The Price Knowledge Paradox: Why Consumers Have Lower Confidence in, but Better Recall of Unfamiliar Prices

Abstract

This paper introduces the price knowledge paradox: an effect where consumers have lower confidence in their price memory for unfamiliar (versus familiar) prices, but, in fact, have better recall of unfamiliar (versus familiar) prices. We propose that this effect is due to unfamiliar price formats being processed more intentionally, leading to their being better encoded, and accordingly, more accurately retrieved from memory. Familiar price formats, on the other hand, are processed less intentionally, leading to consumers being over confident in their memory for familiar prices. Results from a field experiment with French shoppers (n = 683) conducted 6 months prior to the introduction of the Euro, demonstrates that consumers exposed to prices in Euros are almost twice as likely to recall the exact price of the product as compared to those exposed to prices in French Francs, although only 69 % of those seeing Euro prices (versus 85 % in FFs) said they could recall the price—the price knowledge paradox. Importantly, these effects carry through to intentions to purchase. The theoretical contributions of the manner in which consumers’ process familiar versus unfamiliar price information has implications for international pricing managers and public authorities facing monetary changes across and within countries.