Consumer perceptions of price endings and impact on consumer behaviour

Abstract

There is a general awareness that price can serve as a signaling mechanism on non-price aspects of the product such as quality of the retail outlet or fairness of pricing. It has been observed that when consumers process the price of a good, they resort to thumb rules or heuristics to evaluate the price rather than processing the price as a whole number. A number of theories have been proposed about how price endings act as a signal for non price attributes. These may be divided into Level effects and Image Effects .1Level Effects, also referred to as underestimation effects; refer to the skewed perception of price levels due to price endings. Some specific manifestations of the effects are2:· A 9 ending price may be seen as a just below price. This means a price of Rs. 4999may be perceived as just below 5000 bringing it into the 4000 bracket for the consumer· The 1 unit removed from the price may be seen as an indication of the lowest price around, or as a price that has not been changed too much· The 1 unit removed from the price may be perceived as a mark down from a higher number and hence as a discount offered to the consumer. This is related to the Perceived Gain theory that Schindler and Kirby3 tested.· Due to the perception of 9 ending as a discount, 7 endings and 3 endings have been perceived as higher discounts. As a result of the high frequency of 9 endings, 0 endings may be perceived as 1 unit surcharge over the 9 endings, thereby indicating a premium Image effects refer to consumer perceptions of firm behaviour as a result of the price signal. Some manifestations of this effect are:· Since a 9 ending is frequently associated with a sale, the outlet displaying 9 ending prices may be perceived as a low quality store or a discount store · Since a 0 ending is frequently associated with a premium, the outlet displaying 0ending prices may be associated with premium The above examples may suggest that level effects lead to image effects, though that is notthe case. More than a cause and effect phenomenon, the perceptions could be the result ofvarious associations and experiences from the past. Studies carried out in the US and Europe, have uncovered systematic relationships between price endings and consumer perceptions. Schindler and Kibarian4 carried out an experiment where three different catalog versions were sent out by a direct-mail women s clothes retailer. One version had prices ending in 00, one had prices ending in 88 and one had prices ending in 99. It was found that the catalogs with 99 endings generated maximum sales and more interestingly, the catalogs with 88 endings and 00 endings generated similar sales. This indicates that customers attributed similar meanings to 88 endings as to 00endings. If that were true, retailers need not forego the 12 cents profit because consumers did not seem to differentiate strongly between the two! In the Indian context, price ending practices appear to be carried over from western practices. For example, one of the places where the 9 ending is frequently used is seen in displays by the shoe company, Bata. The question of how the Indian consumer perceives these price endings has not been addressed. More importantly, investigation of the effect of price ending of 5 in the Indian context has not been studied at all. If a relationship can be established between price endings and consumer perception, it can have a significant managerial implication in terms of signalling. In our understanding of price ending as a concept, we look at literature presented on price endings in the US context first.