Precision Pricing : An experimental study on the perception of precise prices
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- Master Thesis 
This thesis aims to achieve new contributions and insight on how a precise price affects consumer perception of both firms and products. The study is based on an experimental survey, conducted through Prolific, Amazon MTurk, and Qualtrics, with financial support from the Department of Accounting, Auditing and Law at NHH. The experimental design is based on a belief that precise prices will affect consumers' perception of costs, pricing procedures, and fairness. Our experiment is based on a 2x2 factorial design, with four different treatment groups. All treatments obtain some information regarding a hypothetical firm, YourKitchen. Two groups are informed that YourKitchen has a cost-focus. All participants are further asked to provide a cost estimate for one of their products, which is priced at $20 or $20.17, depending on the treatment group. This design allows us to analyze how participants perceive precise prices, both in isolation, and in combination with a self-proclaimed cost-focus. Proceeding, participants are asked to rate statements regarding the characteristics, pricing procedure and fairness of the product. Ultimately, we assigned participants to one of two different groups, seeing either a round or precise price, and ask them to provide a profit estimate. The results show that precise prices increase cost estimates, and this effect is statistically significant. This was expected, as former research show similar results. However, this effect is diminished when combined with a proclaimed cost-focus. This is contradictory to our hypothesis of positive synergies between the two manipulations. Interestingly, we found that both precise pricing and a self-proclaimed cost-focus, when seen in isolation, seem to have an almost identical effect on the cost estimates. Prior research on the price precision effect have not investigated whether this effect is more than just a simple anchoring effect. Interestingly, we believe that the combination of the results from the cost and profit estimation questions indicate that the price precision effect is not solely an anchor effect. Moreover, the majority of our participants seem to believe that precise pricing signals cost-based pricing. However, in contrast with our hypothesis and prior research, there is no data from our study suggesting that this increased perceived fairness. We discuss that this may be due to the asymmetric informational relationship.