Lucky 8...

Take a look at the photos: one has prices ending with all kinds of numbers. It’s Las Vegas. On the other the prices end with an 8 or 9. And not by chance. It’s Macau.

“An 8-ending price strategy is the most frequently used pricing strategy in the Macau hotel industry,” concludes a research paper published this year in the Journal of Hospitality and Tourism Management. 

The conclusion may be unexpected if one takes into account that the Macau market is dominated by integrated resorts operating in the 5-star hotel category, but as the lead author of the paper reveals, “from our sampled participants (each representing a major integrated resort operating in Macau) we conclude that pretty much most of the integrated resorts adopt an 8-ending pricing strategy in some way.” 

Interviewed by Macau Business, Henrique F. B. Ngan, from the Tourism College, Institute for Tourism Studies (IFT), explains that “targeted price ending strategies across different price points is something that they do not do or at least not intentionally. What we have noticed is that they have some benchmark / based price points; say, for instance, MOP888 and they mark up X amount to price higher tier rooms (or more expensive rooms). So they could have a regular room priced at MOP888 increased to MOP1,000 to price a premium room and so forth. Thus, price endings of those rooms are not designed or priced intentionally to have a specific effect upon consumers at different price points but it’s rather a policy or operational procedure that leads to that type of pricing. Another interesting aspect,” says this IFT lecturer, “is that in one particular hotel pricing with 8-endings, there would not be a price like MOP88,888 or MOP100,888 for luxury villas as it would be fairly inconvenient for customers and for the operations side.” 

But can we think that it will be more used in 3-star hotels than in luxury hotels?  

“Our initial assumption was yes, but later we figured out that at least pricing managers do not specify under which conditions they use 8-ending prices. So, irrespective of the star rating we will see 8-ending prices across different integrated hotels / resorts.”  

Ngan also believes that “contrary to what we were expecting, 8-ending prices do not appear more frequently on discount prices. Our assumption was based upon existing practices of 9-ending prices which appear mostly during sales and discount periods or products. In the hotel industry operating in Macau, discounts are usually applied on top of the regular price, and if the regular price has an 8-ending on it, it is very unlikely that the resulting price would be 8-ending as well. So contrary to what we know about 9-ending prices, 8-ending prices appear less frequently on discounted products (in this case, hotel rooms).” 

To influence 

“In the context of hospitality, there is scant evidence to suggest that price ending strategies are just as effective in attracting customers,” finds the research. However, “for individual customers, or the so-called ‘advertised prices’ (namely online) it is much more common [to have] 8-ending prices. It seems to influence consumers’ perception to a certain extent,” the Lucky 8-ending – A case study on managerial price-ending beliefs in Macau’s team leader explained to Macau Business, something that most of the managers that we interviewed reflect, he adds. 

“Despite a variety of perspectives in an attempt to explain the overrepresentation of room rates with the right-most digit as 8, four broad reasons emerged from the analysis,” states the research: luck & fortune, value image; appeal; market norm. 

Relative to this last question, “there are indications that many of the pricing managers establish 8-ending prices purely based upon what is conventionally done in the Asian context . . . [once] . . . the cognitive aspects of consumers that explains the effectiveness of 8-ending prices are similar to those reported for 9-ending prices, where 8-ending prices appear more frequently for discounted, lower priced and lower quality products.” 

Even if “luxury hotel operators in Macau are multinational overseas corporations, mostly from the US, with expatriates forming the majority of top management employees,” which is why the research included participants from different backgrounds.  

“Our interviewees were from Hong Kong, Singapore, Australia, Macau, China . . . It is undeniable that this is an important issue, because pricing decisions are to a certain extent dependent upon the manager’s beliefs. So, if they believe that a price ending with an 8 is more effective in a given market it is likely that they will employ that type of pricing strategy,” among other issues.  

But “if they are from different backgrounds or been exposed to a different culture this will definitely influence their beliefs. For instance, we can see that foreigners are more likely to engage in 8-ending prices in this particular context because their beliefs are very straightforward: 8-ending prices are lucky and associated with positive connotations. Whereas pricing managers of Chinese origin may hold the same beliefs but at the same time they would look into other combinations of 8-ending prices that may yield other positive meanings. But the general approach seems to be quite consistent: 8-ending prices are preferred over other price endings.” 

The research of Henrique Fátima Boyol Ngan, Lianping Ren, Grant O’Bree (all from IFT) offers another peculiar finding: “When we consider the cognitive aspects of consumers choosing a room price based upon 8-ending prices in Macau, the difference in revenue generated via the total number of rooms sold annually can equate to millions of dollars in additional revenue.” 

Ngan, with a PhD in Psychology, University of Saint Joseph, goes on to explain: “We have not empirically tested this but based upon the extent of literature we can see that sales volume is typically associated with just-below price endings such as 8 and 9 endings. Typically, the increase of sales just due to price ending(s) if set correctly can vary from 5-20%. This is often due to the fact that consumers either underestimate a price (they may assume a price of MOP788 to be MOP700) or they tend to associate 8 or 9-ending prices with discounts.”  


Cultural variations  

“In different cultures, different meanings are associated with numbers. In Chinese culture specifically, the number 8 is perceived to be the luckiest number, while 4 is seen as an unlucky number. The reason is that the pronunciation of 8 in Chinese is very similar to that of luck and fortune, while 4 is a homophone of the Chinese word for death.  

“When we consider the cognitive aspects of consumers choosing a room price based upon 8-ending prices in Macau, the difference in revenue generated via the total number of rooms sold annually can equate to millions of dollars in additional revenue” – the research

Prior studies have also shown that Chinese consumers’ purchase intentions can be influenced by the presence of the number 8. As a result, pricing managers are geared towards establishing 8-ending rather than 9-ending prices in the Chinese marketplace.  

Empirical evidence shows that in the Chinese marketplace there is an overrepresentation of the digit 8 as the rightmost digit, but at the same time there is also an under-representation of the digit 4 as the rightmost digit in the marketplace” (from Lucky 8-ending – A case study on managerial price-ending beliefs in Macau) 

 

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