Journal of Product & Brand Management

Actual market prices and consumer price knowledge

Ville Aalto-Setl Anu Raijas

Article information:
To cite this document:
Ville Aalto-Setl Anu Raijas, (2003),"Actual market prices and consumer price knowledge ", Journal of Product & Brand
Management, Vol. 12 Iss 3 pp. 180 - 192
Permanent link to this document:
http://dx.doi.org/10.1108/10610420310476933
Downloaded on: 26 May 2015, At: 13:28 (PT)
References: this document contains references to 18 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 2633 times since 2006*
Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

Users who downloaded this article also downloaded:

Alistair Davidson, Mike Simonetto, (2005),"Pricing strategy and execution: an overlooked way to increase revenues and profits",
Strategy & Leadership, Vol. 33 Iss 6 pp. 25-33 http://dx.doi.org/10.1108/10878570510631639
Nigel F. Piercy, David W. Cravens, Nikala Lane, (2010),"Thinking strategically about pricing decisions", Journal of Business
Strategy, Vol. 31 Iss 5 pp. 38-48 http://dx.doi.org/10.1108/02756661011076309
Simon Lee, Abdou Illia, Assion Lawson-Body, (2011),"Perceived price fairness of dynamic pricing", Industrial Management
& Data Systems, Vol. 111 Iss 4 pp. 531-550 http://dx.doi.org/10.1108/02635571111133533

Access to this document was granted through an Emerald subscription provided by 231834 []

For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please visit
www.emeraldinsight.com/authors for more information.

About Emerald www.emeraldinsight.com

Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of
more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online
products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics
(COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.
*Related content and download information correct at time of download.

An executive summary for

managers and executive
readers can be found at the
end of this article

Actual market prices and

consumer price knowledge
Ville Aalto-Setala

Head of Research, National Consumer Research Centre, Helsinki,

Finland

Anu Raijas

Senior Lecturer, Department of Economics and Management,

University of Helsinki, Helsinki, Finland
Keywords Consumer behaviour, Prices, Knowledge, Pricing

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

Abstract This paper examines consumer price knowledge by comparing the actual
market prices and consumer price estimates in the Finnish grocery market. Although the
individual price estimates of consumers were found to differ significantly from the actual
market prices, the medians of consumer price estimates and market prices were very close
to each other for most of the products in our data. The study indicates that consumer price
knowledge is not as poor as previously suggested by the results of point-of-purchase
studies. We suggest that at least part of the weakness in consumer price knowledge can be
explained by differences in market price variation.

Introduction
Price variation, or a different price for the same good, is characteristic of
nearly all markets. Even homogeneous products normally exhibit some price
dispersion in market equilibrium. A rather common finding is that
consumers' imperfect information is one of the reasons for price dispersion
among homogeneous products (see, for example, Stigler, 1961; Salop and
Stiglitz, 1977; Varian, 1980). On the other hand, at least some part of the
price dispersion may be due to other factors. In the case of products that are
perfectly homogeneous physically there may, for example, be differences
between the distribution services of various companies, thus causing
variation in prices.
Studying consumers' price
awareness is highly
relevant

Commodity prices in the market play a relevant role in consumer

decision-making; they influence what, when, where and how much
consumers buy (Alba et al., 1994, 1999) and therefore studying consumers'
price awareness is highly relevant. Current research on consumers' price
knowledge has focused on price knowledge at the point of purchase:
consumers have been asked to recall the price of a product immediately after
having chosen it. Most of these studies have concluded that the price
knowledge of consumers is generally quite limited (e.g. Dickson and
Sawyer, 1990).

Grocery prices may vary

significantly

Urbany and Dickson (1991) studied the important relationship between the
variation of market prices and the consumers' price knowledge. Our study
continues the work of Urbany and Dickson and investigates the degree of
consumers' price-consciousness, taking into account the price dispersion of
the grocery products that are at least physically homogeneous. As far as the
prices of grocery items are concerned, they may vary significantly both
within and across stores and also over time. Our aim is to find out how
The Emerald Research Register for this journal is available at
http://www.emeraldinsight.com/researchregister
The current issue and full text archive of this journal is available at
http://www.emeraldinsight.com/1061-0421.htm

180

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003, pp. 180-192, # MCB UP LIMITED, 1061-0421, DOI 10.1108/10610420310476933

accurately consumers know the prices of products in a market where price

dispersion exists. We shall examine, using a large data set, whether the
actual price dispersion in the market has any influence on the variation in
consumers' price awareness. In other words, we are interested in examining
whether consumers' price knowledge is as poor as earlier studies have
suggested.
The paper is organised as follows. The next section gives a review of the
literature on price knowledge. The following section describes the data and
the penultimate section presents the analysis and results. The final section
contains our conclusions and discusses the limitations of the study as well as
needs for future research.
Literature review
Price awareness or price knowledge means the ability of buyers to keep
prices in mind. In earlier studies, price knowledge has been operationalised
mainly in three ways:

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

(1) buyers' ability to tell the exact prices paid of the products just bought
(point-of-purchase studies);
(2) buyers' ability to rank alternative items according to their prices; and
(3) buyers' ability to recognise the price of a certain item (Monroe and Lee,
1999).
Study showed price
knowledge was relatively
poor

Consumers' price knowledge is a subject that has been widely studied

especially with respect to frequently purchased groceries such as coffee,
breakfast cereals, soft drinks and milk (e.g. Conover, 1986; Dickson and
Sawyer, 1990; Urbany and Dickson, 1991; Krishna et al., 1991; Wakefield
and Inman, 1993). Such studies have usually been conducted in stores, that
is, at the point of purchase. In Conover's (1986) study, for example, shoppers
at the supermarket were asked the prices of items they had just bought. The
study concluded that the consumers' price knowledge was relatively poor:
only about a half of the respondents knew the exact price of the product they
had purchased. Dickson and Sawyer (1990) tested whether the reason for
poor price knowledge might be that consumers very soon forget the price
information they get. In their study, consumers were asked to recall the price
of an item within 30 seconds of selecting and placing it in the shopping cart.
More than half of the shoppers were unable to give the correct price of the
product they had recently chosen. Additionally, more than half of those who
had purchased an item at a special price was unaware that the price had been
reduced. Zeithaml (1988), who reviewed earlier studies on consumer price
knowledge, reached the rather firm conclusion that consumers do not have
enough price knowledge to give an accurate internal reference price for
many products.

Demographic background
of consumer may affect
price knowledge

Consumers' knowledge of prices can be influenced by numerous factors

(Estelami, 1998), which may be related to the characteristics of the consumer
or the product category. The demographic background of the consumer may
affect his/her price knowledge: things like gender, age and income may
affect the consumer's interest in products and his/her expertise as to their
prices. Furthermore, a product has different importance for different
consumers and, consequently, the importance of price information in their
product choice will also vary. A consumer will probably be indifferent
towards the prices of products that do not belong in his/her shopping basket.
Consumers may be more familiar with the prices of products they buy very
often, since repeated contact with prices is likely to mean more accurate

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

181

knowledge of prices. In the context of grocery shopping, Krishna et al.

(1991) found a positive relationship between purchase frequency and price
knowledge, whereas Dickson and Sawyer (1990) concluded that the more
frequent buyers of a product category are no more accurate in their price
knowledge than less frequent buyers.
Consumer price knowledge is also affected by the availability of price
information in the market: retailers advertise their product prices in the
media, and the authorities conduct retail price comparisons in order to
educate consumers. Based on the information thus given, consumers form
their impression of the acceptable prices of various products.
A high level of variability in
prices could lead to poor
price knowledge

In Estelami's (1998) study, the accuracy of consumers' price estimates was

measured by so-called percent absolute deviation, where the estimate was
deducted from the actual price and this figure was then divided by the actual
price. Price dispersion in the market was, indeed, found to have some
influence on consumer price knowledge: Estelami concluded that a high
level of variability in prices could lead to poor price knowledge among
consumers. The study also suggested that consumer knowledge of prices is
better when price-based competition is likely to be intense.

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

Our study is based on the study by Urbany and Dickson (1991) where the
focus is similar to ours. This study compares the consumers' price estimates
and actual market prices, taking price variation into account. In their study,
the consumers were interviewed at their homes. The shortcoming of the
study is that only 59 respondents participated in the research. The result of
this study was that the consumers' price knowledge is not as poor as
suggested by point-of-purchase studies.
In Finland there are 1.5
grocery stores per 1,000
households

Data
This section gives a description of our data and the data collection method.
Because the empirical data were collected in Finland, we begin with a couple
of facts about the Finnish grocery industry. In the country with 5.2 million
inhabitants, the grocery market is rather small. In 2001 the number of the
grocery stores was 3,555 in Finland. There are 1.5 grocery stores per 1,000
households. The grocery sales totalled e11 billion in 2001. The market share
of the hypermarkets and supermarkets is as high as 51 percent. Grocery
retailing is strongly dominated by only four companies (K Group, S Group,
Tradeka and Spar Group) and in total as much as 95 percent of the grocery
sales are controlled by retail chains (A.C. Nielsen, 2002).
We use two sets of data in our study. The first data set covers price
information on certain products that are commonly sold in Finnish grocery
stores. The other data set includes consumer evaluations of the prices of
these same products. We focus on eight grocery items, namely: milk,
margarine, coffee, sausage, a soft drink, sugar, orange juice and frozen fish.
The chosen products have two attributes in common. First, they can be
specified to consumers accurately, and second, these products are so
common that their prices are well known and easy to recall by almost
everyone. The eight products chosen for our study are typical commodities in
the Finnish shopping basket.
Price data
The first data set contains the price observations of eight grocery items in 82
grocery stores in Finland. The price inspectors of the Finnish Consumer
Agency visited these stores, without prior notice, on two days in October
2001 and collected the prices of the products. Because the retailers did not

182

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

know the visit of the price inspectors beforehand they had no opportunity to
manipulate the prices. The stores in our sample are situated all over the
country, but do not represent Finnish grocery stores in general because the
information was collected mainly at the larger grocery stores, namely
supermarkets and hypermarkets. Nevertheless, these may be said to be well
representative of Finnish supermarkets and hypermarkets in 2001. Large
grocery stores generally have a lower price level on average than small stores
(Aalto-Setala, 2000, 2002), and so the average product prices would have
been higher had we collected price information in smaller stores as well.
Products with cheapest
prices selected for data

We divided the products into three groups. The first category contains
products having a strong brand: a bottle of soft drink (1.5l of Coca-Cola), a
package of coffee (500g of Juhla Mokka) and a package of sausage (580g of
HK). The chosen brands are leaders in the Finnish market. The second
category contains homogeneous products without significant differences in
quality or price between the various brands of these items. The two products
in this category are a carton of milk (1l) and a package of sugar (1kg). Both
commodities are produced by only a few companies in Finland. In each store
we selected the cheapest of these products to represent the price observations
for milk and sugar. The third product category comprises heterogeneous
products which, although physically quite homogeneous, have price
differences between the various brands. This is a category that quite often
contains the private labels of the retail chain. The products chosen for this
category are margarine, orange juice and frozen fish. Again, the prices of the
cheapest products were selected to represent these products in our data.

Pricing strategies towards

various products vary

Table I shows the number of price observations, the average and median
prices of the products, as well as the variation in their market prices. The
column average price tells the average price of the products in Finnish marks
(Finnish mark, FIM & e0.17, e1 = 5.94573 FIM) and the column median
price gives the median price of the products in 82 stores. The column
variation of market price shows the standard deviation of the product price in
percents compared with its average price. This figure is often known as the
coefficient of variation in the price dispersion literature (see, for example,
Dahlby and West, 1986). This is a very important figure to investigate
because it is natural to assume that there is some relationship between market
price variation and consumer price knowledge. Various products in our study
data exhibit price dispersion. On one hand, this indicates that retailers apply
different pricing strategies to different products. On the other hand, it means
Average price
Median price
Variation of
(Finnish marks) (Finnish marks) market price (%)

Product

Strong brands
Sausage, HK (500g)
Soft drink, Coca-Cola (1.5l)
Coffee, Juhla Mokka (500g)

81
81
82

11.40
10.21
15.83

11.90
10.50
14.90

11.3
12.4
6.9

Homogeneous products
Milk (1l)
Sugar (1kg)

82
82

3.79
6.01

3.90
5.90

10.5
10.2

Heterogeneous products
Margarine (400g)
Orange juice (1l)
Frozen fish (400g)

81
82
81

4.50
3.58
10.77

4.90
3.80
9.90

27.6
13.2
16.6

Table I. Variables describing market price

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

183

that some of the products in our data (especially coffee, sugar and milk) are
homogeneous while others (especially margarine) are heterogeneous by
nature. Therefore, pricing strategies towards various products vary.

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

Telephone interview of
random sample of
consumers

Products chosen in study

are typically found in diet of
most Finns

Price evaluation data

In our study, we did not interview the consumers at the point of purchase, but
instead, we used a telephone interview of a random sample of consumers in
different parts of the country. Taloustutkimus Ltd was assigned to interview
1,000 Finnish consumers by phone in October 2001, that is at the same time
as the price information was collected. The sample represents the Finnish
15-74-year-old adult population, the average age being 43 years. Half of the
respondents were women and half men, and they were from all around the
country. The participants in our study had at least some experience of
grocery shopping so that they were able to recall the prices of the grocery
items asked. They were asked to name the normal market prices of the same
products as those selected for the price data. By asking consumers to recall a
price away from the point of purchase the respondents had no way of
checking the price while they were on the phone, but had to give the price
they remembered and thought to be the right one. It was easy to ask for the
price estimates of the products with a strong brand (soft drink, coffee and
sausage); we simply asked the normal price of these products. The situation
became more complicated in the case of the other products in our basket.
Regarding milk and sugar, the consumers were asked to give the normal
price of the respective product category, since there is no significant
differentiation between the prices of the various brands. For margarine,
orange juice and frozen fish, the respondents were asked to name the normal
price of a low-cost product.
Table II shows the variables describing the consumers' price estimations.
Because the products chosen to our study are typically found in the diet of
most Finns, the respondents were expected to remember them without major
problems. The respondents were very well able to answer our questions
concerning the prices. This indicates that we had succeeded in choosing the
right products for the inquiry. The respondents were best informed about the
price of coffee, for which 97 percent were able to name a price, and knew
least about the price of frozen fish, for which 82 percent gave an estimate.
Even this result is quite good. The column average price estimate shows the
average and the column median price estimate the median of the consumers'

Product

Strong brands
Sausage, HK (500g)
903
Soft drink, Coca-Cola (1.5l) 920
Coffee, Juhla Mokka (500g) 980

Median price
Average price
estimate
estimate
(Finnish marks) (Finnish marks)

Variation of
price estimates
(%)

10.90
11.32
16.00

10.00
11.00
15.00

26.7
21.7
18.8

Homogeneous products
Milk (1l)
Sugar (1kg)

978
963

4.05
6.31

4.00
6.00

18.1
30.6

Heterogeneous products
Margarine (400g)
Orange juice (1l)
Frozen fish (400g)

932
954
831

7.30
4.59
10.48

6.50
4.00
10.00

39.2
38.9
35.2

Table II. Variables describing consumers' price estimates

184

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

evaluations of the product price. The column variation of price estimates

gives the standard deviation of the product price estimates divided by
average of the estimates. This figure the coefficient of variation describes
how much the consumers' price estimates vary.
Table II indicates that the variation in the respondents' answers is rather
wide. In the case of heterogeneous products, the variation in the estimations
is wider than in the case of strong brands and homogeneous products.

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

Figures 1, 2 and 3 illustrate the variation in the consumer price estimates by

examples of a strongly branded product (coffee), a homogeneous product
(sugar), and a heterogeneous product (margarine). The class interval in each

Figure 1. Dispersion of actual prices and consumer price knowledge: coffee

Figure 2. Dispersion of actual prices and consumer price knowledge: sugar

Figure 3. Dispersion of actual prices and consumer price knowledge: margarine

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

185

figure is 10 pennies (e0.017) (e.g. 12.90-12.99, 13.00-13.09, etc.). The

figures include the whole price distribution of each product, but only 70 to
80 percent of the consumers' price estimates. This is because the variation in
the price estimates was much wider than the variation in actual prices in
fact, twice as wide on average so we have disregarded the greatest outliers
from the mass of the data. The figures reveal that nominal prices have a very
strong impact on price-setting: a vast majority of the prices fall into those
classes where the two last digits of the price are between 90 and 99 pennies.
Also the majority of the estimates are either in classes where the two last
digits are between 90 and 99 pennies or in classes of even numbers, placing
them in a class where the two last digits are between 00 and 09 pennies. In
any case, the figures show that the majority of the market price observations
and the price estimates are quite close together.

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

New way to examine

consumer price knowledge

Analysis and results

This section of the paper compares the variation in actual market prices with
the variation in price evaluations. We will examine the three categories
presented earlier (strong brands, homogeneous products, and heterogeneous
products). Our analysis offers a new way to examine consumer price
knowledge.
Table III summarises the results of our analysis, showing a comparison
between actual market prices (Table I) and the price estimates of consumers
(Table II). The column difference in medians gives the difference in
percentages between the median market price and the median price
evaluation. Correspondingly, the difference in averages is the difference in
percentages between average market price and the average of the price
evaluations. Individual mean difference is the average of the absolute
deviations between average product price and consumer price evaluations in
percentages. In other words, it tells the average percent that the individual
consumer price estimates differ from the average price of the product.
Individual mean difference (80 percent) takes into account only 80 percent of
the observations, excluding the greatest deviations from the mass of the data.

Consumers as a group were

surprisingly well aware of
the market price level

What do the values in Table III tell us? The main finding is that, although
individual consumers did not know the exact prices of a product and how
could they, since there is no single market price (Table I), the consumers as a

Difference Difference
in medians in averages
(%)
(%)

Product
Strong brands
Sausage, HK (500g)
Soft drink, Coca-Cola (1.5l)
Coffee, Juhla Mokka (500g)

Individual
mean
difference
(%)

Individual
mean
difference (80%)
(%)

16.0
4.8
0.7

4.4
10.9
1.1

19.6
19.3
14.2

12.7
11.1
9.0

Homogeneous products
Milk (1l)
Sugar (1kg)

2.6
1.7

6.9
5.0

14.4
19.6

8.4
9.9

Heterogeneous products
Margarine (400g)
Orange juice (1l)
Frozen fish (400g)

32.7
5.3
1.0

44.4
11.7
7.1

66.2
35.5
26.8

41.2
16.6
17.8

Table III. Differences between market prices and price estimates

186

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

group were surprisingly well aware of the market price level, on average.
The aggregate price estimation is shown in the columns difference in
medians and difference in averages. Six out of the eight differences in the
medians are within 5 percent. In other words, the median market prices and
price estimates are nearly equal for most of the products. The differences in
the averages are somewhat greater but most of them are still quite small.
Furthermore, these differences are positive for seven out of the eight
products, meaning that the estimated prices are somewhat higher on average
than the market prices. Still, we want to point out that the price sample in our
study is biased towards large grocery stores, and actual average market
prices in the real world may, therefore, be higher than in our data.

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

At the same time the individual mean differences are rather marked,
however: the difference between individual consumer price estimates and
average market price is between 15 and 30 percent on average. Individual
mean differences (80 percent), on the other hand, are substantially smaller,
varying from 8 to 17 percent.
Considerable variation
within overall results
between product
categories

There is considerable variation within the overall results between product

categories. Consumers are seen to be better aware of price dispersion within
the strong brands and homogeneous products than among the heterogeneous
products in our shopping basket. Obviously, there is great variation in the
market prices for the heterogeneous products, which makes it harder for
consumers to know their prices.
Strong brands
Table III further shows that in the case of strong brands, both the differences
between the medians of actual market prices and consumer estimations, as
well as the differences between the averages of market prices and consumer
estimations are relatively small. The difference between the median actual
price and the median estimated price varies from 0.7 percent (coffee) to
16 percent (sausage). These are very small values compared with the
variations in actual market prices (Table I). For coffee and the soft drink, the
difference between the medians of the prices and the estimates is much
smaller than the variation in the prices of these products, and for sausage the
difference is not far from the market price variation.
The differences between the individual price estimates and average market
price are naturally greater than the differences between the averages. The
individual mean differences of the strong brands vary from 14.2 percent
(coffee) to 19.6 percent (sausage); in other words, there is an average
difference of 14.2 percent between the consumers' evaluation of the price of
coffee and its actual average price. The individual mean difference
(80 percent) varies from +9.0 percent (coffee) to +12.7 percent (sausage),
meaning that 80 percent of the consumers' price estimates for coffee fell
within the interval average market price +9.0 percent and for sausage within
the interval average price +12.7 percent (note that these figures are only
slightly higher than the variation in actual market prices).

Respondents appeared to
be very well aware of
product prices

Homogeneous products
The variation in the actual prices of the homogeneous products in our study
data is quite small, and the respondents appeared to be very well aware of
these product prices. However, Table III shows that the differences between
the medians of actual market prices and price estimations, as well as the
differences between the averages of actual market prices and consumer price
estimations, are even slighter (between 1.7 and 6.9 percent) than the

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

187

variation in market prices (about 10 percent). Again, the differences between

the consumers' individual price estimates and average market price are
greater than the differences in the averages. The individual mean difference
for sugar is 19.6 percent and for milk 14.4 percent, while the individual mean
difference (80 percent) is less than 10 percent for both of these products. So,
the price estimates of 80 percent of the consumers fall within the interval
average price +10 percent (the market price variation for both of these
products is slightly above 10 percent). To sum up, the consumers were very
well informed about the price of homogeneous products such as milk and
sugar.

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

Consumers knew prices of

orange juice and frozen fish
quite well

Heterogeneous products
When requested to name the prices of the heterogeneous items in our
shopping basket, the consumers knew the prices of orange juice and frozen
fish quite well (the differences between the medians of actual market prices
and consumer price estimations being 1.0 and 5.3 percent, and the
differences between the averages of actual prices and price estimations
7.1 and 11.7 percent, respectively). However, the consumers were much less
familiar with the price of margarine (the difference between the medians of
actual market prices and consumer price estimations is 32.7 percent, and
between the averages of actual market prices and price estimations
44.4 percent). This kind of difference in consumer price awareness is at least
partly due to the substantial variation in the market price of margarine
(27.6 percent). However, the most likely reason for poor price knowledge in
the case of margarine is that we failed to specify the product precisely
enough. We asked the respondents to give the price of low-priced margarine.
It can be assumed that quite a few consumers named the price of the most
popular moderately priced and strongly branded margarines on the Finnish
grocery market. However, the cheapest margarines are those sold under the
stores' own labels, and it is this price that we have used as the market price
for low-cost margarine in our data.
Conclusions, limitations and further research
Earlier research has shown that consumers do not know the exact prices of
products at the point of purchase. In our study we examined the relationship
between market price variation and consumer price estimates. Our study
proposes one possible explanation for poor price knowledge: the variation in
the actual prices in the market. The prices of strong brands and homogeneous
grocery products were rather well known by the consumers, but in the case of
heterogeneous products their price estimations varied widely. We suggest that
at least part of the weakness in consumer price knowledge can be explained by
differences in market price variation, since this variation is greater for
heterogeneous products than for strong brands and homogeneous products.

On average, consumers are

quite familiar with prices

188

The consumer price estimates in our study were rather close, both to the
median and the average of actual market prices for most of the products in
our data. Thus, we can conclude that consumers on average are quite familiar
with the prices in the market. Urbany and Dickson (1991) whose approach to
investigate consumer price knowledge was rather similar to ours made a
similar finding. We may also suggest that consumers to some extent are
conscious about the distribution of prices in the market. On other hand, the
differences between the average market prices and consumers' individual
price estimates were quite pronounced. This is natural, of course, since there
is no such thing as a single market price for a certain product.
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

We admit that our study has some limitations. First, the price data were
collected in large grocery stores, i.e. in supermarkets and hypermarkets.
Because such stores have a lower price level on average than small stores,
the average prices of the products selected for the study would have been
higher had the stores in our sample been smaller. (We saw that the
respondents tend to overestimate the prices of the study data.) Another
limitation concerns the question of consumer price estimation: what,
actually, were the prices that the consumers gave? A consumer's perception
of the price of a certain product is likely to be the price of the product that he
or she buys most often. Furthermore, some consumers may not have
recognised the brand asked. Some might not have recalled the accurate prices
of products but still have an understanding of the general price level.
Consumers may also encode their price information in a personal way. They
may, for instance, rank the products according their prices (e.g. brand A is
more expensive than brand B) or store some evaluative aspects of their prices
(e.g. the price of brand A is reasonable) (see Mazumdar and Monroe, 1992).
Potential changes in prices
resulting from adoption of
the euro

From the beginning of 2002, the euro has been the valid currency in most of
the countries of Western Europe. There has been much discussion in these
countries about potential changes in prices resulting from the adoption of the
euro. It would be interesting to study whether the new currency has caused
changes in price dispersion and consumer perceptions of price level in the
grocery market (especially in the early period of conversion to the euro).
Theoretical and managerial implications
Our study offers one solution to understand consumer price knowledge. For
academic researchers we offer a new approach to examine this phenomenon
and new empirical results. To increase discussion and broaden our
understanding in this field we found it extremely relevant to study consumer
price knowledge comparing the consumer estimates with the market price
variation. Based on our research settings, it would be interesting to see
empirical results in other markets as well.
To retail managers we hope to provide an understanding of how well
consumers remember price information, which, in turn, may help retailers
recognise the image that consumers have of prices and a price level in
general. This will help them in the decisions concerning pricing strategy.
Marketers should find it particularly useful to comprehend how consumers
are likely to perceive prices. For them the role of the price in marketing is
extremely relevant to recognise how significant it is to use price in
marketing.
Consumer price knowledge is very complicated and a many-sided
phenomenon. Therefore, it has to be examined from various approaches and
in various markets. Furthermore, the meaning of price will certainly change
in time.
References
Aalto-Setala, V.I. (2000), ``Economies of scale in grocery retailing in Finland'', Journal of
Retailing and Consumer Services, Vol. 7 No. 4, pp. 207-13.
Aalto-Setala, V.I. (2002), ``The effect of concentration and market power on food prices:
evidence from Finland'', Journal of Retailing, Vol. 78 No. 3.
A.C. Nielsen (2002), ``Paivittaistavarakaupan myymalarekisteri 2001 valmis: Sunnuntain
aukioloaika piristi alle 400 m2 myymaloiden myyntia'', press release, 25 March, available
at: www.acnielsen.fi/

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

189

Alba, J.W., Broniarczyk, S.M., Shimp, T.A. and Urbany, J.E. (1994), ``The influence of prior
beliefs, frequency cues, and magnitude cues on consumers' perceptions of comparative
price data'', Journal of Consumer Research, Vol. 21, September, pp. 219-35.
Alba, J.W., Mela, C.F., Shimp, T.A. and Urbany, J.E. (1999), ``The effect of discount
frequency and depth on consumer price judgements'', Journal of Consumer Research,
Vol. 26, September, pp. 99-114.
Conover, J.N. (1986), ``The accuracy of price knowledge: issues in research methodology'',
in Lutz, R. (Ed.), Advances in Consumer Research, Vol. 13, Association for Consumer
Research, Ann Arbor, MI, pp. 589-93.
Dahlby, B. and West, D.S. (1986), ``Price dispersion in an automobile insurance market'',
Journal of Political Economy, Vol. 94, April, pp. 418-38.
Dickson, P. and Sawyer, A. (1990), ``The price knowledge and search of supermarket
shoppers'', Journal of Marketing, Vol. 54, July, pp. 42-53.
Estelami, H. (1998), ``The price is right . . . or is it? Demographic and category effects on
consumer price knowledge'', Journal of Product & Brand Management, featuring Pricing
Strategy & Practice, Vol. 7 No. 3, pp. 254-66.
Krishna, A., Currim, I.S. and Shoemaker, R.W. (1991), ``Consumer perceptions of promotional
activity'', Journal of Marketing, Vol. 55, April, pp. 4-16.
Mazumdar, T. and Monroe, K.B. (1992), ``Effects of inter-store and in-store price comparisons
on price recall accuracy and confidence'', Journal of Retailing, Vol. 68 No. 1, pp. 66-89.
Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

Monroe, K.B. and Lee, A.Y. (1999), ``Remembering versus knowing: issues in buyers'
processing of price information'', Journal of the Academy of Marketing Science, Vol. 2
No. 2, pp. 207-25.
Salop, S. and Stiglitz, J. (1977), ``Bargains and ripoffs: a model of monopolistically
competitive price dispersion'', Review of Economic Studies, Vol. 44, October,
pp. 493-510.
Stigler, G.J. (1961) ``The economics of information'', The Journal of Political Economy,
Vol. LXIX, No. 3, June, pp. 213-25.
Urbany, J.E. and Dickson, P.R. (1991), ``Consumer normal price estimation: market versus
personal standards'', Journal of Consumers Research, Vol. 18, June, pp. 45-51.
Varian, H. (1980), ``A model of sales'', American Economic Review, Vol. 70, September,
pp. 651-9.
Wakefield, K.L. and Inman, J.J. (1993), ``Who are the price vigilantes? An investigation of
differentiating characteristics influencing price information processing'', Journal of
Retailing, Vol. 69 No. 2, pp. 216-33.
Zeithaml, V. (1988), ``Consumer perceptions of price, quality, and value: a means-end model
and synthesis of evidence'', Journal of Marketing, Vol. 52, July, pp. 2-22.

&

190

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

This summary has been

provided to allow managers
and executives a rapid
appreciation of the content
of this article. Those with a
particular interest in the
topic covered may then read
the article in toto to take
advantage of the more
comprehensive description
of the research undertaken
and its results to get the full
benefit of the material
present

Executive summary and implications for managers and

executives
Do consumers know the price of a loaf of bread?
Cunning questioners sometimes try to catch out politicians by asking them
the price of a common commodity milk, bread and can of beans. When the
politician gets the answer wrong, it is used as an illustration of how out of
touch they are with ordinary folk. It could be that this question is rather
cruel since, some research suggests that most consumers are decidedly
vague about the prices of everyday products. Aalto-Setala and Raijas
explore whether this is the case and examine the contention that consumers'
lack of price knowledge results, at least in part, from the variability of prices
in the market.
It is well documented that consumers really do not know the prices of the
things they buy. We push the trolley round the supermarket filling it up with
the goods we need (and want). The goods are scanned through the checkout
and we pay the total bill. As a result most consumers know the value of their
weekly shopping basket and can make comparisons between different stores.
But ask them what a pint of milk costs and they will hesitate before having a
stab at the price. It is the accuracy of this stab that concerns our authors.
Price information too little or too much?
As we go round the store we are inundated with pricing information. The
actual price is displayed, often a price per kilo is shown and there may be ten
special offers, discounts, free product and other price offers. Yet many
researchers contend that consumers have too little price information. It
would seem that, as marketers, we are failing to get this vital information
across in a way that reaches consumers. Given the importance of price to the
purchase decision process, this situation must cause us concern.
Given the desire to communicate price information as well as quality and
brand image the accuracy of consumers guess becomes significant. One
suspects, the greater the variation in price, the less accurate will be the
average consumer's guess. It is unlikely that increasing the amount of price
information in such circumstances will increase accuracy because of price
variation.
We do not know the price because prices vary so much
Aalto-Setala and Raijas point out, in reporting on their study, ``at least part
of the weakness in consumer price knowledge can be explained by
differences in market price variation, since this variation is greater for
heterogeneous products than for strong brands and homogeneous products.''
Thus, the more prices are likely to vary (at least in consumer perception) the
less accurate consumer estimation of price. Where variations in price,
quality and presentation are considerable the degree of consumer confusion
and apparent lack of pricing knowledge will increase. With commodity
products (such as milk, eggs or flour) there is less price variation and, as a
result, the consumer is more likely to know (roughly) the price.
Similarly, strong brands are well-known and understood by the consumer.
Part of this brand knowledge extends to the price. We know what we are
likely to pay for a can of Coca-Cola or a tin of Heinz baked beans. We also
expect to pay more for these ``quality'' brands than we would for lesser
brands, own-label brands or unbranded products in the same category.

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

191

We guess wrong and guess high

Aalto-Setala and Raijas report that not only do consumers guess prices
wrongly, they also make guess that are (on average) above the market price
average. The authors do note that their pricing data comes from
supermarkets where prices will be generally lower than in other outlets.
However, this tendency to guess high should not come as too much of a
surprise. Partly from cynicism and partly from caution, consumers will tend
to assume that things cost more than they actually do.
Again this tendency to overestimate price levels sends a signal to marketers.
We tend, when undertaking market research and tests, to use the price as it
actually is rather than the price level assumed by the consumer. In effect our
tests are skewed by the use of the actual price since, in the real world,
consumers will estimate the price as somewhat higher. Perhaps there is some
sense in testing using slightly higher prices?

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

This research confirms what many marketers have long suspected the
consumer is not a price maven. Most consumers operate in a world of
hearsay, guesswork and assumption when it comes to the prices they pay. So
long as the prices in the marketplace vary (which they will) consumers will
not know for sure what the price for a given product is at any given time.
Indeed, the regulatory requirements to increase (it is claimed, make more
accurate) the display of pricing information may even act
counterproductively since consumers have another level of pricing
information to confuse them.
In the end consumers are pretty accurate in guessing prices and they have a
clear appreciation of how much they pay overall on fast moving consumer
goods. What consumers do not bother with is trying to maintain an accurate
picture of all the prices they pay. Such an approach would be prone to error,
would eat up precious time and wouldn't necessarily result in savings. As
ever, marketers have to persuade the consumer that their product in
competitively priced and of a good quality.
(A precis of the article ``Actual market prices and consumer price
knowledge''. Supplied by Marketing Consultants for Emerald.)

192

JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 3 2003

Downloaded by Universiti Sains Malaysia At 13:28 26 May 2015 (PT)

This article has been cited by:

1. Outi Somervuori. 2014. Profiling behavioral pricing research in marketing. Journal of Product & Brand Management 23:6, 462-474.
[Abstract] [Full Text] [PDF]
2. Rajagopal. 2014. Role of Consumer Knowledge in Developing Purchase Intentions and Driving Services Efficiency across
Marketing Channels in Mexico. Journal of Transnational Management 19, 107-133. [CrossRef]
3. Peter Kenning, Vivian Hartleb, Helmut Schneider. 2011. An empirical multimethod investigation of price knowledge in food
retailing. International Journal of Retail & Distribution Management 39:5, 363-382. [Abstract] [Full Text] [PDF]
4. Hans Pechtl. 2008. Price knowledge structures relating to grocery products. Journal of Product & Brand Management 17:7,
485-496. [Abstract] [Full Text] [PDF]
5. Peter Kenning, Heiner Evanschitzky, Verena Vogel, Dieter Ahlert. 2007. Consumer price knowledge in the market for apparel.
International Journal of Retail & Distribution Management 35:2, 97-119. [Abstract] [Full Text] [PDF]
6. Outi Uusitalo, Maija Rkman. 2007. The impacts of competitive entry on pricing in the Finnish retail grocery market.
International Journal of Retail & Distribution Management 35:2, 120-135. [Abstract] [Full Text] [PDF]
7. Helmut Schneider, Glpnar Kelemci Schneider. 2006. Consumer price knowledge in Turkey before and after the changeover
of the national currency. Journal of Product & Brand Management 15:7, 450-457. [Abstract] [Full Text] [PDF]
8. Ville Aalto-Setl, Heiner Evanschitzky, Peter Kenning, Verena Vogel. 2006. Differences in consumer price knowledge between
Germany and Finland. The International Review of Retail, Distribution and Consumer Research 16, 591-599. [CrossRef]
9. Ralf Wagner, KaiStefan Beinke. 2006. Identifying patterns of customer response to price endings. Journal of Product & Brand
Management 15:5, 341-351. [Abstract] [Full Text] [PDF]
10. Isabel Mara Rosa Daz. 2006. Demand restrictions in pricebased decisions: managers versus consumers. Journal of Product &
Brand Management 15:3, 214-224. [Abstract] [Full Text] [PDF]
11. Ville Aalto-Setl, Anu Raijas. 2006. How Long Does It Take to Learn Prices? The Importance of Nominal Values in the Price
Learning Process. Journal of Euromarketing 15, 29-46. [CrossRef]
12. Heiner Evanschitzky, Peter Kenning, Verena Vogel. 2004. Consumer price knowledge in the German retail market. Journal of
Product & Brand Management 13:6, 390-405. [Abstract] [Full Text] [PDF]
13. Implementation of Pricing Strategy 142-167. [CrossRef]