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Compromise pricing in luxury

Béatrice Parguel (), Annalisa Fraccaro and Sandrine Macé
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Béatrice Parguel: DRM - MLAB - Dauphine Recherches en Management - MLAB - DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique
Annalisa Fraccaro: ESCP-EAP - ESCP-EAP - Ecole Supérieure de Commerce de Paris
Sandrine Macé: TBS - Toulouse Business School

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Abstract: Purpose Going beyond odd and even prices, this paper aims to explore the rationale behind the widespread practice of setting prices ending in "50" or "80" in the luxury industry. The authors argue that when they set such prices, managers agree to reduce their profit margin to limit the anticipated guilt luxury consumers associate with luxury shopping while also protecting their brand luxury. The authors label these prices compromise prices and formally define compromise pricing as the practice of choosing a price's ending so that the price falls below (but not just below) a round number to boost sales without damaging brand luxury. Design/methodology/approach Following the observation of the overrepresentation of prices ending in "50" and "80" in the luxury clothing category, an experiment explores the impact of compromise prices on anticipated guilt and brand luxury in the luxury watch category. Then, to identify when luxury pricing managers typically favor compromise prices, multinomial regressions investigate prices collected on two online luxury fashion retailers for the luxury clothing and handbag categories. Findings Compromise prices reduce the anticipated guilt luxury consumers associate with luxury shopping compared with even prices while enhancing brand luxury compared with odd prices and interestingly, with even prices also. This finding gives rationale to luxury managers' preference for compromise prices in the ninth hundred (i.e. €X950, €X980), especially for higher-priced products, i.e. when the potential for price underestimation and/or the risk of damaging brand luxury are more important. Originality/value This research contributes to the field of luxury pricing by providing evidence to an original price-ending practice, coined compromise pricing, which consists in agreeing to a slight reduction in prices and unit margin to protect brand luxury.

Keywords: Compromise pricing; price endings; anticipated guilt; brand luxury (search for similar items in EconPapers)
Date: 2021-09-27
New Economics Papers: this item is included in nep-ipr and nep-mkt
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Published in Journal of Product and Brand Management, 2021, 31 (3), ⟨10.1108/JPBM-10-2020-3157⟩

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DOI: 10.1108/JPBM-10-2020-3157

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