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product evaluations.
Simona Romani1
Daniele Dalli
Dipartimento di Economia Aziendale
University of Pisa - Italy
Track: Pricing
Abstract
The authors report a study of the effect of the transition from Lira to Euro on buyers
perceptions of monetary sacrifice, product quality and value, as well as their willingness to
buy. Hypotheses are derived from an integration of the model positing the effects of price on
buyers perceptions and purchase intentions with notions derived from numerical cognition.
Results indicate that the transition to Euro produces a richness effect with a reduction in the
perceived monetary sacrifice and an increase in perceived value and willingness to buy. In
particular, we found this effect to be influenced by the level of price.
Keywords
Price perception, euro.
+
Perceived quality
Price
Perceived value
Willingness
To buy
Perceived sacrifice
+
2.
In January 2002 Italy is going to move from the existing national currency Lira - to Euro.
A potential problem in the passage to the new currency is the existence of the money
illusion (Shafir et al., 1997). This is a bias in the assessment of the real value of the
transaction, induced by the nominal representation.
Specifically, in the Italian case, the convertion of prices in Euro generates their reduction: for
example the price for a car changes from 35.000.000 Lire to 18075,99 Euro and for a pair of
shoes from 160.000 Lire to 82,63 Euro.
The compression of the numerical representation of price is strong and this change could
produce what we call a richness effect: buyers willingness to buy becomes higher because
the sacrifice perception is reduced, given the small number presented as price.
From a theoretical point of view this richness effect can be explained considering numerical
cognition. Central to the study of numerical cognition are questions of representation: how are
numbers represented in memory? and, what are the implications of different modes of
representation in numerical processing?
Two basic ideas in the literature on numerical cognition are:
numbers are represented on the same magnitude mode that characterizes the
processing of physical stimuli. Numerals are converted to analogue magnitudes, and
a comparison is made between the magnitudes in much the same way that
comparisons are made between physical stimuli (Moyer and Landauer, 1967; p.
1520). The clearest evidence for a magnitude representation comes from the distance
effect: the time to decide which of the two numbers is larger (or smaller) depends on
the numerical distance between them and specifically it decreases when the numerical
distance increases. This suggests that digits are not compared at a symbolic level (or
surface level) but they are recoded and compared as quantities.
The magnitude code is activated automatically in representation of numbers. As
observed by Dahaene (1992, p.21) the representation of an arabic numeral elicits an
automatic activation of the appropriate relative magnitude code. This activation cannot
be repressed, even though magnitude information is irrelevant to the requested task.
The aspect of the automatic activation of the magnitude code is implicit in several
models of numerical processing (see, e. g., Dehaene, 1992, Gallister and Gelman,
1992).
The magnitude involved in the conversion of 160.000 Lire is different compared to the
magnitude involved in the convertion of 82, 63 Euro and we can expect the latter to generate a
lower perception of monetary sacrifice and a greater perception of value.
For Italian consumers price is traditionally expressed in Lira and it is associated with a big
number; passing to Euro the number will be small and, especially during the first period of
application, the real value of the transaction could be considered lower.
Hence, the final effect could be a reduction in the perceived monetary sacrifice and an
increase in perceived value and willingness to buy.
We expect this effect to be influenced by the level of price; in a specific product class, high
price levels increase consumers attention to price and the probability to consider this cue
relevant in the buying decision; on the contrary, low price levels make consumers consider
price acceptable and what they decide to buy may ultimately depend on the perceived
goodness of other extrinsic or intrinsic cues (Dodds, 1991).
In this latter case, considering the limited attention to price, we may expect the richness
effect to be reduced.
3. Hypotheses
The preceding conceptualizations suggest the following hypotheses:
H1: When price is indicated in Euro instead of Lire, ceteribus paribus,
- buyersperceptions of quality are constant2
- buyers perceptions of sacrifice are lower;
- buyers perceptions of value are greater;
- buyers willingness to buy is greater.
H2: The effect indicated in H1 is stronger with high prices than with low prices.
4.
Research method
The first pretest led to the selection as a product of a stereo headset player; the selection of the
product was guided by the criteria that a) subjects be potential purchasers, b) the product
presents a wide price range, and c) the product be used by both men and women.
On the basis of a second pretest we determined two prices for the product high price
(224.000 Lire or 116 Euro) and low price (36.000 Lire or 19 Euro) perceived completely
differently by consumers.
4.2. Research procedure
In the 2x2 factorial design we used 204 undergraduate students (divided per cell as indicated
in Table 1) enrolled in the marketing course at the University of Pisa. Each subject was
exposed, for 30 seconds, to the same advertisement reproducing the product, its basic
functions and its price.
2
We assume the transition from Lira to Euro doesnt influence product quality perception. Given the numerous
information available products coloured representation and products basic function and given the
experience of the subjects with the product, we expect a marginal role of price in the formation of product
quality perceptions.
After that, subjects were asked to answer the questions included in a questionnaire given to
them at the beginning of the experimental session.
4.3. Dependent variables
Subjects evaluated product perceived quality, perceived monetary sacrifice, perceived value
and willingness to buy on multi-item 10-point scales that were developed from previous
research and retested during the experiment.
Following the procedures suggested by Churchill (1979) we developed the indicators and
assessed them for internal and external consistency by using correlation analysis, factor
analysis and Cronbachs alpha. The values of coefficient alpha were .76 for perceived quality
(average inter item correlation .51), .94 for perceived monetary sacrifice (average inter item
correlation .84), .90 for perceived value (average inter item correlation .50) and .93 for
willingness to buy (average inter item correlation .83).
5.
Table 3
Analysis of variance results
Effect
Dependent variables
Currency
(Euro/Lire)
Price
(low/high)
Interaction
Error
Perceived quality
Perceived monetary
sacrifice
Perceived value
Willingness to buy
Perceived quality
Perceived monetary
sacrifice
Perceived value
Willingness to buy
Perceived quality
Perceived monetary
sacrifice
Perceived value
Willingness to buy
Perceived quality
Perceived monetary
sacrifice
Perceived value
Willingness to buy
Df
Sig.
1
1
Mean
square
0.61
24.871
0.281
7.006
0.009
1
1
1
1
13.492
41.009
22.314
962.741
5.269
9.065
10.274
271.215
0.023
0.003
0.002
<0.001
1
1
1
1
136.233
297.857
0.897
21.429
53.203
65.841
0.413
6.037
<0.001
<0.001
0.015
1
1
200
200
13.537
7.472
2.172
3.550
5.287
1.652
0.023
-
200
200
2.561
4.524
6. Conclusions
In conclusion it is apparent that results reported here show the existence of richness effect:
passing to Euro, given the small magnitude of price mental representation, consumers
perceive a lower monetary sacrifice and they increase their willingness to buy.
Therefore, with the introduction of Euro we can expect an increase in consumers demand; and
its very important to specify that this increase seems stronger for products characterized by
high price levels in a product class, to the prejudice of products with low price levels.
Additional research is necessary to explore how the effects work with a wider range of
products, prices, situations, settings and populations.
References
Dahaene, S., 1992. Varieties of numerical abilities. Cognition, 44, 1-42.
Dodds, W.B., 1991. In search of value: how price and store name information influence
buyers' product perceptions. Journal of Consumer Marketing, 8, Spring, 15-24.
Monroe, K.B., Krishnan, R. 1985. The effect of price on subjective products evaluations. In:
Jacoby, J., Olson, J. C. (Eds.), Perceived Quality: how consumers view stores and
merchandise, Lexington, MA: Lexinghton Books.
Monroe, K.B., 1979. Pricing: Making Profitable Decisions, New York, McGraw-Hill Book
Company.
Moyer, R. S., Landauer, T. K.,1967. The time required for judgments of numerical inequality.
Nature, 215, 1519-1520.
Shafir, E., Diamond, P., Tversky, A., 1997. Money illusion. Quarterly Journal of Economics,
112, 341-374.