Psychological pricing strategies and consumers response behavior: An empirical investigation in the restaurant industry

The current study investigated the odd-even psychological pricing strategy practiced in the restaurant industry. It presented and tested the Price Ending Strategies and Consumer Response Behavior (PrESCRB) model developed for this study. The marketing aspect (Study I) of the model postulates that restaurant marketers use a 99-price ending to signal value in the quick service restaurant segment, and a 00-price ending to signal quality in the fine dining restaurant segment. While the consumer aspect (Study II) of the model postulates that consumers learn to associate the 99-price ending with value and the 00-price ending with quality from repeated interaction in the marketplace.; Study I, a survey research design, tested six hypotheses that reflected the marketing aspect of the model. Data were collected from quick service and fine dining restaurant marketers throughout the United States. A total number of 112 surveys representing more than 336 restaurants were used in the analysis.; Study II, an experimental research design tested six hypotheses that relates to the consumer aspect of the model. Data were gathered from restaurant consumers located in the Midwest of the United States. Data included a total of 150 respondents. Descriptive statistics were used to analyze the data.; Findings from Study I showed that the 99 and 00-price endings are significantly related to the quick service and fine dining restaurant segments, respectively. It showed that quick service restaurant marketers intentionally use the 99-price endings to signal value and that fine dining restaurant marketers intentionally use the 00-price endings to: signal quality. Study II findings indicated that consumers associate a 99-price ending with value and quick service restaurant restaurants, and a 00-price ending with quality and fine dining restaurants.; The study presents empirical support to the posited PrESCRB model. Supporting, restaurant marketers tended to use the odd-even psychological pricing strategy as a separating equilibrium. That is, they use the 99 and 00-price endings as the signaling mechanisms, to separate quick service restaurants from fine dining restaurants base on the attributes of value and quality. And, as a response strategy, consumers use the 99 and 00-price endings as signaling mechanisms, as intended by marketers.