Perception of odd prices in a post-soviet country: an impact of the ideology of planned economy.
Dikcius, Vytautas ; Katkuviene, Kristina
Reference to this paper should be made as follows: Dikcius, V.;
Katkuviene, K. 2014. Perception of odd prices in a Post-Soviet country:
an impact of the ideology of planned economy, Journal of Business
Economics and Management 15(2): 356-368.
JEL Classification: M30, M31.
Introduction
A price was, is and will be one of the most important criteria
which influences consumers' purchasing decisions. This is common to
different countries, because the market economy cannot exist without
prices. A profit is the main goal of pricing for a number of companies.
However, pricing is an important activity when the companies going to
win a bigger part of a market react to actions of competitors, in
survival or image development. Obviously, companies expect a
corresponding consumer's reaction to their pricing. Unfortunately,
sometimes consumers react differently to a company's pricing
activities. Consumers perceive a price subjectively, depending on their
experience with a certain product. In some cases they compare the
current price with the prices in the past or with the prices which they
remember or even imagine. Finally, the perception of a price depends on
the purpose of purchasing or importance of a product in a certain
situation. Due to a variety of consumers companies developed different
strategies of pricing (Snieskien? 2009).
One of such strategies is an odd price. Odd prices are sometimes
referred to as psychological prices (Schindler, Warren 1988), magic
prices, charm prices, irrational prices, intuitive prices or
rule-of-thumb prices (Folkertsma 2002; Gendall et al. 1997), as well as
odd prices or prices which end with number 9 (Guido, Peluso 2004).
Wagner and Beinke (2006) separate two types of odd prices--odd-odd
prices (29.99 or 29.95) because they are just below the line 30.00 and
simple odd prices as 30.99 or 30.95. However, their general
characteristic is that they are set just below the nearest round figure
for example, 9.99 instead of 10.00 (Gendall et al. 1997).
Evidence of odd pricing can be traced back more than 100 years
(Schindler, Wiman 1989). One of the explanations for the introduction of
odd pricing is that it arose as a measure to help combat theft by
employees (Hogl 1988). Odd prices were adopted to force salespeople to
issue change and thereby make it difficult for them to pocket the
customer's payment without recording a sale (Gendall et al. 1997).
Nowadays usage of odd prices is based on one of the underlying
assumptions which encourages retailers to apply those prices so that
consumers may consider odd prices as lower and these prices can have
positive effects on sales (Ngobo et al. 2010).
Prior researches reported an intense practice of this method, with
the percentage of prices ending in the digit 9 ranging between 52% and
80% (Mace 2012). Suri et al. (2004) point that odd prices dominate in
various areas of trade, across different products. However, Suri,
Anderson and Kotlov (2004) mentioned that the studies related to odd
prices were done mainly in the USA or other developed countries.
Schindler (2009) noticed intensive use of odd price in the USA and other
English-speaking countries. Wagner and Beinke (2006) added that even
though odd prices are noticeable in different countries, they are more
popular in western countries. Nguyen et al. (2007) agree that perception
of odd prices could be not the same in different markets. They noticed
that odd prices create an effect of cheapness more often in low context
countries (for example, western cultures) than high context countries. A
research performed by Hooley et al. (2000) proved that pricing
strategies used in Central European countries (postsoviet countries)
were not clear. The reason for that was Eastern European countries being
under an impact of the Soviet ideology, which says that a price is an
amount of money paid for a product. Moreover, there was no need for
competition and ability to sell more products since companies worked in
the planned economy and a shortage of goods was obvious. According to
Usunier (1996), 50 years of the Soviet ideology and the planned economy
created a cultural heritage, which caused specific perception of
marketing strategies brought from Western Europe and the USA (Usunier
1996). Asamoah and Chovancova (2011) noticed that Czech consumers
preferred odd prices compared with other endings of a price. However,
the authors explain the reason for such preference was due to the fact
that odd prices were used very often by retailers and such pricing
strategy became a norm (Asamoah, Chovancova 2011). Lithuania was a part
of the Soviet Union in contrast to Czech and Poland which were just a
part of the block of Soviet countries and remained independent
countries. A stronger impact of the ideology of planned economy and 15
years of usage of odd prices by retailers provide a strong background to
believe that Lithuanian consumers perceive odd price differently than
the literature suggests. The aim of this paper to understand
Lithuanians' attitudes toward odd prices and check their
correspondence to those presented in the literature.
1. Theoretical background
1.1. Perception of odd prices--level effects
Previous researches showed that odd prices might have a positive
impact on sales. The authors (G. A. Brenner, R. Brenner 1982; Holdershaw
et al. 1997; Lambert 1975; Nagle, Holden 1995; Naipaul, Parsa 2001;
Quigley, Notarantonio 1992; Schindler 1984, 1991; Schindler, Kibarian
1993, 2001; Schindler, Kirby 1997; Schindler, Wiman 1989; Stiving, Winer
1997) analyzed how odd prices impacted cognitive processes related to
the information of a price and how these processes should increase the
curve of demand. Guido and Pelluso (2004) say that an effect of the
right number exists only due to consumers' interpretation. Stiving
and Winer (1997) split these cognitive processes into two categories:
level effects and image effects. Level effects explain how odd prices
can lead consumers to underestimating prices during perception and/or
retrieval of price information from a memory (Guido, Peluso 2004;
Gaston-Breton 2011). The original and most common explanation is related
to underestimation of a price. Consumers tend to round these prices to
down during perception (Alpert et al. 1984; Lambert 1975; Schindler
1984; Schindler, Warren 1988). Another explanation is related to the
fact that consumers compare prices from left to right comparing two
numbers among themselves (Monroe 1973). Some authors call such effect a
left numbers effect (Thomas, Morwitz 2005; Basu 2006). Stiving and Winer
(1997) argued that left numbers had bigger impact on perception of a
price than right numbers. Liang and Kanetkar (2006) noticed that
consumers did not evaluate a price as one number, but they understand a
price as a set of numbers and evaluated each number separately. The
third factor which explains level effects is related to the limited
memory capacity of human beings and limited ability to remember numbers
of a price. G. A. Brenner and R. Brenner (1982) say that as consumers
are exposed to continuous information on a price they only store the
most valuable message which they perceive as the first digits of a
number. Finally, the concept of accessibility is important because if a
mental representation comes to mind more easily, then the representation
is likely to be used in thought more frequently. Studies that require
respondents to generate numbers clearly point to 0-ending numbers as
having greater cognitive accessibility (Hornik et al. 1994; Hultsman et
al. 1989). It means consumers store even prices in their memory.
Therefore, trying to compare a new odd price with existing one in a
memory, consumers perceive an odd price as smaller (Schindler, Kirby
1997; Boyes et al. 2007).
1.2. Perception of odd prices--image effects
Odd prices are related to image effects as well. Image effect
explains how consumers perceive meaning through the rightmost digits of
a price. This effect is related to an image of the price or to an image
of the product. An image of the price indicates that products with odd
prices will be perceived as cheaper. Bizer and Schindler (2005) state
retailers who believe that consumers give insufficient consideration to
the rightmost digits would view odd prices as a simple way to create
lower-price perception. Talking about an image of the price, an odd
price can be associated with a price discount. This effect can derive
from the fact that consumers may tend to drop off, or give less
attention to the rightmost digits of a price; thus, perceptually, they
underestimate the level of an odd price (Schindler, Kibarian 1993).
Quigley and Notarantonio (1992) argue that consumers who saw an
advertisement with a 99 or 98 ending price were significantly more
likely to judge the advertised product as "probably on sale"
than were those who saw the same ad with a 00 ending. Schindler and
Kibarian (2001) determined that when an item was displayed with a 99
ending price rather than 00 ending price, consumers were more likely to
judge the item to be "on sale". Another effect of an image of
the price is associated with a possibility to save money or buy a
product for lower price. Since consumers perceive that it is possible to
buy a necessary product for a very "good" price during sale
promotions, thus an odd price, which usually is used during that time,
will show for consumers which products will have a possibility to save
money.
Ngobo, Legoherel and Gueguen (2010) agree that a price with ending
99 is very often used as sales promotion and due to that consumers may
perceive an odd price as a way to save money. The following hypotheses
were formulated to point out that odd prices communicate lower-price
perception:
H1: products with odd prices will be perceived as discounted
products.
H2: odd prices are associated with getting money back.
H3: odd prices are perceived as a mean for saving money.
Image effects are related to perception of the quality of products.
Usually odd prices create an image of low quality of products. Such
effect is created because odd prices are used in a discount store very
often (Stiving 2000) or can be related to products on sale, when
retailers sell products that are far from the best quality (Rao, Monroe
1988). According to Stiving (2000), a price is very often used as a
criterion to evaluate the quality of a product. Therefore,
retailers' efforts to show a product cheaper have a negative
effect--a low price indicates a poor quality of the product for
consumers. Baumgartner and Steiner (2007) argue that high quality of a
product is more associated with even prices (00 ending) than with odd
prices (99 ending). However, Fortin et al. (2008) didn't prove that
odd prices were associated with lower quality of products. At the same
time the authors agreed that their results differed from the previous
research and they expected the reason for that was the sample profile in
their research--the research was done among students, who were more
price sensitive that other consumers. That enables us to formulate the
next hypotheses:
H4: odd prices will be perceived as lower quality products.
H5: odd prices will be associated with cheaper products rather than
expensive.
As it was mentioned in the introduction, different countries have
unequal experience of using odd prices. Consumers habituate to odd
prices and evaluate them as ordinary actions if odd prices are used for
a long time. Contrariwise, a new marketing tool as every innovation can
cause distrust in odd pricing, due to insufficient experience of
consumers.
H6: odd prices are associated with cheating.
Baumgartner and Steiner (2007) mentioned that consumers evaluate
prices differently some of them like prices with endings 99, while
others vote for a 00. Kleinsasser and Wagner (2011) presented one of
possible explanations--perception of a price depends of a
consumer's involvement level. The authors specified that consumers
with a high level of involvement will pay more attention to even prices
while odd prices would be more suitable for consumers with a low level
of involvement (Kleinsasser, Wagner 2011). Quester and Lim (2003) stated
that two categories of products--convenience goods and shopping
goods--usually have different level of involvement. Convenience goods
are usually perceived as goods which require a low level of involvement.
On the contrary, consumers spend more time when they consider purchasing
shopping goods. With regard to the analyzed literature we developed the
additional hypothesis.
H7: perception of odd prices is more suitable for convenience goods
than for shopping goods.
Ngobo et al. (2010) argued that odd prices didn't increase
sales of expensive goods while in the case of cheap products they
noticed an increase in a number of clients. In addition to this, Mace
(2012) says that a bigger amount of products with an odd price is
purchased in shops whose clients have higher income per household. We
can assume that a price level might be related to the perception of an
odd price. Therefore we add one more the hypothesis:
H8: perception of odd prices decreases as price level increases.
2. Research methodology
The main objective of the research is to study how consumers
perceive odd prices and evaluate the correspondence of our findings with
those from developed countries. The study included three major
categories of products: convenience goods (like food, nonalcoholic
beverages, and toothpaste), clothes, and domestic appliances
(representing shopping goods and a different level of price). In
addition, we selected four different levels of a price--less than 10 LTL
(approx. 3 EUR), 10-100 LTL (approx. 3-30 EUR), 100-1,000 LTL (approx.
30-300 EUR) and 1,000-10,000 LTL (approx. 300-3,000 EUR) in order to
measure perception of a price at various levels of the price.
The instrument for the survey was developed by integrating
literature on odd price perception. Statements were developed according
to statements used by Coulter (2002), Gueguen and Legoherel (2004), Hunt
and Keaveney (1994). The statements were as follows: "I think an
odd price is suitable for goods with a price "I prefer a product
with a price 6.99 to that with a price of 7.01 (for convenience
products), 69.99 to 70.11 (for clothes), and 699.99 to 700.11 (for
domestic appliances)", "I think that an odd price represents a
product with a discount", "An odd price means getting
change", "An odd price enables me to save money",
"Products with an odd price are worse in quality", "I
think that odd prices are used more for cheap products than for
expensive ones in the same category of products", "I associate
an odd price with cheating". All statements were measured on a
five-point scale, ranging from 1--"strongly disagree" to
5--"strongly agree". The questionnaire included the typical
demographic characteristics (gender, age and income).
Respondents were selected using a method of judgmental sampling,
the survey was performed by sending the questionnaires by e-mail. 207
Lithuanians participated in the research. The respondents represented
various groups by their personal income (see Table 1).
The sample included 66% of female and 34% of male respondents.
Almost a half of the respondents were 18-29 years old and 38% of the
respondents 30-39 years old, which means that the sample represented
quite young people, who had limited experience of Soviet ideology. Only
12% of respondents were 40 years old and older. Their income was
measured subjectively, based on a five point scale from very low to very
high. That was done because one can earn 5,000 LTL and have 4,000 LTL of
liabilities for financial institutions while another has income of 2,000
LTL and can use it for his own needs. Almost 30% of respondents assigned
themselves to people with low or very low income and the same part
evaluated their income as average, while the balance part thought they
were rich or very rich. Other demographic characteristics of the
respondents were not considered.
3. Research findings
The respondents evaluated all the statements below average, which
means that they didn't agree with the presented statements (see
Table 2). The respondents stated that they did not associate an odd
price with a discount, with lower quality of products, with getting
change, or with cheating. According to them, an odd price is used for
cheaper products as well as for expensive ones in the same category of
products, but these prices did not let save money. Such results
significantly differ from the findings of other research in developed
countries. Therefore we can conclude that respondents do not have clear
understanding of usage of odd prices.
Repeated measures ANOVA with the Greenhouse-Geisser correction
determined that the means of statements differed statistically
significantly (F(3.607, 743.012) = 12.375, P < 0.01). Post hoc tests
using the Bonferroni correction revealed that the statement was
statistically significantly different in the case of statements
"Odd price means getting change", "I associate an odd
price with cheating" and other statements (P < 0.05). Even
though the respondents denied an association of odd price with getting
change and cheating, these two statements had the highest evaluations.
Another important finding was that respondents disagree with the
statement "Products with odd prices are worse in quality" and
the statement was statistically significantly different from other
statements (P < 0.05). So, we can conclude that findings do not
support hypotheses H1-H6. These findings contradict the data presented
in the literature analysis. One of possible explanations was presented
in the introduction. Most of the research related to odd prices was done
in the USA and Western Europe or other developed countries. Lithuania
might represent a case of a post-Soviet country that was influenced by
the Soviet ideology.
In addition to that we can evaluate the perception of odd prices
across different categories of products. Repeated measures ANOVA with
the Greenhouse-Geisser correction determined that the mean of the
statement "Odd price represents a product with a discount"
differed statistically significantly between product categories
(F(1.706, 351.445) = 8.997, P < 0.01). Post hoc tests using the
Bonferroni correction revealed that the statement was statistically
significantly different (is less associated with a discount) in the case
of convenience products than in the case of clothes (Mconv = 2.29 vs.
Mcloth = 2.55, P < 0.05), and statistically significantly different
(is less associated with a discount) in the case of domestic appliances
than in the case of clothes (Mdomest = 2.40 vs. Mcloth = 2.55, P <
0.05). However, evaluation of statement "Odd prices represent a
product with a discount" was not statistically significantly
different in the case of convenience products and domestic appliances (P
= 0.405). That shows the respondents do not expect to find odd prices on
discounted convenience products, but they tend to associate odd prices
with discounted shopping products.
Next statement related to perception of odd prices was concerned
with using odd prices for cheaper products. Repeated measures ANOVA with
the Greenhouse-Geisser correction determined that the mean of the
statement "Odd prices are used more for cheaper products than
expensive ones in the same category of products" differed
statistically significantly between product categories (F(1.700,
350.269) = 4.570, P < 0.05). Post hoc tests using the Bonferroni
correction revealed that the statement was statistically significantly
different (is more suitable for cheap products) in the case of
convenience products than in the case of domestic appliances (Mconv =
2.54 vs. Mdomest = 2.37, P < 0.05). However, evaluation of the
statement was not statistically significantly different between
convenience products and clothes (P = 0.473), and between clothes and
domestic appliances (P = 0.156). We can state that the respondents
prefer to assign odd prices to cheaper products in the case of
convenience products than in the case of shopping goods.
Other three statements did not differ depending on a type of
product. Repeated measures ANOVA with the Greenhouse-Geisser correction
determined that the mean of the statement "Products with odd prices
are worse in quality" did not differ statistically significantly
between product categories (F(1.818, 374.463) = 0.251, P = 0.757). The
mean of the statement "Odd price means getting change" did not
differ statistically significantly between product categories (F(1.717,
353.754) = 3.385, P = 0.051), either. Finally, repeated measures ANOVA
with the Greenhouse-Geisser correction determined that the mean of the
statement "Odd price enables me to save money" did not differ
statistically significantly between product categories (F(1.819,
374.722) = 1.200, P = 0.300).
Repeated measures ANOVA with the Greenhouse-Geisser correction
determined that the mean of the statement "I associate an odd price
with cheating" differed statistically significantly between product
categories (F(1.647, 339.228) = 9.346, P < 0.01). Post hoc tests
using the Bonferroni correction revealed that the statement was
statistically significantly different (respondents present a higher
level of association of an odd price with cheating) in the case of
convenience products than in the case of domestic appliances (Mconv =
2.68 vs. Mdomest = 2.50, P < 0.01) and statistically significantly
different (respondents present a higher level of association of an odd
price with cheating) in the case of clothes than in the case of domestic
appliances (Mcloth = 2.60 vs. Mdomest = 2.50, P < 0.05). However,
evaluation of the statement "I associate odd price with
cheating" was not statistically significantly different in the case
of convenience products and in the case of clothes (P = 0.205).
Repeated measures ANOVA with the Greenhouse-Geisser correction
determined that the mean "Odd price is suitable for a price
..." differed statistically significantly between all categories of
a price (F(1.630, 261.894) = 105.191, P < 0.01) (see Table 3). Post
hoc tests using the Bonferroni correction revealed that the statement
was statistically significantly different (respondents present a higher
level of suitability) in the case of prices lower than 10 LTL compared
with that of 10-100 LTL (M10 = 3.69 vs. M100 = 3.29, P < 0.01). That
indicates respondents' expectation to see odd prices if a product
costs less than 10 LTL. According to respondents, odd prices are still
differs compared with the level of a price 100-1,000 (M100 = 3.29 vs.
M1000 = 2.50, P < 0.01). Finally, respondents noticed that the
interval of a price between 1,000 and 10,000 LTL is the least suitable
for odd prices, since it statistically significantly differs from a
price level 100-1,000 LTL (M1000 = 2.50 vs. M10000 = 2.20, P < 0.01).
So we can conclude that H8 was supported.
Repeated measures ANOVA with the Greenhouse-Geisser correction
determined that the mean "I prefer a price ..." differed
statistically significantly between the levels of the price (F(1.717,
36.853) = 18,149, P < 0.01). Post hoc tests using the Bonferroni
correction revealed that the statement was statistically significantly
different (odd prices were preferred more) in the case of 6.99 than in
the case of 69.99 (M6.99 = 3.13 vs. M66.99 = 2.75, P < 0.01) and
different (odd prices were preferred more) in the case of 6.99 than in
the case of 699.99 (M6.99 = 3.13 vs. M699.99 = 2.75, P < 0.01).
However, evaluation of the statement "I prefer the price ..."
was not statistically significantly different in the cases of 69.99 and
699.99 (P = 1.000).
Conclusions
The respondents evaluated all statements below average, which means
that they did not agree with the presented statements. These findings do
not support the hypotheses H1-H6. The respondents stated that they did
not associate an odd price either with a discount, with lower quality,
with getting change, or with cheating. According to them, odd prices are
used for cheaper products as well as for expensive ones in the same
category of products, but these prices do not let save money. Our
results differ from the findings of other studies in developed
countries. Therefore we can conclude that a strong impact of the
ideology of the planned economy and 15 years of usage of odd prices by
retailers caused a different attitude of Lithuanian consumers towards
odd prices.
The respondents did not associate odd prices with cheating, but the
statement "I associate odd prices with cheating" had one of
the highest evaluations. Therefore we can guess that respondents
intuitively perceive odd prices as something negative. Moreover, the
respondents showed a higher level of association of odd prices with
cheating in the case of convenience products than in the case of
domestic appliances. It is obvious, since convenience products are
purchased every day and consumers have more experience with these
products. By contrast, the respondents associated odd prices with
discounted products in the case of shopping goods. Since consumers spend
more time purchasing shopping goods than convenience goods they pay more
attention to prices and situations when odd prices are used more often.
Even though Lithuanian consumers have a different attitude about
odd prices, their behavioral experience fits the results of the research
from developed countries. Respondents expected to find odd prices if the
product was less than 10 LTL or 10-100 LTL, but higher prices were less
suitable odd prices. Finally, the respondents showed their behavioral
intentions related to odd prices. The participants noticed that they
would prefer odd prices in the case of cheap products (6.99 or 7.01
LTL), but odd prices would not be preferable in the case of more
expensive products (69.99 or 699.99 LTL). Thus, we can conclude that the
behavioral component of attitude corresponds to the results of other
research.
Several limitations of the research would be worth mentioning.
First of all, demographic data of the respondents show that a big part
of respondents evaluated their income as high or average. Since the
perception of a price might be related with the respondents' income
we received quite positive attitude toward odd prices. Moreover, the
main part of the respondents was between 18 and 39 years old, which
mainly represented the population of young consumers. Finally, the
research was done during the recession of Lithuanian economics, which
could have had impact on the results as well. Therefore it would be
worth evaluating attitudes toward odd prices in other post-Soviet
countries.
doi: 10.3846/16111699.2013.833545
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Vytautas DIKCIUS, Prof. Dr, is a Full Professor at the
International Business School at Vilnius University, in Lithuania. He
studied Business and Economics at the Vilnius University. He has
published over 20 articles in both national and international academic
journals and two books on marketing research. Research interests:
consumer behavior, sensory marketing, pricing, corporate social
responsibility.
Kristina KATKUVIENE has been working in the manufacturing and
service rendering company in Lithuania for more than ten years and for
the recent five years she has been managing the Marketing Department.
She graduated International Marketing and Trade studies and was awarded
a Master's Degree in Management and Business Administration. She is
the co-author of two researches (Importance of Packaging in Different
Segments of the Market and Actions Reducing the Resistance to
Organizational Changes in Advertising Companies).
Vytautas Dikcius [1], Kristina Katkuviene [2]
International Business School, Vilnius University, Sauletekio al.
22, Vilnius, Lithuania E-mails: [1] v.dikcius@gmail.com (corresponding
author); [2] kristina@fesla.lt
Received 08 April 2013; accepted 07 August 2013
Table 1. Sample profile
Gender Percent Age (years) Percent Incomes Percent
(subjective
judgement)
Male 34 18-29 49.3 Very low 7.7
Female 66 30-39 38.2 Low 22.2
More than 39 12.6 Average 30.9
High 31.4
Very high 7.7
Table 2. Respondents' attitude about odd prices
Overall Convenience
products
Odd price represent a product 2.41 2.29
with a discount
Odd prices are used more for cheaper 2.46 2.54
products than expensive in the
same category of products
Products with odd price are worse 2.18 2.16
quality
Odd price means getting change 2.65 2.72
Odd price enables me to save money 2.32 2.29
I associate odd price with cheating 2.59 2.68
Clothes Domestic
appliances
Odd price represent a product 2.55 2.40
with a discount
Odd prices are used more for cheaper 2.47 2.37
products than expensive in the
same category of products
Products with odd price are worse 2.19 2.19
quality
Odd price means getting change 2.66 2.58
Odd price enables me to save money 2.31 2.37
I associate odd price with cheating 2.60 2.50
Table 3. Suitability of odd price depending of price level
Mean Std. deviation
Less than 10 Lt 3.69 1.155
10-100 Lt 3.29 1.067
100-1000 Lt 2.50 1.083
1000-10000 Lt 2.20 1.214
Table 4. Suitability of odd price depending of price level
Mean Std. deviation
I prefer a price 6,99, than 7,01 3.13 1.100
I prefer a price 69,99 than 70,11 2.75 1.053
I prefer a price 699,99 nei 700,11 2.75 1.124
