on sale” than those who exposed to ads with 00 ending.
Schindler (1984) examines the price endings effects on the ability of a subject to recognize whether a price had increased over a one-week period. He reported that undergraduate students were more likely to evaluate that price has not been increases when the 99 or 98 ending prices were expresses than the 00 ending price. Thus, this finding indicates that the 99 or 98 price endings communicate the image of the price that has not been increased.
The 99 ending price may also communicate the unfavourable quality image to the customers (Nagle and Holden, 1995). It may be possible that the negative image of the retail store or product quality may be the consequence of the 99 ending low price image. Because, it seems that sometimes consumers may also judge the quality on the basis of the price, and...