Price Endings in Risky Product Categories

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The following is a review of “Pricing risky services: preference and quality considerations”, an examination of consumer response to pricing endings for ‘risky’ services. The original article was written by researchers Anthony Allred and E.K. Valentin from Weber State University and Goutam Chakraborty, from Oklahoma State University.

Research Purpose

  • To examine if the predominant odd ending pricing practice, proven to be successful in general merchandise categories, can also transfer to special, ‘risky’ categories such as LASIK Eye Surgery services, which pose both health and financial risks.
  • To explore if – and what type of quality concerns – will intervene between price cues and preference.

Research Method

    • A total of 73 undergraduate university students from demographically-diverse backgrounds were recruited and split into three groups with approximately 24 individuals each. An advertisement for LASIK surgery was presented to the three groups. Each group was advertised one of three prices: U.S. $299, U.S.$300 or U.S. $600.
    • Each of the participants was asked to assess the likelihood of selecting the featured provider of LASIK surgery, assuming they needed vision correction. Responses were collected using a 7-point scale ranging from “Not Very Likely” to “Very Likely”.
    • Principal component analysis was employed using the responses from 16 questions. The purpose was to explore the possibility that perceived quality of service due to price ending, can explain why a small price difference in the right-most price digit ($299 vs. $300) has an abrupt impact on preference.

Findings

      • The provider preference is significantly lower when the service was priced at $299 compared to $300.
      • A sharp increase of expected service quality was observed when the price was raised from $299 to $300.
      • Consistent with previous research, U.S. $299 was indeed perceived as much cheaper than US$300.
      • Thus it is safe to say that the cognitive price underestimation weakened preference, since the odd ending raised stronger concerns about quality and potential risk.
      • Three pertinent quality dimensions were revealed to explain where concerns stemmed from: outcome expectations, service process expectations and customer apprehensions.
      • It is noted that, when the price is raised from $300 to $600, no increase in preference and quality expectation was observed.

Practical Implications

        • While 9-endings tend to stimulate sales of common inexpensive and low-risk goods, it apparently also signals low quality more directly and attenuates sales.
        • Providers of risky services or special products that are health or financially related should manage price endings cautiously to avoid raising the concern of risk.

     Author:

    Sirui Guo – Research Associate, Pricing Solutions Ltd.