Assumption Checks

5.5.4.2.1 Assumption Check 1: In this study, process models for HNFC and LNFC respondents were developed. It was assumed that when surcharge is reasonable, the HNFC individuals are likely to focus more on the base price of the product in evaluating the value of the offer because they will treat the reasonable shipping and handling charge as an inherent expense associated with a mail order transaction. To check this assumption we included a measure for the “main focus” of the respondents while they evaluated the offer. The subjects were asked to indicate whether they mainly focused on the price of the PDA excluding the shipping and handling charges or on the price of the product plus the shipping and handling to evaluate the offer.

Twenty one out of twenty four HNFC respondents indicated that they focused mainly on the price of the PDA excluding the surcharge, while three HNFC respondents indicated that they focused on the total price of the PDA including the surcharge (i.e., only 12.5 percent of HNFC respondents included the shipping and handling charge in their evaluation of the offer for the product while the rest did not). On the other hand, eleven out of twenty four LNFC respondents indicated that they focused mainly on the price of the PDA (excluding the surcharge) while thirteen respondents indicated that they focused on the total price of the PDA including the surcharge (i.e. 54 percent of LNFC respondents included the shipping and handling charges in their evaluation of the offer for the product) (see Table 5.11).

5.5.4.2.2 Assumption Check 2: Another measure was included in the experiment to examine the evaluation process of the respondents. Respondents were asked to weigh the two price components (the base price of the PDA and the shipping and handling charge) based on the degree to which they used them in the evaluation of the offer for the product. They were asked to divide ten chips between the two price components to reflect the importance of each

component in the decision making of the respondents. Following the statement “To judge the value of the offer I used:”, the respondents were instructed to allocate ten chips to “The price of the PDA (excluding the shipping and handling charge)” and “The shipping and handling charges”. The measure showed that the mean number of chips allocated by HNFC respondents to the base price of the product was 7.79 and it was significantly higher than the mean of LNFC respondent’s allocation of chips to the base price which was 6.71(t = 2.485, p = .017).

Consequently, the mean number of chips allocated to the shipping and handling charges by the HNFC respondents was significantly lower (2.21) than the mean number of chips allocation to the surcharge by the LNFC (3.29) (t = -2.485, p = .017) (see Table 5.12). These results imply that the HNFC individuals gave more weight to the base price of the product than the LNFC individuals and consequently, less weight to the shipping and handling charge than the LNFC individuals while evaluating the offer when shipping and handling charges were perceived as unreasonable.

5.5.4.2.3 Assumption Check 3: When surcharges are reasonable it was also assumed that, counterarguments related to the shipping and handling charges would not differ between HNFC and LNFC respondents. In the previous two studies there was a check for the number of counterarguments about shipping and handling charges only in the unreasonable surcharge condition. In this study, this check was included for the reasonable surcharge condition as well.

An open ended question was asked requesting the respondents to indicate what went through their mind when they saw the price of the PDA and the surcharge information. It was expected that when exposed to a reasonable surcharge amount, the HNFC respondents and the LNFC respondents will not differ in their negative reactions (if any) to the surcharge. The information

expected, it was found that the counterarguments of HNFC (mean = 0.25) and LNFC (0.42) individuals did not show significant difference (t = 1.218, p>0.10). Moreover the HNFC respondents, overall, offered six support arguments toward the reasonable shipping and handling charge for one-day delivery and LNFC individuals offered none.

Overall, the assumption check measures show that when surcharges are reasonable, HNFC individuals are likely to assess the two price components (the base price and the surcharge) and give more weight to that component which they find more diagnostic for decision making. The HNFC individuals focused more on the base price of the product than the surcharge to evaluate the offer and they allocated higher weight to the base price than the surcharge as compared to the LNFC individuals. Finally, reasonable surcharges did not result in significantly different amount of counterarguments from HNFC versus LNFC respondents. Interestingly, the HNFC individuals being more deliberative in their thinking noticed the reasonableness of the surcharge and offered support arguments related to it.

5.5.4.3 Hypotheses Tests

H1 and H2 were examined by conducting a 2 (Partitioned pricing vs. Combined pricing) X 2 (High vs. Low need for cognition) MANOVA. The MANOVA revealed a significant interaction (Wilks’ Lambda = .911, F = 4.877, p = .010) as shown in Table 5.9. Main effect for price was significant (Wilks’ Lambda = .884, F = 6.585, p = .002) while no main effect was found for need for cognition. Univariate results presented in Table 5.9 indicate that the multivariate interaction effect was due to the effects on perception of value of the offer [F (1, 101) = 9.350, p = .003)] as well as on willingness to purchase [F (1, 101) = 5.838, p = .017)].

H1 proposed that perception of value of the offer for partitioned pricing will be higher than that for combined pricing and the difference in the effect of the two types of pricing would

be significant for HNFC individuals and not for LNFC individuals. Consistent with the hypothesis, perception of value of the offer was significantly higher for partitioned pricing (mean

= 4.98) compared to combined pricing (mean = 3.96) for HNFC individuals (t = 3.367, p = .001).

In addition, no significant difference was found in perception of value of the offer between partitioned pricing (mean = 4.34) and combined pricing (mean = 4.47) for LNFC individuals (t = -.555, p > 0.10) (see Table 5.10 and Figure 5.9). Hence, H1 was supported.

H2 proposed that willingness to purchase the product for partitioned pricing, as compared to combined pricing, will be higher for HNFC individuals than for LNFC individuals. As the results in Table 5.10 and Figure 5.10 show, partitioned pricing resulted in a significantly higher willingness to purchase the product (mean = 5.31) compared to combined pricing (mean = 3.86) for HNFC individuals (t = -4.865, p = .00). Moreover, willingness to purchase did not significantly differ between partitioned pricing (mean = 4.60) and combined pricing (mean = 4.31) LNFC individuals (t = 0.783, p > .10). This provides support for hypothesis H2.

Table 5.9 Study 3: The Effect of Type of Pricing Strategy (2 Types) and Need For Cognition (2 Levels) on Perception of Value of the Offer and Willingness to Purchase

(Experiment 1)

Table 5.10 Study 3: Means and t-values (Experiment 1)

Willingness to Purchase

4.31

3.86 5.31

4.60

3 3.5 4 4.5