Effects of the transition from Lira to Euro on buyers

product evaluations.

Simona Romani1
Daniele Dalli
Dipartimento di Economia Aziendale
University of Pisa - Italy

Track: Pricing

Simona Romani Dipartimento di Economia Aziendale, Via C. Ridolfi, 10 56124 Pisa

(Italy), e-mail: sromani@ec.unipi.it

Effects of the transition from Lira to Euro on buyers product

evaluations.

Abstract
The authors report a study of the effect of the transition from Lira to Euro on buyers
perceptions of monetary sacrifice, product quality and value, as well as their willingness to
buy. Hypotheses are derived from an integration of the model positing the effects of price on
buyers perceptions and purchase intentions with notions derived from numerical cognition.
Results indicate that the transition to Euro produces a richness effect with a reduction in the
perceived monetary sacrifice and an increase in perceived value and willingness to buy. In
particular, we found this effect to be influenced by the level of price.

Keywords
Price perception, euro.

1. A conceptual model for product evaluations and choices

Monroe and Krishnan (1985) using Monroes (1979) conceptualization of perceived value,
provided a model relating price, perceived quality, perceived sacrifice, perceived value and
willingness to buy.
In that model, actual price is an objective external characteristic of a product that consumers
perceive as a stimulus; price can be both an indicator of the amount of sacrifice needed to
purchase a product and an indicator of the level of quality. Higher prices lead to higher
perceived quality and consequently to a greater willingness to buy. At the same time, the
higher price represents a monetary measure of what must be sacrificed to purchase the good,
leading to a reduced willingness to buy. The cognitive trade off between perceptions of
quality and sacrifice results in perceptions of value, that directly influences willingness to buy
(Fig. 1).
Specifically, in a buying situation consumers define the perceived value integrating the utility
derived from perceived quality with the disutility derived from perceived sacrifice; when the
difference between utility and disutility is positive, the product has a positive value. Finally,
the higher the perceived value, the greater the willingness to buy.
This conceptual model will be used in order to test the effects of the transition from Lira to
Euro on buyers product evaluations.

+
Perceived quality

Price

Perceived value

Willingness
To buy

Perceived sacrifice
+

Fig. 1. A conceptual model of the effect of price on product evaluation.

2.

The introduction of Euro and the richness effect

In January 2002 Italy is going to move from the existing national currency Lira - to Euro.
A potential problem in the passage to the new currency is the existence of the money
illusion (Shafir et al., 1997). This is a bias in the assessment of the real value of the
transaction, induced by the nominal representation.
Specifically, in the Italian case, the convertion of prices in Euro generates their reduction: for
example the price for a car changes from 35.000.000 Lire to 18075,99 Euro and for a pair of
shoes from 160.000 Lire to 82,63 Euro.
The compression of the numerical representation of price is strong and this change could
produce what we call a richness effect: buyers willingness to buy becomes higher because
the sacrifice perception is reduced, given the small number presented as price.
From a theoretical point of view this richness effect can be explained considering numerical
cognition. Central to the study of numerical cognition are questions of representation: how are
numbers represented in memory? and, what are the implications of different modes of
representation in numerical processing?
Two basic ideas in the literature on numerical cognition are:
numbers are represented on the same magnitude mode that characterizes the
processing of physical stimuli. Numerals are converted to analogue magnitudes, and
a comparison is made between the magnitudes in much the same way that
comparisons are made between physical stimuli (Moyer and Landauer, 1967; p.
1520). The clearest evidence for a magnitude representation comes from the distance
effect: the time to decide which of the two numbers is larger (or smaller) depends on
the numerical distance between them and specifically it decreases when the numerical
distance increases. This suggests that digits are not compared at a symbolic level (or
surface level) but they are recoded and compared as quantities.
The magnitude code is activated automatically in representation of numbers. As
observed by Dahaene (1992, p.21) the representation of an arabic numeral elicits an
automatic activation of the appropriate relative magnitude code. This activation cannot
be repressed, even though magnitude information is irrelevant to the requested task.
The aspect of the automatic activation of the magnitude code is implicit in several
models of numerical processing (see, e. g., Dehaene, 1992, Gallister and Gelman,
1992).
The magnitude involved in the conversion of 160.000 Lire is different compared to the
magnitude involved in the convertion of 82, 63 Euro and we can expect the latter to generate a
lower perception of monetary sacrifice and a greater perception of value.
For Italian consumers price is traditionally expressed in Lira and it is associated with a big
number; passing to Euro the number will be small and, especially during the first period of
application, the real value of the transaction could be considered lower.

Hence, the final effect could be a reduction in the perceived monetary sacrifice and an
increase in perceived value and willingness to buy.
We expect this effect to be influenced by the level of price; in a specific product class, high
price levels increase consumers attention to price and the probability to consider this cue
relevant in the buying decision; on the contrary, low price levels make consumers consider
price acceptable and what they decide to buy may ultimately depend on the perceived
goodness of other extrinsic or intrinsic cues (Dodds, 1991).
In this latter case, considering the limited attention to price, we may expect the richness
effect to be reduced.
3. Hypotheses
The preceding conceptualizations suggest the following hypotheses:
H1: When price is indicated in Euro instead of Lire, ceteribus paribus,
- buyersperceptions of quality are constant2
- buyers perceptions of sacrifice are lower;
- buyers perceptions of value are greater;
- buyers willingness to buy is greater.
H2: The effect indicated in H1 is stronger with high prices than with low prices.
4.

Research method

4.1. Research design

We tested the hypotheses by using a 2x2 between-subjects factorial design, with two price
levels (low and high) and two currencies (Lira and Euro) (Table1).
From pretests, we determined the product to use in the study and subjects acceptable price
ranges.
Table 1
Research design*
Lire
Euro
Low price
1 (n=55)
2 (n=46)
High price
3 (n=48)
4 (n=55)
* The number in each cell represents a cell number and the number of individuals
assigned to each cell.

The first pretest led to the selection as a product of a stereo headset player; the selection of the
product was guided by the criteria that a) subjects be potential purchasers, b) the product
presents a wide price range, and c) the product be used by both men and women.
On the basis of a second pretest we determined two prices for the product high price
(224.000 Lire or 116 Euro) and low price (36.000 Lire or 19 Euro) perceived completely
differently by consumers.
4.2. Research procedure
In the 2x2 factorial design we used 204 undergraduate students (divided per cell as indicated
in Table 1) enrolled in the marketing course at the University of Pisa. Each subject was
exposed, for 30 seconds, to the same advertisement reproducing the product, its basic
functions and its price.
2

We assume the transition from Lira to Euro doesnt influence product quality perception. Given the numerous
information available products coloured representation and products basic function and given the
experience of the subjects with the product, we expect a marginal role of price in the formation of product
quality perceptions.

After that, subjects were asked to answer the questions included in a questionnaire given to
them at the beginning of the experimental session.
4.3. Dependent variables
Subjects evaluated product perceived quality, perceived monetary sacrifice, perceived value
and willingness to buy on multi-item 10-point scales that were developed from previous
research and retested during the experiment.
Following the procedures suggested by Churchill (1979) we developed the indicators and
assessed them for internal and external consistency by using correlation analysis, factor
analysis and Cronbachs alpha. The values of coefficient alpha were .76 for perceived quality
(average inter item correlation .51), .94 for perceived monetary sacrifice (average inter item
correlation .84), .90 for perceived value (average inter item correlation .50) and .93 for
willingness to buy (average inter item correlation .83).
5.

Results and analyses

5.1. Manipulation checks

At the end of the experiment, subjects evaluated the price (very high to very low) on 10-point
rating scales. Analysis of the manipulation check mean scores suggested that the manipulation
of the independent variable was perceived as intended. Mean score for low price was 4.5 and
for high price 7.8 and the difference between the pair of means was significant with p< .001 (t
= -11.93).
5.2. Hypothesis tests
The means scores and the standard deviations for independent variables are reported in Table
2 and the multivariate analysis of variance for testing the hypotheses is reported in Table 3.
Results support H1; expressing price in Euro, quality perception was constant, but we
observed a reduction in the perceived monetary sacrifice and hence an increase in the
perceived value and in the willingness to buy.
The results of the currency effect on perceived monetary sacrifice were interpreted within
price levels (significant currency-price interaction). The currency effect is not significant in
the low price level, but is significant in the high price level (t = 3.61; p< .001); in the same
way, the results of the currency effect on perceived value were interpreted within price level
and we found a significant effect only in the high price level (t = 3.3; p< .001).
Concerning willingness to buy the currency-price interaction is not significant in general, but
there is a partial support for the currency effect in the high price level condition (t = 3.6; p<
.001). Therefore, we can conclude that results support H2.
Table 2
Cell means and standard deviations for perceived sacrifice, perceived value and
willingness to buy*.
Lira
Euro
mean
std.dev.
mean
std.dev.
s=
3.4
1.9
s=
3.3
1.9
v=
6.1
1.7
v=
6.1
1.6
low price
w=
5.0
2.4
w=
5.5
2.3
s=
8.4
1.5
s=
7.0
2.2
v=
3.9
1.6
v=
5.0
1.5
high price
w=
2.2
1.7
w=
3.4
2.0
s = perceived sacrifice; v = perceived value; w = willingness to buy.
* Means are on a 10-point scale, 1 being low and 10 being high

Table 3
Analysis of variance results
Effect
Dependent variables
Currency
(Euro/Lire)

Price
(low/high)

Interaction

Error

Perceived quality
Perceived monetary
sacrifice
Perceived value
Willingness to buy
Perceived quality
Perceived monetary
sacrifice
Perceived value
Willingness to buy
Perceived quality
Perceived monetary
sacrifice
Perceived value
Willingness to buy
Perceived quality
Perceived monetary
sacrifice
Perceived value
Willingness to buy

Df

Sig.

1
1

Mean
square
0.61
24.871

0.281
7.006

0.009

1
1
1
1

13.492
41.009
22.314
962.741

5.269
9.065
10.274
271.215

0.023
0.003
0.002
<0.001

1
1
1
1

136.233
297.857
0.897
21.429

53.203
65.841
0.413
6.037

<0.001
<0.001
0.015

1
1
200
200

13.537
7.472
2.172
3.550

5.287
1.652

0.023
-

200
200

2.561
4.524

6. Conclusions
In conclusion it is apparent that results reported here show the existence of richness effect:
passing to Euro, given the small magnitude of price mental representation, consumers
perceive a lower monetary sacrifice and they increase their willingness to buy.
Therefore, with the introduction of Euro we can expect an increase in consumers demand; and
its very important to specify that this increase seems stronger for products characterized by
high price levels in a product class, to the prejudice of products with low price levels.
Additional research is necessary to explore how the effects work with a wider range of
products, prices, situations, settings and populations.

References
Dahaene, S., 1992. Varieties of numerical abilities. Cognition, 44, 1-42.
Dodds, W.B., 1991. In search of value: how price and store name information influence
buyers' product perceptions. Journal of Consumer Marketing, 8, Spring, 15-24.
Monroe, K.B., Krishnan, R. 1985. The effect of price on subjective products evaluations. In:
Jacoby, J., Olson, J. C. (Eds.), Perceived Quality: how consumers view stores and
merchandise, Lexington, MA: Lexinghton Books.
Monroe, K.B., 1979. Pricing: Making Profitable Decisions, New York, McGraw-Hill Book
Company.
Moyer, R. S., Landauer, T. K.,1967. The time required for judgments of numerical inequality.
Nature, 215, 1519-1520.
Shafir, E., Diamond, P., Tversky, A., 1997. Money illusion. Quarterly Journal of Economics,
112, 341-374.