Zero-Ending Prices, Cognitive Convenience, and Price Rigidity

TL;DR

This paper investigates why 0 ending prices are prevalent and rigid in convenience stores, revealing they boost demand not just through transaction ease but also via cognitive simplicity, supported by extensive retail data analysis.

Contribution

It demonstrates that 0 ending prices are popular and demand-enhancing in convenience settings due to cognitive convenience, independent of transaction convenience, backed by large-scale retail data.

Findings

0 ending prices are more common in convenience stores despite limited transaction convenience.

0 ending prices positively influence demand in retail settings.

Popularity of 0 ending prices is driven by cognitive convenience, not just transaction ease.

Abstract

We assess the role of cognitive convenience in the popularity and rigidity of 0 ending prices in convenience settings. Studies show that 0 ending prices are common at convenience stores because of the transaction convenience that 0 ending prices offer. Using a large store level retail CPI data, we find that 0 ending prices are popular and rigid at convenience stores even when they offer little transaction convenience. We corroborate these findings with two large retail scanner price datasets from Dominicks and Nielsen. In the Dominicks data, we find that there are more 0 endings in the prices of the items in the front end candies category than in any other category, even though these prices have no effect on the convenience of the consumers check out transaction. In addition, in both Dominicks and Nielsens datasets, we find that 0 ending prices have a positive effect on demand. Ruling out consumer antagonism and retailers use of heuristics in pricing, we conclude that 0 ending prices are popular and rigid, and that they increase demand at convenience settings, not only for their transaction convenience, but also for the cognitive convenience they offer.