Psychological Pricing: Private vs' Professional Vendors

1
Psychological Pricing Private vs. Professional
Vendors

• Tom Van Caneghem
• Hogeschool-Universiteit Brussel
• University of Antwerp

2
Psychological Pricing

• Observation
• an abnormally large quantity of retail prices
  fall just below a round number
• ? psychological or odd pricing
• Motivation
• originally introduced as an aid to prevent theft
  by employees
• nowadays it is common belief (and there is
  evidence) that odd prices boost sales

3
Psychological Pricing (continued)

• Explanations for sales effect
• association mechanism
• an odd-price ending carries the connotation of a
  sale or discount price
• underestimation mechanism
• most emphasis is being placed on the first digit

4
Research Design

• Sample
• prior studies have all focused on professional
  vendors ? we consider both private and
  professional vendors
• prices for second-hand cars obtained from HEBBES
  (www.hebbes.be)
• HEBBES explicitly mentions the type of vendor
  (private vs. professional)
• all brands that had 500 cars or more for sale (6
  brands 8,311 cars in the sample)
• the following data were collected from HEBBES for
  each car (1) type of vendor (2) price and (3)
  number of kilometres.

5
Research Design (continued)

• Research method
• digital analysis on
• (1) ending digits (e.g. 1.99 or 2.19)
• (2) all digits except for the first digit (e.g.
  1.95 or 2,900)
• testing for the occurrence of specific
• odd-endings (i.e. prices ending in 950, 990,
  995 or 999)
• round-endings (i.e. prices ending in 000)

6
Research Design (continued)

• Research method (continued)
• observed (digital) frequencies are then compared
  (1) between both sub-samples and
• (2) with expected frequencies based on
  recommended sales prices for second-hand
• cars

7
Additional Research Questions

• Another type of strategic pricing
• pricing around pre-defined price thresholds
• Numbers of kilometres
• digital analysis ? rounded numbers of kilometers?
• numbers of kilometers around pre-defined
  thresholds

8
Results Digital Analysis Prices

• Ending digits

9
Results Digital Analysis Prices (continued)

• All digits except for first digits

10
Results Digital Analysis Prices (continued)

• Specific price-endings

11
Results Prices Pre-Defined Thresholds
12
Results Digital Analysis Numbers of Kilometers

• Ending digits

13
Results Digital Analysis Numbers of Kilometres
(continued)

• All digits except for first digits

14
Results Digital Analysis Numbers of Kilometres
(continued)

• Specific round ending (i.e. ending in 000)

15
Results Numbers of Kilometres Pre-Defined
Thresholds
16
Conclusions

• Our results indicate that private vendors place
  themselves in a competitive disadvantage
  (compared to professional vendors) in different
  ways
• less psychological pricing (more round prices)
• more rounded numbers of kilometres
• less attentive with regard to pre-defined
  thresholds that can be used to narrow search
  results