PRICE ENDINGS IN ASIA. Roger Heeler and Adam Nguyen York University. Abstract

Transcription

1 PRICE ENDINGS IN ASIA Roger Heeler and Adam Nguyen York University Abstract Retail prices ending in 9 are common in the USA. Theories advanced to explain this phenomenon include perceived gain, consumer underestimation, and common practice. Previous research has used prices in printed media, primarily newspapers, as evidence. This research used the web in place of print media. First the USA research that used printed media was replicated, demonstrating the convergence of the print and web media as research tools. Then the research was extended to five Asian countries. The paper makes contributions to both method and theory. The web method improved the sampling of prices, provided prices less contaminated by sales, and allowed international research to be conducted easily and with standard methods in each country. The theoretical contribution was the addition of a new explanation for price endings, namely cultural preference. In Asia 8 is deemed lucky by several cultures, and was more frequently used than the 9 ending predicted by consumer behavior theories. This result also demonstrates that the results of consumer research undertaken in the USA cannot be treated as universally applicable. Introduction Retail price setters in the USA tend to choose the rightmost digits, or endings, of a price so that the price falls just below a round number. This practice, referred to as odd pricing (Hawkins 1954), psychological pricing (Mason and Mayer 1990) or just-below-the-round-figure-pricing (Gabor and Granger 1964), has attracted considerable research interests. The popularity of the digit 9 in the USA is well documented, for example Kreul (1982), Rudolph (1954), Twedt (1965), and Schindler & Kirby (1997). This paper extends the research in to Asia, and pioneers the use of the web to expedite the research and improve the sampling of prices. We begin by reviewing two theories on psychological pricing that explain for the overrepresentation of the just-below-the-round-figure endings in the American retailing market. We then examine the patterns of price ending appeared in samples of online shopping retail prices in American market and five Asian markets. Next, we explore the similarities and differences in patterns of online price ending in these Asian markets versus the American market. Perceived-Gain Effect Theoretical Explanations of Price Ending Patterns in the USA It is widely recognized that the round numbers 0 and 5 are highly accessible in memory (Fazio et al. 1982; Higgins, Rholes, and Jones 1977). This high cognitive accessibility explains the

2 overrepresentation of 0 and 5 endings in selling prices. The high cognitive accessibility of these two numbers also enables them to serve as reference points in the consumer price evaluation (Schindler and Kirby, 1997). Thus the just-below-the-round ending price can be framed as a round number along with a small gain. According to mental accounting theory the perception of the gain and loss should be disproportionate to the small size of the perceived gain (Thaler 1985). For that reason, price setters would tend to favor the 9- ending (just below 0), leading to its overrepresentation among advertised prices in the American market (Kreul 1982, Schindler and Kirby 1997). Underestimation Effect The impact of the 9-ending also lies in the underestimation effect it produces in the consumer s mind. Due to the process of truncation in coding the prices (Poltrock and Schwartz 1984), the consumers tend to perceive the 9-ending price to be considerably lower than the 0-ending price and thus underestimate a 9-ending price relative to the 0-ending one unit higher (Schindler and Kirby1997). This effect motivates sellers to use the 9-ending and thus explain the overrepresentation of the 9-ending in selling prices. Schindler and Kirby also suggest that the use of 9 may be just common practice. Empirical Design We collected representative samples of advertised prices posted on the Internet by retailers in each of USA, Hong Kong, Singapore, Malaysia, China, and Japan. The samples were chosen to cover a variety of categories and from as many retailers as possible. A key advantage of using online data is that, because online advertisements are arranged by categories and/or by retailers, the product categories and the number of retailers involved in the sample can be controlled. A second advantage of web is that relative to print it appears to contain more regular as distinct from special prices. The web prices are for all products available by that means. Print advertisements are more likely to show selections and to feature on-sale items. The price ending defined Results Because of the relative value of different currencies, and the coins in use, odd pricing practices in these Asian countries were not always expressed in the last digit of the prices as in USA. Given the paper s interest in odd pricing practices the price endings in these countries were defined as the digit at which odd- price-ending practices become significant, as in table 1 below.

3 Table 1 The price endings defined Country Price endings Hong Kong The rightmost non-decimal digit Singapore The second rightmost decimal digit Malaysia The rightmost non-decimal digit China The rightmost digit Japan The rightmost digit for three- digit prices The second rightmost digit for prices with four plus digits The United States The rightmost digit The patterns of price endings in these markets, with price endings defined as above, are summarized in Table 2 below. Table 2 Percentage occurrence of rightmost digits of the online selling prices Numbe r Endings Of prices TOTA L United States Malaysia HKG SIN Japan China

4 The patterns of price endings of the American online sample were similar to the patterns observed in previous surveys of selling prices in print advertisements in the USA. The 0 and 9-endings were greatly over-represented (42 for 0 and 37.4 for 9), followed by 5 (8.2) and 8 (7.8). The other endings (1, 2, 3, 4, 6 and 7) were greatly under-represented; together they account for only 3.7 of selling prices. These results are generally consistent with the patterns observed by Schindler and Kirby (1997) who used print data for the USA, except that the digits 0 and 9 receive even more emphasis on-line. This agreement between print and on-line justifies the use of on-line in other countries in comparison with the previous, US, price ending data. The results of the Non-American online samples are also checked against available samples of print advertising from Japan and China. Similar results are obtained. While, similar to the USA, in Asia 0 and 5 were over-represented with respect to 1, 2, 3, 4, 6, and 7, the most significant difference between the two areas was the over-representation of 8 with respect to 9 in Asia. The percentage of 8-ending of online prices in these markets was Malaysia 19.8, Hong Kong 14.8, Singapore 13.1, Japan 24.4, and China 19.3, compared with 17.3, 3.0, 26.6, 1.8, and 9.9 for the 9-ending. The 8 endings exceed the proportion of 9 endings except in Singapore. Singapore 8-endings are twice as common as in the USA. The Happy Ending The over-representation of the digit 8 with respect to digit 9 in four out of the five Asian markets is interesting and can only be partially explained by current theories. These two digits are justbelow-the-round numbers (0) and thus their over-representation can be partially accounted for by the perceived gain and the underestimation effect. However, the over-representation of the digit 8 (two points below a round zero rather than one for 9) requires additional explanations. According to the perceived gain and underestimation effect theories the 9-ending should be preferable to the 8-ending as these two endings produce similar psychological effects but the 9-ending results in additional profit for the retailers (cf. Stiving and Winer 1997). However, in Hong Kong, Malaysia, China and Japan the 8-ending is more popular, and especially in Hong Kong and Japan the 8-ending is grossly overrepresented with respect to the 9- ending. The only country where 9- ending is more popular than 8-ending is Singapore. In Singapore the 8-ending is more used than in the USA, but less than in the other countries studied. The probable explanation for this phenomenon is the symbolic significance of numbers in the Chinese and Japanese cultures. 8 in Chinese and Japanese Culture In the Chinese mind, numbers are not just figures, but they also carry special significance and symbolism. Even the sounds of the numbers can suggest good or ill luck. Thus number 8 presents luck to the Cantonese Chinese because in Cantonese it sounds like multiply (Ba in Chinese; Lip 1992). This is one of the reasons why this number appears often in selling prices in Chinese countries 1. The symbolic significance of number 8 is greatest in Hong Kong, where 95 of the population is ethnic Chinese and where Cantonese is the most widely spoken dialect (Hong Kong, 2000). Number 8 is also popular, though to a lesser extent, in Malaysia and China. Malaysia is strongly influenced by the Chinese culture (Malaysia, 2000) and Cantonese is a major dialect. Though Cantonese is also one of the major dialects in China, the popularity of number 8

5 in prices in the Chinese market is a relatively recent phenomenon. Until the late 1970s prices in China were largely determined by the government, and were based on cost. Under the reform program in China in the 1980s and 1990s individual firms were given the right to set prices, and many imitated the business and pricing practices of the economic model they admired, Hong Kong 2. The explanations above are consistent with the results of the survey: the 8-ending is popular in Hong Kong, Malaysia and China, but it is most popular in Hong Kong. Due to the symbolic significant of number 8 in these countries, retail price setters may find that the 8-ending generates more sales than the 9-ending, and the gain from increased sales is greater than the loss in unit profit resulting from reducing one unit in the prices last digit (from 9 to 8). Among the four countries number 8 seems to be the least symbolically significant in Singapore. Though Chinese accounts for 75 of Singaporean population, English is the most widely used language, and Mandarin is the most widely used dialect (notice that number 8 has no sound symbolic significance in Mandarin). Business practices in Singapore thus tend to be more affected by the American and British business practices, including their price-setting practice, and thus the 9- ending is overrepresented, though the 8-ending is also popular. For the American market Schindler and Kibarian (1996) found that a catalogue with 88 endings generate lower sales than a catalogue with 99 ending, though the 88 ending result in lower prices than the 99 ending. In Japan, 8 also has great symbolic significance. The Japanese writing of number 8 looks like the shape of a mountain (sue-hirogari in Japanese), and thus number 8 signifies "fan out", "grow", and "prosperous. 3 Variation Of Price Ending By Product Price endings may vary by product and even by season. One author recalls a deluge of 8, 88, and 888 at new-year in Hong Kong. Circumstances involving celebration, good wishes, and gifting/hosting are likely to be particularly appropriate for lucky numbers. For these reasons it was hypothesized that restaurants in Asia would be disposed to using 8. The web was used to obtain a sample of 174 advertised prices was from 130 restaurants in Hong Kong. The percentage of 8-ending in advertised prices of Hong Kong restaurants was 49.4, 3.3 times more than the percentage of 8-ending in prices of other products (14.8). This provides additional evidence that the symbolic meaning of number 8 is indeed the cause of its over-representation in prices in Chinese markets. Conclusion The research demonstrated that data from the web yielded similar results to those obtained by previous research using data from print media. This validates the use of the web to continue the print based research. Since the results are similar, the two sets of data provide convergent validation for each other. The web data was also more likely to be every-day pricing than the specials advertised in newspapers and thus more representative of routine pricing. Finally, use of

6 the web permitted far ranging international research on an aspect of marketing, from the convenient tool of the researchers laptops. The survey found significant differences in price ending patterns between the five Asian markets and the American markets, the most interesting of which was the over-representation of the 8- ending with respect to the 9-ending in Hong Kong, Japan, China and Malaysia. An additional cultural mechanism was found likely to explain price endings in Asia. This cultural explanation supplements the previous theories based on perceptions. Finally, the results of this survey provide additional evidence that patterns observed in the American market about consumer behavior in general, and of consumer price processing in particular, are not universal. Future research may look into the overall combination of a price rather than just the ending in an Asian context. For example, whilst 8 is a lucky number in Cantonese, adding a 5 (with a connotation of No or Nil ) in front of this ending will give the number a totally different meaning. In contrast, 68 and 88 are good combinations in Cantonese. Casual observations suggest that 68 and 88 are much more common than 58 in Asia. 4 The fact that patterns of price endings online are similar to those advertised in traditional medias is an indication that price setters may not be aware of the unique characteristics of online advertising. As Evans (1999) comments, most online retailers simply copy traditional marketing practices into online marketing. As a result, they design online price advertisements as if they were to be read only by local American consumers. But, as Friedman (1999) points out, the minute you start to do business on the Web, you now have to think globally. You have to think about your readers as global Differences in local pricing practices, such as the variations in price ending practices found in this survey, may reflect the differences in the ways consumers in different cultures respond to price information. Thus online price setters who are used to using the 99 price endings need to consider how, for example, readers in Chinese countries respond to this price ending strategy. Footnotes 1 Personal interviews with Mr. Lu Tao, Economic and Commercial Consul of the Chinese Consulate in Toronto, and Professor James Stone, Qingdao University. 2 Personal interviews with Mr. Xiaoming Zhou, Sales Manager, China, and Professor James Stone, Qingdao University. 3 Personal interviews with Professor Yoshihiro Nakata, Konan University, and Mr. Hiroshi Umemoto, Marketing Executive, Japan. 4 We thank a reviewer for this suggestion.

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