The Hindu Business Line : Bata, by strategy!

He always places an order at a price, a whole number, which is more than the current market price if he is selling, or lower than the current price if he is buying. His orders do not get executed because of the psychology of prices. What is this?

Products are rarely priced to end in fifties or hundreds. A trouser is priced at Rs 1,299, not at Rs 1,300.

A marketing study shows that nearly two-thirds of product prices end with the digit 9. Bata's pricing strategy may immediately come to your mind.

There are various arguments to explain the psychology behind the pricing strategies. One is that consumers do not pay much attention to the last digits. Kaushik Basu, a US economist, came to a similar conclusion based on his study using game theory. It, therefore, makes sense for firms to end prices with 9 or 99, be it rupees or paise.

Another argument is that an odd-price makes customers believe that a company offers products at the lowest possible price. The rationalists will, of course, choose to differ on this point.

So, what has this pricing psychology got to do with my friend's buy-sell strategies? For some reason, stock prices also behave in a similar manner. When you buy or sell shares, do not use whole numbers.

Suppose you want to buy a share for Rs 200, place a limit order instead at Rs 200.25 or Rs 200.45. Likewise, if you want to sell, place the order at Rs 199.95 or Rs 199.55. The chances of your order getting filled are higher.

(The author is based in Ontario, Canada)

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