The face value of foreign currency on consumer price perception—The moderating effect of product substitution

Abstract

Consumers shopping in a foreign environment evaluate prices based on the relationship between the local currency`s face value and their home currency. The face value effect suggests that when a foreign currency is a multiple of domestic currency (HDCs), consumers overestimate the actual value. In contrast, when their domestic currency (LDCs) is a fraction of the foreign currency, consumers underestimate the actual value. Three experiments examine a premium product`s moderating effect on foreign currency face values. Results show the foreign currency`s face value biases consumer price perception. Testing the face value effect, product substitution serves as an important moderator. The findings suggest implications for regional pricing, Internet pricing, and international tourism pricing.