Combined-currency Pricing: Spreading Prices across Currencies to Lessen Perceived Cost

The rising popularity of loyalty programs and related marketing promotions has resulted in the introduction of a number of new currencies (e.g., frequent flier miles, Hilton HHonors points, Diner’s Club “Club Rewards”) that people accumulate, budget, save and spend much like traditional paper money. As consumers are increasingly able to pay for goods and services such as airline travel, hotel stays and groceries in combinations of currencies, the importance of understanding how shoppers respond to “combined-currency pricing” has become increasingly important to marketers. This research is the first to explore how people evaluate transactions involving “combined-currency pricing,” or prices issued in multiple currencies. We present a formal mathematical proof that outlines the conditions under which a price comprised of payments delivered in different currencies can be superior to a standard, single-currency price by either (a) lowering the psychological or perceived cost associated with a particular revenue objective (i.e., price), or (b) raising the amount of revenue collected given a particular perceived cost. Three studies, which include having real consumers (i.e., actual airline travelers) evaluate and make choices among prices issued in single and combined currencies, offers both experimental and empirical support.