Price Endings Research Articles

Preisrigidität bei Lebensmitteln

Abstract In this paper, the proportions and determinants of price rigidity in German food retailing are investigated for selected products. In measuring price rigidity, we explicitly consider promotional sales by excluding price promotions. Price promotions cause a significant part of retail price variations, but are by definition not based on cost changes. Thus, if price promotions are not considered, price rigidity measures are biased. The average estimated duration of rigid prices in supermarkets increases from forty to sixty weeks, if price promotions are excluded. All food products show considerable price rigidities. In particular, key products with a high level of consumers’ attention indicate significantly lower price rigidities. Psychological prices are more rigid than others. Unexpectedly, high price (national) brands exhibit greater price flexibility than low price private labels. From this we may conclude that rigid food retail prices are not caused by retail market power, but by implementing a...

Diluted Earnings Per Share Overstatement Bias: Including Unrecognized Employee Compensation In Proceeds From Assumed Exercise Of Employee Stock Options Under The Treasury Stock Method

Generally accepted accounting principles (GAAP) require firms to recognize compensation expense under the fair value method in the case of employee stock options. Straight line amortization of the options grant date fair value must be recognized as expense over the service period which decreases the earnings per share numerator. For diluted earnings per share (EPS), GAAP requires using the treasury stock method, where proceeds from assumed stock option exercise is used to purchase treasury shares at the average for the period price. Exercise proceeds include the exercise price plus unrecognized future employee compensation. For profitable firms, exercise is assumed if dilutive - more shares are assumed issued than are reacquired for the treasury which increases the diluted EPS denominator. These requirements are consistent across US GAAP and International Financial Reporting Standards. This paper tests whether including unrecognized employee compensation in proceeds from the assumed exercise of employee stock options under the treasury stock method is appropriate. A simple multi period model that assumes a risk free environment with complete certainty is applied. This study contributes to the literature by demonstrating that future unrecognized employee compensation should not be included in proceeds from the assumed exercise of stock options under the treasury stock method. Doing so consistently causes diluted EPS overstatement, and in certain instances causes assumed exercise of in the money options to be antidilutive, which results in complete exclusion from the diluted EPS calculation. This research extends the employee stock option work of Doran (2005 and 2008) that found: 1) Compensation expense recognized over the employee service period should equal the periodic annuity amount that provides the options grant date fair value, and 2) Treasury shares should be assumed purchased at the higher end of period stock price.

Impact of Customer Retention Practices on Firm Performance in the Retailing Sector: A comparison between a foreign and home grown retailer in Malaysia

As customers are the backbone of any business, firms without customers would not be able to sustain their performance. This is because such firms are believed to have no revenues, no profits and therefore no market value. Accordingly, managing customers is deemed to be very crucial business agenda in which the key focus has been switched in recent years from attracting new customers to preserving existing ones. Both practitioners and scholars have discovered that it is much easier and cheaper to retain the exiting customers than investing on the potential customers. A decent customer retention level is believed to be a significant contributor towards improvement in the overall firm performance. A glimpse on the existing researches on customer retention highlights that financial sector has been thoroughly investigated which leave a room for a detailed investigation on customer retention within retailing sector. Accordingly, this study intends to explore the customer retention practices adopted by service-oriented firms in general and retailers in particular. As a comparison study on a foreign and home grown retailer, this study examines factors that retain customers and the subsequent impact of retention practices on firms performance. This study had carried out mall-intercept surveys among 400 shoppers at two major retailers within Klang Valley, Malaysia. Findings show that influencing factors of retention practices and type of retailer (namely foreign and home grown) significantly influences the retailers customer retention practices. It was also discovered that the inclusion of retailers type had enhanced the relationship between influencing factors and retailers retention practices. In addition, it was also found that customer retention practices significantly affect retailers performance at a moderate level. This study has uncovered that customers are in deed price sensitive despite being loyal and retained by firms. Hence, it is advisable for retailers to pursue a genuine pricing strategy to appeal to price conscious customers. The pricing strategy ideally should be transparent (i.e. no-bogus sales), clarity (i.e. provide accurate details of merchandises), simplicity (i.e. avoid psychological pricing) and trustable (i.e. provide accurate balances).

Psychological pricing in mergers & acquisitions using prospect theory

PurposeIt is hard to accurately price a merger or acquisition, primarily as there are psychological factors that impact such pricing. As a result, it is hard for traditional financial models to accurately undertake valuations for merger or acquisition transactions. The purpose of this paper is to develop a two‐person merger and acquisition (M&A) game theoretic model that will analyse if the offer price provided by an acquirer should be equal to the mid‐point of the acquirer's offer and the target's bid price. It will also analyse if the acquirer will do better by being risk taking or risk averse and if the target will do better by optimistic or pessimistic in this model.Design/methodology/approachThis paper analyses how an incomplete information game with prospect theory can be used to value M&A transaction more accurately by considering the impact of psychological factors on pricing.FindingsIt is found that acquirers do not always have to increase the offer price in order to successfully purchase the target firm. Based on the behavioural type of the acquirer and target, it could be possible that the acquirer could even lower the offer and the target firm would still be willing to successfully complete the M&A transaction.Originality/valueThe original aspect of this paper is that it links behavioural types to M&A valuation and the success of M&A transactions. Such a model has not been developed before and it shows that M&A transactions are not always completed by the acquirer increasing their offer price.

Odd pricing effects: an examination using adaptation‐level theory

PurposeUsing adaptation‐level theory as a conceptual framework, the purpose of this research is to determine what effect, if any, marketplace conditioning has on consumer price estimates and product evaluations.Design/methodology/approachA total of 475 subjects participated in two experiments that required them to read a scenario, evaluate a series of advertised products, and perform an aided price recall task.FindingsThe results suggest consumers are more likely to recall the correct price when more of the rightmost digits end in 0 or 9. Moreover, when prices are incorrectly recalled, consumers are likely to inadvertently assume prices end in commonly used rightmost digits (i.e. 5 and 9). Combined, the results demonstrate odd pricing effects are likely a result of marketplace price conditioning rather than truncation of rightmost digits as suggested by the analog model of numerical cognition.Practical implicationsFindings suggest that use of atypical rightmost digits in odd prices fails as a method to differentiate products in the mind of the consumer. This would explain the use of larger right ending digits by retailers in an effort to maximize profit without impacting consumer perceptions of quality, value, and purchase likelihood. In the absence of strong quality image effects, retailers are encouraged to continue the practice of setting prices with digits ending in 9.Originality/valueA key theoretical implication of this study is that the underestimation heuristic based on leftmost digit processing fails to explain the results of the incorrectly recalled price estimates. As a result, adaptation‐level theory may provide a more robust explanation for odd pricing effects.

Marketing Issues in Assigning Odd Prices by the Romanian Retailers

Odd prices are distinguished by their last digit just below a round number, the most frequent being ended in 9. This tactic is used especially in retailing, aimed to generate an underestimation of monetary sacrifice paid by the consumers. The exposure to odd prices conducts to specific characteristics of some psychological processes as: perception, representation, and memorization. Their effects are manifested on sales, on customer's buying intentions, on product image or on fairness perceptions. The present paper has analyzed odd prices assigned by six important electronics and appliance retailers that operate in Romanian market. The data collection was made by observation and the product categories studied were: TV-sets, hair dryers and mobile phones. The results shows that Romanian retailers use in a very great extend odd prices, not taking into account assortment size, brand image, product value or market share. They assign odd prices mainly of inertia, based on belief that this kind of prices increases sales in any conditions, such orientation being contradicted by previous academic studies.

Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity

There is evidence that 9-ending prices are more common and more rigid than other prices. We use data from three sources: a laboratory experiment, a field study, and a large US supermarket chain, to study the cognitive underpinning and the ensuing asymmetry in rigidity associated with 9-ending prices. We find that consumers use 9-endings as a signal for low prices, and that this signal interferes with price information processing. Consequently, consumers are less likely to notice a bigger price when it ends with 9, or a price increase when the new price ends with 9, in comparison to a situation where the prices end with some other digit. We also find that retailers respond strategically to this consumer bias by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9-ending. Consequently, there is an asymmetry in the rigidity of 9-ending prices: they are more rigid than non 9-ending prices upward but not downward.

The Effectiveness of Benefit Type and Price Endings in Green Advertising

This study assesses consumer perceptions of advertising messages for two proenvironmental products by examining the effectiveness of environmental versus personal benefit appeals and .99 versus .00 price endings. The authors borrow from Prospect Theory and Mental Accounting Theory to explain consumers' perceptions of psychological pricing and product attributes. In addition, the moderating role of environmental skepticism is assessed as it relates to the effectiveness of environmentally friendly advertisements. Results indicate that consumers feel that some products advertised with environmental appeals are more costly, but are not perceived as lower quality as compared with products advertised with personal benefits. Findings also indicate a price ending × appeal interaction for two different products, but the effects vary between the products. Finally, environmental skepticism is found to moderate perceptions of the message appeal. Implications are provided.

When children confront prices: an approach based on price presentation

PurposeThis paper seeks to examine how young consumers attribute and select product prices according to their presentation (i.e. format and ending).Design/methodology/approachA questionnaire, administered to a sample of children between six and 12 years of age, reveals that children's allocation of prices and children's choices depend on different price formats (i.e. non‐decimal versus decimal prices and varied price endings).FindingsChildren tend to prefer round prices and to choose a 0‐ending in the decimal portion of decimal prices. However, their preferences also depend on their position as either a salesperson or a buyer.Originality/valueResearch into the relationship between children and price is a relatively new field. This study uses recent works as a basis and extends the field with new insights.

Hospitality Managers’ Price-Ending Beliefs

The use of “just-below” pricing (such as pricing an item at $6.99 or $6.95, rather than $7.00) has been common in some segments of the hospitality industry (such as quick-service and mid-scale dining). The results of a detailed survey of the price-ending beliefs of hospitality managers show that many believe that just-below prices connote good value and round-number prices connote high quality. Furthermore, the majority of these managers believe that consumers tend to drop off or otherwise give insufficient consideration to a price’s rightmost digits. Although one might expect this drop-off belief among those managers who use just-below price endings, it is found also in a majority of those managers who do not use just-below price endings. The survey results suggest that managers who decline the benefits of a consumer drop-off tendency do so because they also believe in one or more possible negative consequences of using just-below price endings. These include the beliefs that just-below endings (1) impair perceptions of high quality, (2) work against an upscale image, (3) give an impression of not being fully honest or straightforward, and (4) involve inconvenience in calculating or communicating the price or in making change.

Effect of font size and appearance in left-digit price cognition

Research has indicated that changes in price endings can result in left digit effects (for example, $3.99 versus $4.00). In this study, we report on the effects of price font size and appeared model on a nine-ending price where the leftmost digit is changed. Cognition of comparative price can be magnified or weakened depending on such factors. First, when the same font size is used for the price or the size-value congruency conditions are the same, the magnitude of price difference between the target and standard prices will be perceived as larger when the leftmost digit of a 9-ending price is changed (for example, $299 versus $300). Enlarging the price font size causes the perceived magnitude of the size-value incongruence of the left-digit effect in nine-ending prices to diminish. Second, when the price appears vertically it will facilitate the comparison of two prices and diminish the perceived magnitude of difference in price in comparison between the regular price and the sale price. Key words: Left-digit effect, 9-ending price, font size, vertical appeared model.

Study on Bike Rental Pricing Model under the Low-Carbon Mode

Bike rental is an important traffic mode under the low-carbon mode. Bike rental pricing is the key technology of the bike rental. In the paper, bike rental pricing model is researched. Firstly, the influential factors of the bike rental pricing are analyzed, such as cost, demand, rental location, time, depreciation rates, government policy, competition conditions, income level, psychological pricing, the other public transport pricing situation and so on. Secondly, the average-cost pricing and the Logit model are combined, and the pricing model is established by considering the depreciation rate, the distribution rate, the ratio of the travel time and the rental time. Finally, the model is solved. According to time, rental location and bike models, the price of bike rental and the appropriate deposit of bike can be determined by using this model.

Returns to Traders and Existences of a Risk Premium of a Risk Premium in Agricultural Futures Markets

The purpose of the study is to examine the existence of a risk premium in futures markets to determine if hedgers pay speculators for protection against adverse price movements. Hartzmark (1987) addressed this same question but his time period of study from 1977 to 1981 is limited and outdated. The current state of the futures markets is quite different today than in was in the late 1970s. The data for this study extends from January 2000 to September 2009 and covers 12 commodity markets. The profitability of aggregate trader groups is calculated using end of day positions and prices for individual commodities; these commodities are then grouped according to price patterns over the sample period into three groups including grains (corn, soybeans, soybean oil, and wheat contracts), livestock (feeder cattle, lean hogs, and live cattle) in addition to cotton, and soft commodities (cocoa, coffee, and sugar). More importantly, long passive traders, called commodity index traders (CITs) emerged into the futures markets during 2004 and 2005 and provide a natural experiment to determine if naively holding positions opposite of hedgers results in positive profits and thereby evidence of a risk premium. Results do not find convincing evidence of the existence of a positive risk premium.

Temporal Reframing of Prices: When Is It Beneficial?

Prior studies provide mixed results pertaining to the effectiveness of temporal reframing of prices. This study examines the conditions in which such temporal reframing to a shorter period of time is more or less beneficial than aggregate prices. Investigations of the role of four moderating variables—price endings, price level, time periods, and calculation affinity—show that reframed prices are more beneficial than aggregate prices for high-priced products, especially in combination with even price endings, an aggregate price that normally refers to a comparatively short time period, or customers with poor calculation affinity. Aggregate prices offer more benefits than reframed prices for low-priced products, odd price endings, aggregate prices that refer to longer periods, and customers with excellent calculation affinities.

Employee Stock Options And Diluted Earnings Per Share: An Extension

Firms must currently apply the fair value method in determining the amount of employee compensation incurred in the case of employee stock options. The amount of such compensation is required to be measured as fair value of the equity instrument at the grant date, with compensation expense recognized over the service period under the straight-line method. This compensation expense affects the numerator for purposes of calculating earnings per share (EPS) under generally accepted accounting principles (GAAP). Current GAAP also requires that for purposes of calculating diluted EPS, the treasury stock method be applied where the assumed proceeds from exercise of the optioned shares is used to purchase shares of the firms stock at its average market price of the earnings period. These incremental shares increase the denominator for purposes of calculating diluted EPS. These requirements are consistent across the pronouncements of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). This study extends the work of Doran (2005) where a single period model was assumed and found: 1. Application of the fair value method does not double count the impact of compensation recognized, and 2. Applying the treasury stock method where shares are assumed purchased at the average for the period price (instead of end of year price) understates the number of incremental shares (the denominator), which overstates diluted EPS. This paper employs a simple multi period model that assumes a risk free environment with complete certainty in testing the accuracy of GAAP compliant diluted EPS in the case of employee stock options. Consistent with Doran (2005) the results here again indicate that assuming purchase of treasury shares at their average market price of the earnings period understates the EPS denominator. The results of this study also indicate that the reported employee compensation expense is understated. The observed cause of this numerator error is treating the payment for the option (employee service) as if it was received in full at the grant date - as a lump sum (like inventory or some other asset), rather than being received ratably over the employee service period as an annuity. Each of these findings contributes to the observed overstatement of diluted EPS. Correct diluted EPS is observed when the employee service is treated as being received ratably over the service period, and the shares assumed purchased as treasury stock are acquired at the higher period ending market price. The amount of diluted EPS overstatement under both FASB and IASB standards is directly related to the length of the term of the option.

A Note On Accounting For Employee Stock Options When Reporting Diluted Earnings Per Share Under The Treasury Stock Method

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">Firms must currently apply the fair value method in determining the amount of employee compensation incurred in the case of employee stock options.<span style="mso-spacerun: yes;">  </span>Current GAAP also requires that for purposes of calculating diluted earnings per share (EPS), the treasury stock method be applied where the assumed proceeds from exercise of the optioned shares is used to purchase shares of the firm’s stock at its average market price of the earnings period.<span style="mso-spacerun: yes;">  </span>These incremental shares increase the denominator for purposes of calculating diluted EPS.<span style="mso-spacerun: yes;">  </span>These requirements are consistent across the pronouncements of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).<span style="mso-spacerun: yes;">  </span>This study extends the work of Doran (2005) and Doran (2008).<span style="mso-spacerun: yes;">  </span>These previous studies found that applying the treasury stock method where shares are assumed purchased at the average for the period price (instead of end of year price) understates the number of incremental shares (the denominator), which overstates diluted EPS.<span style="mso-spacerun: yes;">  </span>However, these previous works assumed that no shares were actually purchased for the treasury during the earnings period.<span style="mso-spacerun: yes;">  </span>The FASB indicates one reason that the average for the period price is appropriate is because if treasury shares purchases were to occur, “the shares would be purchased at various prices, not at the price at the end of the period.”<span style="mso-spacerun: yes;">  </span>This study tests the notion that the average for the period price is appropriate under circumstances where the firm actually purchases shares for the treasury at its average market price during the earnings period.<span style="mso-spacerun: yes;">  </span>This paper employs a simple one period model that assumes a risk free environment with complete certainty.<span style="mso-spacerun: yes;">  </span>The model allows comparison of computed EPS with an a priori known, correct amount.<span style="mso-spacerun: yes;">  </span>Consistent with Doran (2005) and Doran (2008), the results here again indicate that assuming purchase of treasury shares at their average market price of the earnings period understates the EPS denominator which results in EPS overstatement. <span style="mso-spacerun: yes;"> </span>Correct diluted EPS is derived when the shares assumed purchased under the treasury stock method are acquired at the higher period ending market price.<span style="mso-spacerun: yes;">  </span></span></span></p>

The Use of 9-Ending Prices among Modern Retail Chain Stores in Thailand

The Use of 9-Ending Prices among Modern Retail Chain Stores in Thailand

Attractive Prices and Euro-Rounding Effects on Inflation

Approximately 70% of Belgian consumer prices are to be considered as attractive prices, namely psychological prices, fractional prices - i. e. prices which are convenient to pay - and round prices. Conversion of these prices into euro generally leads to prices which are no longer attractive and it is very likely that retailers will round their prices to attractive euro prices. The public fears that rounding will be upward rather than symmetric. This paper simulates in the first instance a worst-case scenario, whereby all attractive BEF prices are systematically rounded up to the nearest attractive euro price. The effect on the consumer price index ranges from 0.54 to 0.72%. Such a scenario is however very unlikely, as factors such as competition on product markets, the currently prevailing demand conditions, the commitments made by organisations representing the enterprise sector and the vigilant attitude of consumers restrain the possibility of rounding up. In order to obtain a more realistic picture, the paper investigates in a second step whether rounding-up effects were found after the major change in VAT rates in April 1992. These effects seem marginal, although it should be acknowledged that it was difficult to isolate rounding effects from regular price changes. Any ex post assessment of the euro changeover will face a similar identification problem.

Focus on Authors

Focus on Authors

Price endings and tourism consumers’ price perceptions

This investigation considers how consumers of higher-priced goods (i.e., tourism services that are neither cheap nor luxurious) perceive odd and even prices and reveals whether these perceptions differ from previous findings that have nearly exclusively related to low-priced goods (e.g., food). This study therefore addresses a new realm and contributes several findings on price endings in reference to goods priced at higher levels. First, consumers of higher-priced goods might be influenced by price endings, just as consumers of low-priced goods are. Second, personal involvement and price interest have a moderating effect on perceptions of such price endings. Third, odd prices also make sense for sellers of higher-priced goods.