THE INFLUENCE OF SUPERSTITIOUS BELIEF ON PRICE ENDINGS IN THE MARKET OF THE

ELECTRONICS

Antonio Sze-ToDennis Leung

Tony LowKen Ho

1

Flow of Presentation

Introduction Hypotheses Survey Results Limitations Conclusion

2

Introduction

Review Model Methodology

3

Review

Adopted from http://www.apple.com/hk/

4

Review

Study the distribution of price endings in the market of the electronics.

Study how the customers 'way of thinking towards price endings

8

However…

What is the relation between superstitions

and price endings in the market of electronics?

9

Introduction

Review Model Methodology

10

Decision Making Model

Adopted from http://www.gdrc.org/decision/info-decision.html

11

Decision Making Model

Adopted from http://www.gdrc.org/decision/info-decision.html

12

Decision Making Model

Adopted from http://www.gdrc.org/decision/info-decision.html

13

Decision Making Model

Adopted from http://www.gdrc.org/decision/info-decision.html

14

Decision Making Model

Model Example

1. Defining the problem The place you want to travel in Christmas

2. Finding the information 1. Ask your parents, relatives, friends, classmates, roommates or professors.

2. Read travel guides3. Watch TV programmes about travel4. “Google”

3. Processing the knowledge 1. Judge if your information is valid2. Compare each place in terms of cost,

time, safety, joy and so on.3. Find additional information if

necessary4. Taking the decision Buy the air ticket and have fun !

15

Do we know everything?16

Uncertainty

“Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” - John Allen Paulos

Will the Hang Seng Index rise on next Monday? How long will this presentation last ?

17

Decision Making

People find difficulties in making decision when facing well-understood but undifferentiated (i.e. equally attractive or unattractive) alternatives. (Tsang, Eric W. K. (2004), “Superstition and Decision-Making: Contradiction or Complement?”Academy of Management Executive, 18 (4), 92-104.)

19

Superstitions

“A belief, practice, or rite irrationally maintained by ignorance of the laws of nature or by faith in magic or chance.” – www.answers.com

Not based on the laws of nature Based on faith in magic or chance Irrational

21

Superstitions

Superstitious behavior is commonly perceived as a response to uncertainty. (Vyse, op. cit., 201.)

Superstition serves to fill the void of the unknown and to reduce anxiety. (Malinowski, B. 1948. Magic, science and religion. Garden City, NJ: Doubleday.)

22

Superstitions

Divination Consult Feng Shui Experts

23

Points to note

1. Uncertainty exists everywhere. 2. Decision making is hard due to uncertainty. 3. The higher the uncertainty, the harder the

decision making. 4. People rely on superstitions to acquire

additional information to assist in decision making.

24

Introduction

Review Model Methodology

25

Methodology

Online Survey Price Collection

Software or tools: Microsoft Access MATLAB

26

Online Survey28

Online Survey

Bar charts and Pie charts to compare different responses.

29

Online Survey

Do the consumers have any preferences about price-endings?

Does the degree of superstitions matter? Does the degree of innovativeness matter? What decisions will customers make under high

uncertainty?

30

Price Collection

Collect prices of electronic products 618 prices are collected

A variety of sources (Magazine, Leaflets, Websites)

Four categories (Computer, Phone, TV, DC)

Different types of goods (Second-hand, Parallel Imports)

31

Price Collection

Statistical Analysis (Significant level: α = 0.001) Binomial test to check if a digit is over-represented or

under-represented with respect to chance in a distribution.

Chi-square test to check if a digit occurs more than another digit in a distribution.

Positive results are obtained if p < 0.001.

and more…

33

Price Collection

Is the digit 8 overrepresented? Is the digit 4 underrepresented? Is it true that superstitious beliefs tend to affect

the market of electronic products to a less extend ?

How about First-Hand vs. Second-Hand? How about Authentic Products vs. Parallel

Imports ?

36

Flow of Presentation

Introduction Hypotheses Survey Results Limitations Conclusion

37

Hypotheses

H1: The digit 8 is overrepresented with respect to chance among the rightmost salient ending digits. X H2: The digit 4 is underrepresented with respect to chance among the rightmost salient ending digits that are not overrepresented. Χ H3: Superstitious beliefs tend to affect the market of electronic products to a less extend. The price endings tend to be more evenly distributed. X H4: Overrepresentations of the digit 8 are more pronounced among second-hand market than among first-hand market. X H5: Overrepresentations of the digit 8 are more pronounced among parallel imports than among authentic products.

38

H1: The digit 8 is overrepresented with respect to chance among the rightmost salient ending digits. (binomial test, p<0.001)

0 1 2 3 4 5 6 7 8 905

1015202530354045

All goods(total=618)

Endind numbers

Perc

enta

ge%

This result agree with the previous survey done by Lee C. Simmons and Robert M. Schindler.Possible explanations:(1). According to the traditional Chinese culture, the digit 8 means good luck and enrichment. Make the managers choose it in order to attract customers.

(2). Due to the habit in price-setting procedure. Decision-making in setting a price to a product may cause time and money wasting. Digit 8 is a “standard solution” to resolve the problem 39

X H2: The digit 4 is underrepresented with respect to chance among the rightmost salient ending digits that are not overrepresented.

(binomial test, p = 0.8366)

0 1 2 3 4 5 6 7 8 905

1015202530354045

All goods(total=618)

Endind numbers

Perc

enta

ge%

1. Digits: 5, 8, 9 have relatively high chance2. Digits: 0, 1, 2, 3, 4, 6, 7 are having similar chance of representation in the price ending.3. It means digit 4 is not special in the price ending in the electronic product markets.4. Then this means that the unfavorable superstitious meaning of digit 4 disappears.Possible explanation:The preference of choosing 5, 8, 9 as price endings is a habit for technical reasons. Otherchooses are made according to various factors.

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X H3: Superstitious beliefs tend to affect the market of electronic products to

a less extend. The price endings tend to be more evenly distributed.

41

All goods(total=618)

0

5

10

15

20

25

30

35

40

45

0 1 2 3 4 5 6 7 8 9

Endind numbers

Perc

enta

ge%

1. The difference in data of the two studies are statistically significant (X2 [9] = 45.771, p < 0.001). Variation in culture in the places. The previous survey was conducted in a range of 3 cities including Shanghai,

Taiwan and Hong Kong whereas our study was done solely in Hong Kong.

Fig 1. Previous result Fig.2 Our result

All goods(total=618)

0

5

10

15

20

25

30

35

40

45

0 1 2 3 4 5 6 7 8 9

Endind numbers

Perc

enta

ge%

Fig 1. Previous result Fig.2 Our result

2. More prices ended with 9 in our study. Owing to consumers’ tendency to truncate partially perceived prices they will encode the actual price into easier-to-use round numbers by doing so

42

All goods(total=618)

0

5

10

15

20

25

30

35

40

45

0 1 2 3 4 5 6 7 8 9

Endind numbers

Perc

enta

ge%

Fig 1. Previous result Fig.2 Our result

3. the difference in percentage of goods ended with 8 in both groups is not statistically significant (X2 [1] = 0.1285, p = 0.72).

43

Summary in H3 :

1. The distribution of prices is not even at all.2. Violate our H3 .

44

X H4: Overrepresentations of the digit 8 are more pronounced among second-hand

market than among first-hand market. (X2 [1] = 16.0829, p < 0.001)

Possible explanations:(1). Essential differences between sellers in firsthand market and that in secondhand

market secondhand seller pay less attention to the details of price-setting strategy, and difficulties involved in price evaluation

45

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

30

35

40

45

501st hand(total=527)

Endind numbers

perc

enta

ge

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

2nd hand(total=91)

Endind numbers

Perc

enta

ge%

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

2nd hand(total=91)

Endind numbers

Perc

enta

ge%

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

30

35

40

45

50

1st hand(total=527)

Endind numbers

Endi

nd n

umbe

rs

Possible explanations:(2). Systematic error in data collection

The size of secondhand electronic market may be underestimated since less than a hundred of price endings from this market are collected in our study.

The validity of the price-endings collected should be examined due to informational confusion on the Internet

46

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

2nd hand(total=91)

Endind numbers

Perc

enta

ge%

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

30

35

40

45

50

1st hand(total=527)

Endind numbers

Endi

nd n

umbe

rs

Some features: Digit 5 and 0 are as frequently presented as digit 8 To create discount illusion. This result occurs only in secondhand market, but not in the market of parallel import.

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X H5: Overrepresentations of the digit 8 are more pronounced among parallel imports than among authentic products. (X2 [1] = 1.0598, p = 0.3033)

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

30

35

40

45

50 Authentic(total=445)

Endind numbers

Perc

enta

ge%

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

30

35

40

45

Parallel import(total=82)

Endind numbers

Perc

enta

ge%

Possible explanations:(1). There are information gap between the authentic products sellers and parallel imports sellers Authentic products are often sold by relatively large companies which in general have more resources Large companies can also research on the consumer behavior to know more about the market The middle-sized or small companies know less about the market.

48

X H5: Overrepresentations of the digit 8 are more pronounced among parallel imports than among authentic products.

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

30

35

40

45

50 Authentic(total=445)

Endind numbers

Perc

enta

ge%

0 1 2 3 4 5 6 7 8 90

5

10

15

20

25

30

35

40

45

Parallel import(total=82)

Endind numbers

Perc

enta

ge%

Possible explanations:(2). The sample size of the parallel imports is comparably less than that of authentic products

49

Flow of Presentation

Introduction Hypotheses Survey Results Limitations Conclusion

50

Respondents

164 responses are collectedMale : 109 / 164Female : 55 / 164Age: majority from 21 to 30Education level: 55% from university or above

51

Question (1)

1. General image on parallel imports & secondhand products

Q8 你曾經購買過水貨電子產品嗎 ? Q9 你認為行貨電子產品比水貨電子產品更能給予你信心嗎 ?Q10 你曾經購買過二手電子產品嗎 ? Q11 你認為一手電子產品比二手電子產品更能給予你信心

嗎 ?

52

Response (1)

是76%

非24%

你認為行貨電子產品比水貨電子產品更能給予你信心嗎 ?

53

Response (1)

是77%

非23%

你認為一手電子產品比二手電子產品更能給予你信心嗎 ?

54

Question (2)

2. Willingness to pay higher for a lucky price ending

Q42 假設你要購買一部行貨手機，你找到兩部相同型號的手機，而價錢只有少許分別，你會選擇下列哪一部？ ($1004/$1008)

Q45假設你要購買一部新推出的貴價電話，你在兩家公司找到這手機，而價錢只有少許分別，你會選擇下列哪一部？ ($8004/$8008)

55

Response (2)

$100477%

$100823%

假設你要購買一部行貨手機，你找到兩部相同型號的手機，而價錢只有少許分別，你會選擇下列哪一部？

56

Response (2)

$800477%

$800823%

假設你要購買一部新推出的貴價電話，你在兩家公司找到這手機，而價錢只有少許分別，你會選擇下列哪一部？

57

Response (2)

$100477%

$100823%

假設你要購買一部二手手機，你找到兩部相同型號的手機，而價錢只有少許分別，你會選擇下列哪一部？

$100477%

$100823%

假設你要購買一部水貨手機，你找到兩部相同型號的手機，而價錢只有少許分別，你會選擇下列哪一部？

58

Response (2)

$65559%

$644491%

試想像你需要購買一部數碼相機。你找到了一部五百萬像數、五倍變焦、內置閃光燈的相機，但在不同地方的售價有點不一，你將會購買哪一部？

59

Analysis (2)

Consumers are less exposed to risk than retailers in transactions => Placing 8 as price-ending is not profitable

An extra exposure to risk will not affect the overall consumers’ attitude

61

Question (3)

3. Which group of consumers will favor digit 8 as price-ending?

Q12 在很多情況下，命運決定了發生在人們身上的事。Q13 天體的排列決定了人的性格。Q14 「八」能帶來好運。Q15 因為命運的存在，我時常對發生在自己身上的事感到無能為力。Q16 生日日期決定了我的命運。Q17 「四」能帶來噩運。Q18 好的「氣」能帶來健康、財富和繁榮。Q19 配帶幸運飾物能帶來好運。Q20 在球賽前進行團隊拜祭能引致球隊獲勝。Q21 在工作前祈求得到成功能為我帶來成功。

62

All Respondents

Superstitious( > 3rd quartile)

$1008 in Q42

Normal(In between)

Nonsuperstitious( < 1st quartile)

$1008 in Q42

Procedure (3)63

Response (3)

Superstitious Group Non-superstitious Group0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Percentage of respondents choosing $1008 in Q4264

Response (3)

Superstitious Group Non-superstitious Group0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Percentage of respondents choosing $1008 in Q45

65

Percentage of respondents choosing $8008 in Q45

Question (4)

Innovativeness (Q22- Q25)

Q22 我喜歡去到能接收新產品和牌子資訊的地方。Q23 我經常尋找新產品和服務。Q24 我持續地尋找新產品的體驗。Q25 在購買新產品前，我很少問朋友關於該產品的使用經

驗。

67

Procedure (4)

All Respondents

Innovative( > 3rd quartile)

$1008 in Q42

Normal(In between)

Non-innovative( < 1st quartile)

$1008 in Q42

68

Response (4)

Innovative Group Non-innovative Group0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Percentage of respondents choosing $1008 in Q42

69

Response (4)

Q42 假設你要購買一部行貨手機，你找到兩部相同型號的手機，而價錢只有少許分別，你會選擇下列哪一部？

Q43 假設你要購買一部二手手機，你找到兩部相同型號的手機，而價錢只有少許分別，你會選擇下列哪一部？

Q44 假設你要購買一部水貨手機，你找到兩部相同型號的手機，而價錢只有少許分別，你會選擇下列哪一部？

Q45 假設你要購買一部新推出的貴價電話，你在兩家公司找到這手機，而價錢只有少許分別，你會選擇下列哪一部？

70

Possible Explanation (4)

Innovativeness is positively related to (proactive) superstitious belief( Hernandez, Wang, Minor and Liu, 2008)

72

Survey

Placing the digit 8 as price-ending is not much profitable to retailers.’

Respondents are less responsive to 4 than 8. A larger exposure of risk to consumers will not

make any difference. The more superstitious/innovative, the more likely

to choose a product priced at a lucky price-ending.

73

Flow of Presentation

Introduction Hypotheses Survey Results Limitations Conclusion

75

Limitations

The interviewees are invited via facebook invitations

Sample size may not be large enough

Limitations

Focus mainly put on 4 and 8

Merely considering superstition as the contributing factor in pricing strategy

how-much-to-buy decision versus purchase-not-purchase decision.

Further investigation

A larger and more randomized survey to verify our preliminary results

Pricing strategies in other industries

Interviewing shop owners to learn about their pricing strategies

Further investigation

Combination and length of prices instead of price ending only

Field experiment rather than online survey

difference in price ending distributions in Chinese and western markets

Adopted from Robert M. Schindler and Patrick N. Kirby, Patterns of Rightmost Digits Used in Advertised Prices: Implications for Nine-Ending Effects, The Journal of Consumer Research, Vol. 24, No. 2 (Sep., 1997), pp. 192-201

Our study US study

Further investigation

Flow of Presentation

Introduction Hypotheses Survey Results Limitations Conclusion

81

Summary

Overrepresentation of 8 in the market

Uneven distribution of price endings

Differences in distribution in First-Hand vs. Second-Hand Authentic Products vs. Parallel Imports

Summary

Trend for superstitious and innovative people to buy product with lucky price endings

Unlikeliness for businessmen to profit from using 8 as price endings

Risk not being associated with lucky price endings

Recommendations

Act as a reference for businessmen Not necessary to use prices ended with 8 More in-depth investigation on consumer behavior

Let the public understand the pricing strategy 8, 9 used extensively as price ending Not to truncate prices

Thanks You

Q & A

85