Using Combined-Currency Prices to Lower Consumers' Perceived Cost

Abstract

The increasing popularity of loyalty programs and related marketing promotions has resulted in the introduction of several new currencies (e.g., frequent flier miles, Diner's Club "Club Rewards") that consumers accumulate, budget, save, and spend much as they do 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, an understanding of how shoppers respond to "combined currency pricing" is important for marketers. This research is the first to explore how consumers evaluate transactions that involve combinedcurrency prices, or prices issued in multiple currencies (e.g., $39 and 16,000 miles). The authors present a formal mathematical proof that outlines the conditions under which a price that comprises payments delivered in different currencies can be superior to a standard, single-currency price, either by lowering the psychological or perceived cost associated with a particular revenue objective (i.e., price) or by raising the amount of revenue collected given a particular perceived cost. Three studies, in which respondents evaluate and choose among prices issued in single and combined currencies, offer both experimental and empirical support.

Keywords: Currency, Consumers, Perceived Cost