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Using Combined-Currency Prices to Lower Consumers' Perceived Cost

Authors:
Xavier Drèze
Joseph C. Nunes

Publisher:
Journal of Marketing Research
2004, Vol. 41 (1), 59-72

Abstract:
The rising popularity of loyalty programs and related marketing promotions has resulted in the introduction of a number of new currencies (e.g., frequent flier miles, Hilton HHonors points, Diner's Club "Club Rewards") that people accumulate, budget, save and spend much like traditional paper money. As consumers are increasingly able to pay for goods and services such as airline travel, hotel stays and groceries in various combinations of currencies, understanding how shoppers respond to we call "combined-currency pricing" is becoming increasingly important to marketers.
This research is the first to explore how consumers evaluate transactions involving "combined-currency prices," or prices issued in multiple currencies (e.g., $39 plus 16,000 miles). We present a formal mathematical proof outlining the conditions under which a price comprised of payments delivered in different currencies can be superior to a standard, single-currency price by either (a) lowering the psychological or perceived cost associated with a particular revenue objective (i.e., price), or (b) raising the amount of revenue collected given a particular perceived cost. Three studies, which include having actual airline travelers evaluate and make choices among prices issued in single and combined currencies, offer both experimental and empirical support.
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