Pricing risky services: preference and quality considerations

Abstract

PurposeThis study intends to examine effects of price ending and level on preference for a provider of a risky service, LASIK eye surgery, which poses notable health and financial risk. Additionally, the study aims to explore quality concerns thought to intervene between price cues and preference.Design/methodology/approachPrice was manipulated by showing each of three groups an advertisement offering LASIK surgery at one of three prices: US$299, US$300 or US$600. Subjects were asked how likely they were to choose the featured provider if they were to have LASIK surgery; replies were interpreted as indicating the degree to which the featured provider was preferred to all other potential providers. To facilitate exploring the possibility that pricing affects preference via perceived quality, subjects were asked 16 questions about service quality.FindingsLASIK provider preference ratings were significantly lower at US$299 than at US$300 and, thus, contradicted much prior research into the effects of 9 and 0 price endings. Supplemental analyses implied that, in consonance with prior research, US$299 was seen as much less than US$300. However, cognitive price underestimation attenuated preference because it raised stronger concerns about quality and risk. Exploratory analyses revealed three pertinent quality dimensions: outcome expectations, service process expectations, and customer apprehensions.Research limitations/implicationsFindings are based on a small convenience sample not limited to serious LASIK surgery candidates. The depiction of quality within the risky‐service context was rudimentary and requires refinement.Practical implicationsPurveyors of risky services seem ill‐advised to use prices ending in 9. While 9‐endings tend to stimulate sales of common low‐risk goods, they appear to attenuate sales of risky offerings.Originality/valueResults shed light on the generalizability of findings from prior psychological pricing research focused on goods and services quite unlike LASIK surgery. They also provide insights into designing more refined inquiries into quality concerns and the effects of pricing on quality concerns, which seem to affect preference.