The effects of psychological pricing on price and quality perception

1 | 08-07-2019

The effects of psychological

pricing on price and quality

perception

Master’s Thesis Defense Randi Doddema

s2763427

Supervisor: Dr. L.M. Sloot

Motivation

› Pricing is the most used way to differentiate as a firm (Ellickson & Misra, 2008)

› Good pricing strategy can deliver great profitability to a company (Hinterhuber & Liozu, 2012)

› Subjective perceptions of customers can influence return intention, purchasing behaviour, and brand loyalty (Jiang & Rosenbloom, 2005; Olson & Jacoby, 1972)

› Relatively little is known about the effects of price strategies on subjective consumer perceptions

Literature review (1)

› Two opposing strategies

- Psychological pricing (9-ending); i.e., €1,99 - Round pricing (0-ending); i.e., €2,00

› Nine-ending prices create the illusion of a lower price (Gendall et al., 1997)

› Two theories that support the phenomenon

- Left to right processing (Schindler & Kibarian, 1996; Bizer & Schindler, 2005; Stiving & Winer, 1997)

Literature review (2)

› Research evidence

- Consumers were given a budget of $73; consumers faced

with nine-ending prices thought they could buy significantly more (Bizer & Schindler, 2005)

- Nine-ending is more effective than zero-ending prices in

terms of consumer purchase/sales (Schindler & Kibarian, 1996; Bray & Harris, 2006)

- Nine-ending increases sales of small brands, but extensive

use is countereffective, as it implies inferior quality (Macé,

2012)

› Hedonic level

- Need for justification (Kivetz & Zheng, 2006; Okada, 2013)

› Promotional setting

Conceptual framework

IV: Price ending strategy L1: Rounded price L2: Psychological price H3 MV: Hedonic level of product

L1: High hedonic level L2: Low hedonic level

H1 H2 H5 H4 H6 H7 Control Measures - Purchase frequency

- Supermarket shopping frequency - Age

Hypotheses (1)

DV: Price perception

DV: Quality perception IV: Price ending strategy

L1: Rounded price

L2: Psychological price H3

H1

H2

› H1: A psychological price results in a lower price perception than a rounded price.

› H2: A psychological price results in a lower quality perception than a rounded price.

Hypotheses (2)

› H4: The negative effect of psychological pricing

(9-ending) on price perception is negatively moderated by the hedonic level of the

product.

› H5: The negative effect of psychological pricing (9-ending) on quality

Hypotheses (3)

› H6: The negative effect of psychological pricing

(9-ending) on price perception is negatively moderated by the existence of a

promotional setting.

› H7: The negative effect of psychological pricing (9-ending) on quality

perception is negatively

Methodology

› 2 (price ending strategy) x 2 (hedonic level of

product) x 2 (promotional price setting) between-subjects experimental study

Variable Type Measurement Source

Price perception Dependent variable Four-item 7-point Likert scale (Zielke, 2006)

Quality perception Dependent variable Three-item 7-point Likert scale (Richardson, Dick, & Jain, 1994)

Price ending strategy Independent variable Manipulation: psychological price (9-ending) versus round price (0-ending)

-

Hedonic level of product

Moderating variable Five-item 7-point semantic differential scale

(Voss, Spangenberg, & Grohmann, 2003)

Promotional pricing Moderating variable Manipulation: regular price setting (no discount) versus promotional price setting (25% discount)

-

Purchasing frequency Control variable Scale 0-100% -

Supermarket

shopping frequency

Data (1)

› Sample descriptives

- 111 respondents; n = 444 cases*

* Execution of data checks lead to n = 430 cases

Variable Descriptives

Age μ = 36

Gender 36.0% male,

64.0% female

Income 6.4% much less money 19.1% less money

38.2% equal amount of money 32.7% more money

3.6% much more money Supermarket shopping frequency μ = 42%

Data (2)

› Control variables:

- Differences in price perception based on gender - Differences in quality perception based on age,

income*, and purchase frequency

- No correlations with supermarket shopping

frequency

* Income only significantly influenced toilet paper

Product Price perception Quality

Hypothesis testing (1)

› H1: A psychological price results in a lower price perception than a rounded price.

- One-way ANCOVA analysis  H1 rejected

- In promotional price setting  significant effect

of pricing strategy on price perception

› H2: A psychological price results in a lower quality perception than a rounded price.

- One-way ANCOVA analysis  H2 rejected

- No statistically significant effect in promotional

Hypothesis testing (2)

› H3: Price perception has a positive relationship with quality perception.

- Pearson’s Correlation (r = -.152, p = .002, n =

430)  H3 rejected

› H4: The negative effect of psychological pricing (9-ending) on price perception is negatively moderated by the hedonic level of the product.

- Two-way ANCOVA with interaction

- Non-significant interaction effects H4 rejected

› H5: The negative effect of psychological pricing (9-ending) on quality perception is negatively

Hypothesis testing (3)

- Two-way ANCOVA with interaction

- Non-significant interaction effect  H5 rejected

› H6: The negative effect of psychological pricing (9-ending) on price perception is negatively moderated by the existence of a promotional setting.

- Two-way ANCOVA with interaction

- Non-significant interaction effect  H6 rejected

› H7: The negative effect of psychological pricing (9-ending) on quality perception is negatively

moderated by the existence of a promotional setting

- Two-way ANCOVA with interaction

Discussion

› In a promotional price setting, consumers thought they got a better deal when faced with a rounded price

› The price ending strategy did not influence quality perception

› Negative relationship between price and quality perception

› Only a direct effect of hedonic level on price and quality perception; no moderation

› Only a direct effect of promotional price setting on price perception (ascribed to the lower price); no moderation

Managerial implications

› Managers should be careful when using a

combination of nine-ending price and promotion

Research limitations

› Price perception and quality perception negatively correlated  rang alarms

- Possible explanation: perceived quality is only

influenced by price perception if actual quality is uncertain

› Existing brands were used; prices had to match with the brand

- Result: distinction between two different price

levels throughout the whole study

Future research

› Research was limited because of using existing brands

› Study could be improved by using non-existing brands

- Facilitates a steady price in both a promotion

and no promotion