The Effect of Psychological Pricing to the Profitability of Franchise Food Carts in SM City

Baguio

Jogen S. Aquino
Lingayen, Pangasinan
0995-814-4961
jogensisonaquino@gmail.com

Kathrine Joy M. Cruz

Lingayen, Pangasinan
0956-825-5496
kathrinemagantecruz@gmail.com

Whensly Ann H. Espiritu

Sta. Lucia, Ilocos Sur
0907-997-0490
whenslyannespiritu@yahoo.com

Andrea Marie N. Naranjo

Agno, Pangasinan
0999-753-4895
andreamarienaranjo@gmail.com

Florene Mae B. Pinol

Alaminos, Pangasinan
0917-781-7019
Florenemae.pinol@gmail.com

ABSTRACT:

Since Franchising is the fastest growing way of doing business, it has become the most
important and popular method of creating business. It has now become a phenomenon
worldwide that’s why nowadays franchising food cart business has flourished all over the world
as they are easy to manage and relatively easy to start. Food business is considered to be the
most successful business in Philippines. It is a fact that the food cart business is becoming more
popular among the entrepreneur of Philippines and all over the world is because of some
marketing strategies that they apply particularly the psychological pricing strategy that many
food carts uses. For this study, it aims to find if there is any difference of those user of
Psychological Pricing Strategy and the non-user Franchising Food cart in terms of: Gross Profit
ratio, Net Profit Ratio and Return on investment.

Page 1 of 21
 INTRODUCTION
The food business has always gained
more ground than other types of businesses
simply because it addresses a basic human
need – food. There are many ways for
setting up a food business, it includes but
not limited to, as part of a hotel, as its own
separate restaurant, and of course the ever-
popular food cart.
The first food carts probably came
into being at the time of the early Greek
and Roman civilizations with traders
converting old hand-carts and smaller
animal-drawn carts into mobile trading
units. Carts have the distinct advantage of
being able to be moved should a location
not be productive in sales, as well as
transporting goods to/from storage to the
place chosen from which to trade.
Today the size and scale of carts has
generally increased, and most are towed
behind 4x4 vehicles. But hand towed food
carts are still a common site where access is
restricted and hungry people can be found.
In the 21st century, innovations have
included modular designed carts made with
stainless steel, fiber reinforced plastic and
aluminum. Some have been developed with
the ability to be driven by themselves.
Since Franchising is the fastest
growing way of doing business. It has
become the most important and popular
method of creating business. It has now
become a phenomenon worldwide that’s
why now a days franchising food cart
business has flourished all over the world as
they are easy to manage and relatively easy
to start.
Looking upon the market trends and
greater revenue prospect, the franchising
Page 2 of 21
business is thriving in the Philippines as
well. The Philippines is considered to be the
franchising hub of Asia where franchising
business has made remarkable growth in
the past few decades in sectors; including
retail clothing, education and training,
hospitality and wellness, personal care,
cafes, confectioneries and bakeshops, and
food carts. (Arboleda, 2010)
Franchising Food cart business has
made tremendous growth in the Philippines
– a food cart business can be started
ranging from P 20,000 to P 300,000
depending upon the type of food cart you
opt for; a franchise or food product/brand
of your own. The reason behind popularity
of franchise food cart is simple: it needs a
small capital, easy to set up, movable and
less risky in context of business loss. In
short Franchises work because they are
already running successful businesses.
A food cart business has a greater
chance of success because you offer cheap
prices making it affordable for a large range
of customers. Today most of the fast foods
chains offer food cart franchise
opportunities at very low prices including
the cart, the product, uniform and training
of the crew. Availing franchise opportunities
may be considered better than opting to
sell your own product because you don’t
need to introduce your product to the
customers or even market to new
customers. Instead it may can target the
existing customers of the product/brand
and offer them your services at cheap
prices.
Food business is considered to be
the most successful business in Philippines.
It is a fact that the food cart business is
becoming more popular among the
entrepreneur of Philippines and all over the
world is because of some marketing
strategies that they apply particularly the
psychological pricing strategy that many
food cart uses.
Marketing theory states clearly that
price is one of the 5 P’s (Product,
Positioning, Place, Promotion and Price)
that contributes to the marketing mix in
order to get potential customers’ attention,
motivate them, and get them to buy
products or services. The marketing
strategy helps you define, promote and
distribute your product, and maintain a
relationship with your customers.
Pricing strategy has played an
important role in consumer purchasing
behavior and decision-making process
(Reachard, 1985). For international
markets, pricing is one of the most
important elements of marketing product
mix, generates cash and determines a
company’s survival (Yaprak, Attila, Solberg,
C.A., 2001) but pricing, as part of the
marketing mix, is essential and has been
always one of the most difficult decisions in
marketing because of heightened
competition (Myers, 1997), gray market
activities (Assmus, Gert and Cartsten Wiese
, 1995), etc.
Pricing psychology is one of the
most fascinating areas of menu
development for food cart businesses as
well as other restaurant owners.
Psychologically speaking, a huge difference
exists between 9.99 and 10 pesos.
Customers believe that when people price
their product fractionally, they’ve priced it
as low as possible, hence the odd number.
Customers will completely ignore the last
digits, which sets a lower pricing in their
head. Research also shows that prices
ending in 98 or 99 convey much more
Page 3 of 21
savings than all other prices, including 49,
50 or 75. (Myrick)
In the Philippines Psychological
pricing is widely used by some of
businesses. One of them are those franchise
food cart that make it as a competitive
advantage and strategy to get consumers
attention. Many Filipinos buy food that are
affordable as they compare prices of one
business to other. For this paper we would
like to know the effects of psychological
pricing strategy on the profitability of
franchise food cart in SM City Baguio.
The objective of the Study is to help
the potential franchisees to know the effect
of Psychological Pricing Strategies of
Franchise Food Cart. The objectives of the
study is the assertion statement of the
problem with the general objectives and
specific desired outcome of the research
process.
These are the following objectives
that the researchers would like to achieve.
• To identify the benefits of
psychological pricing strategies
• To be able to know how effective
psychological pricing strategy is on
the profitability of franchise food
carts in SM City Baguio
• To be able to learn what type of
psychological pricing strategy is
most likely used by franchise food
carts
• To be able to learn if there is a
significant difference between the
franchise food carts that utilize
psychological pricing strategy to
those not using it
 REVIEW OF RELATED LITERATURE
This chapter highlights some of the studies,
books, and articles that have been written
with reference to the effect of psychological
pricing on the profitability of franchise food
carts. It primarily examines studies that
have been done using one or more
variables that will be explored in this study.
According to resource-based
arguments, franchising by default requires
external finance, human resources,
managerial talent, and local knowledge
provided by the franchisee to help the firm
gain a competitive advantage and create
value (Caves, Murphy, 1976) (combs and
Castrogiovanni, 1994) (Martin, 1988).
Franchisor adopt a combination of the
agency and scarce considerations when
awarding a franchisee to ensure
cooperation, curb optimism, secure
commitment, and enhance the likelihood of
franchisee satisfaction. (Olm et al 1988)
Franchising is considered as a profitable
venture is being opted by the foreign
players to expand their business globally.
According to the Top 100 franchises by The
Franchising World Magazine, a total of 21
franchisors belonged to the F&B sector.
(Garyali, 2010).
Price means a fair return or equivalent in
goods, services, or money for something
exchanged, monetary worth or value of
something (Mish, 1995). It is one of four P’s
Page 4 of 21
in a marketing mix. It is the only marketing
mix which has direct influence in the
company’s profitability. Prices thus
determine profits more effectively than
sales quantity or costs (Simon H. and
Fassnacht, M., 2009), and pricing plays a
dominant role in terms of ensuring the
economic prosperity of a company.
In earlier researches, (Monroe K. , 1971a)
(Monroe K. B., 1971b) applied
psychophysical principles to marketing
issues and introduced the notion of price
perception, that is, customers’ subjective
encoding of price impressions, induced by
objective prices and other (price) signals.
In contrast, several text books on
pricing (e.g., Nagle/Hogan 2007, Schmalen
1995) do not discuss aspects of behavioural
pricing at all. Reasons for this might be that
the use of psychological pricing probably
depends on culture (Levy, D.; Lee, D.; Chen,
H.A; kauffman, R.J.; Bergen, M. , 2007)or
has intensified recently. In support to this
statement, Prices ending in 9 are
overrepresented in Austria, Belgium,
Canada, Germany, and the United States; in
contrast, in Hungary, Italy, Poland, and
Spain, prices ending in 0 are more prevalent
(Levy, D.; Lee, D.; Chen, H.A; kauffman, R.J.;
Bergen, M. , 2007).
(Glautier, M.V., and Underdown, 2001)
illustrates that classical theorists believe
that firms should determine the optimum
price which maximizes the firm’s profits.
But this does not mean that entrepreneurs
have to sacrifice the long-term goal over
the short-term goal. It is true that sales
indicate a wealth maximization. But it does
not necessarily have a positive long-term
effect. In this case, entrepreneurs should
set their pricing strategies in line with the
company’s goal.
According to the article of Business
Today, “franchising is considered a powerful
tool for economic development.” It creates
thousands of enterprises as well as millions
of jobs. It also helps fuel the growth of
entrepreneurship. It also shares that here
are three major reasons why franchising
works. Franchising uses three of the most
limited resources to expand one’s business.
These are other people’s money, time, and
other people’s organizations for its
operation. The franchisee would be the one
who would shell out the money to open
another outlet of the franchisor. The
franchisee would be managing the business
while other people’s network or
connections would make it easier for the
franchisee to run the business. (Archana
Kumar, Heejin Lim, 2008)
According to the article of Philippine
Daily Inquirer, “Franchise is the safest way
for first time entrepreneur is to go
franchising”. Franchising is not only safest
but the easiest way for start-up
entrepreneur for one a prospective
franchise only needs a couple of hundred
thousand pesos to start a business.
(Magapayo, 2010).
What is the price that makes the
customer buy? The common quick answer
Page 5 of 21
would be the lower the price the higher the
demand. Whether you’re agree or not, the
lazy brain thinks of the 90s rather than the
3-digit number 100 that it should be
rounded off to; hence, it looks and feels
cheaper. However, not everything is
preferred cheaper. There are some goods
and services that customers actually want
to pay more money for. In other words,
paying a higher price adds to the utility or
satisfaction of the customer. (Fausto, 2014)
STATEMENT OF THE PROBLEM AND
HYPOTHESIS
The researchers’ study focuses on the
utilization of psychological pricing strategy
and its effect on the profitability.
Defining the Research Problem:
1. This study will focus on the types of
Psychological Pricing being used by
franchise food carts in SM City
Baguio: (a) Charm/Odd Pricing; (b)
Prestige Pricing; (c) ‘BOGOF’: Buy
One Get One Free; (d) Comparative
Pricing.
2. The issues and concerns of the study
is to know the usual average rate of
franchise food carts in terms of the
following aspects: (a) Gross Profit;
(b) Net Profit; (c) Return on
Investment
3. For the Area Coverage, the study
was confine in the City of Baguio.
4. Respondents will be limited to those
operating the franchise food carts
found in SM City Baguio which have
no permanent and designated areas
in the mall.
Specifically, the study will be guided by the
following hypothesis:
1) There is no significant difference
between the franchise food carts
using psychological pricing to those
not using it.
THEORETICAL/CONCEPTUAL FRAMEWORK
Theoretical framework
Food business is considered to be
the most successful business in Philippines.
It is a fact that the food cart business is
becoming more popular among the
entrepreneur of Philippines and all over the
world is because of some marketing
strategies that they apply particularly the
psychological pricing strategy that many
food cart use.
Customers believe that when people price
their product fractionally, they’ve priced it
as low as possible, hence the odd number.
Customers will completely ignore the last
digits, which sets a lower pricing in their
head. Research also shows that prices
ending in 98 or 99 convey much more
savings than all other prices, including 49,
50 or 75. (Myrick)
Psychological pricing strategy is
widely use this past few years and this is
also a key for mostly of small business
success. For this paper may help for more
effective psychological pricing strategy that
may use by many franchises.
Conceptual Framework
Independent Dependent
Variable Variable Output

Pricing strategy has played an CLASSIFICATION USUAL RECOMMENDAT

important role in consumer purchasing OF PRODUCTS AVERAGE IONS FOR MORE
behavior and decision making process OFFERED: RATE OF EFFECTIVE
(Reachard, 1985). For international ●Food FRANCHISE
PSYCHOLOGICAL
markets, pricing is one of the most ●Drinks FOOD CARTS
PRICING
important elements of marketing product IN TERMS OF:
mix, generates cash and determines a STRATEGY
CLASSIFICATION
company’s survival (Yaprak, Attila, BASED ON THE ●Gross Profit
Solberg, C.A., 2001) but pricing, as part of EXISTENCE OF ●Net Profit
the marketing mix, is essential and has PSYCHOLOGICAL ●Return on
been always one of the most difficult PRICING Investment
decisions in marketing because of STRATEGY:
heightened competition (Myers, 1997), ●User
gray market activities (Assmus, Gert and ●Non-user
Cartsten Wiese , 1995), etc.

Pricing psychology is one of the

most fascinating areas of menu
development for food cart businesses as
well as other restaurant owners.
Psychologically speaking, a huge difference
exists between 9.99 and 10 pesos.

Page 6 of 21
SCOPE AND DELIMITATION
The franchise food carts stated in
this research study are the food kiosks
found in the alleys in the upper ground
level, level 2, and level 3 in SM City Baguio.
The study shall not include food carts that
have permanent and designated areas in
the mall.
The research focuses on the point of
view of the franchisee specifically of their
sales personnel. Information directly
acquired from these respondents will be
used by the researchers in gathering
relevant and reliable basis concerning the
subject matter. Since the effects of
psychological pricing cannot be determined
through the use of previous data, the
researchers will be using recent data.
Moreover, it is assumed that respondents
are using the same strategy from the
commencement of their operations.
Given the recent data of the users
and non-users of the said strategically
pricing, they will make a comparative study
in which they will conclude. For more
effective comparative study, the
researchers will make use of profitability
ratios – inventory count, gross profit ratio,
net profit ratio, and ratio on return on
investment.
SIGNIFICANCE OF THE STUDY
The study aimed to give an idea and
information about the food cart franchising
business and the effect of Psychological
pricing strategy in the profitability of
franchise food cart in SM city Baguio.
This study will help and give importance to
the following:
Page 7 of 21
To franchisor. This study could serve as a
useful for other franchisors desiring to
expand their food cart franchising business.
To franchisee. This will help them to
expand their strategic planning for their
business and to know the effect of
psychological pricing strategy for the
success of their business.
To potential franchisees. It gives them idea
for the strategy of a food cart franchising
business that they may apply through the
success of their future businesses.
DEFINITIONS OF TERMS
Franchise - A franchise is an agency
arrangement in which the seller (or the
franchisor) grants the buyer (Franchisee)
exclusive rights to market the seller’s
product; in return, the buyers agrees to
follow policies desired by the seller.
Franchising - It is a business model wherein
the owner of the business (franchisor) gives
the independent operator (franchisee) the
right to distribute his products, implement
his business techniques and use his brand
and/or trademark in exchange for a fixed
franchise fee and a portion of the gross
income (royalty fee, advertising fee, etc.).
Franchisor - It refers to the one who lends
his trademark or a trade name and a
business system. Owns the overall rights
and trademarks of the company and allows
its franchisees to use these rights and
trademarks to do business.
Franchisee - It is the party in a franchising
agreement that is purchasing the right to
use a business's trademarks, associated
brands and other proprietary knowledge in
order to open a branch. And one who pays
a royalty and often an initial fee for the
right to do the business under the
franchisor’s name and system.
Food cart - It is a mobile kitchen that is set
up on the street to facilitate the sale and
marketing. Food carts are often found in
large cities throughout the world and can
be found selling food of just about any
variety.
Price - It is the quantity of payment or
compensation given by one party to
another in return for goods or services.
Price can sometimes alternatively refer to
the quantity of payment requested by a
seller of goods or services, rather than the
eventual payment amount.
Pricing Strategy - Takes into account
segments, ability to pay, market conditions,
competitor actions, trade margins and input
costs, amongst others.
Psychology - affecting, or arising in the
mind; related to the mental and emotional
state of a person
Psychological pricing - is a
pricing/marketing strategy based on the
theory that certain prices have a
psychological impact.
METHODOLOGY
This chapter contains the methods and
procedures to be used by the researchers. It
includes a brief discussion of the research
design, population, sampling design, data-
gathering tools, and data gathering
procedures.
Page 8 of 21
Research Design
The research study made used of
descriptive survey and comparative method
of research. The descriptive survey method
was used since the study aims to describe
the utilization of the different types of
psychological pricing. Also, the researchers
find it appropriate to acquire the needed
information through direct communication
and questionnaire floating.
Comparative research was also used since
the study entails the distinction between
the franchise food carts utilizing
psychological pricing strategy to those who
are not. The study involves the analysis of
the effect of psychological pricing on the
profitabilty of franchise food carts.
Population of the Study
The respondents of the study are the
franchise food carts in SM City Baguio.
Among the 42 food carts in SM City Baguio,
thirty two are franchises and the remaining
ten carts were branches or main carts
owned by sole proprietors.
Table 1 presents the population of franchise
food carts in SM City Baguio in terms of
floor level.
Floor Level Total Population
Lower Ground
1
Level
Upper Ground 9
Level
Level 2 4
Level 3 18
Total 32
Simple random sampling was used in Table 2. Presentation of Sample Respondents
selecting the respondents. In this sampling
Floor Total Percent Sample
method, selection of respondents is made
Level Population Share Size
in such a way that every possible
Lower
respondent has an equal chance of being Ground 1 3.12% 1
the respondents ultimately selected for the Level
purpose. Upper 9 28.13% 9
Ground
Level
Level 2 4 12.5% 4
Sampling Design Level 3 18 56.25% 17
In determining the needed sample size, the Total 32 100.00% 31
researchers used the Slovin’s formula. The
Slovin’s formula is defined as a statistical As summarized in Table 2, the researchers
formula used to get the difference between got 1 of the samples from the lower ground
means of dependent data. This formula is level, 9 from the upper ground level, 4 from
used to break down the population to be the second floor level, and 17 from the
able to get the actual respondents of the third floor level.
study.
Data Gathering Tools

Survey questionnaires became the primary

The Slovin’s formula is presented as:
N
(1 + Ne2)
Where:
N = population size
e = margin of error
Using the Slovin’s formula and a 5% margin
on error, the researchers arrived at a
sample size of 31 franchise food carts
representing the whole population of 35.
Table 2 shows the distribution of the
sample.
and main data gathering tool used by the
researchers. This tool simplifies and hasten
the data gathering and make it more
reliable since answers are taken directly
from the main subject of the study who is
the sales personnel of the franchise food
carts. By the use of survey questionnaires,
sales personnels would be more likely to
respond because they would have the
flexibility to complete the survey at their
own convenience and reflect upon some of
their responses. Due to the sensitivity of
some of the questions, it would also
provide the respondent with anonymity.
In addition to primary sources of
information that are used, the researchers

Page 9 of 21
took into account the substantial role of of the aforementioned aspects of
secondary data to the attainment of the profitability.
research study’s objectives. Secondary
Statistical Treatment of Data
sources consist of information that has
been gathered and often interpreted by
1. Weighted Mean
other researchers and recorded in books,
articles and other publications. This value is obtained by summing up the
product of each score by its corresponding
Data Gathering Procedures weight, divided by the sum of the weights.
After the formulation of the questionnaires, In formula,
such was float to the sales personnel
included in the sample size.
where:
To answer the question on the usage or
utilization of psychological pricing, 𝑥 𝑖 =𝑖 th data point
specifically Charm/Odd Pricing, Prestige
𝑤𝑖 =weight of the 𝑖 th data point
Pricing, ‘BOGOF’: Buy One Get One Free,
and Comparative Pricing, the respondents ∑ 𝑤𝑖 𝑥 𝑖 = sum of the products of the data
will be asked to assess each type in terms of points and their corresponding weights
usage or utilization.
2. Likert Scale
On the other hand, to answer the question
The Likert scale method of Summated
on the profitability of franchise food carts,
Ratings was used in the study. The Likert
the researchers asked the respondents to
Scaling Technique assigns one scale value of
assess their usual average rate in terms of
each of the different responses. The Likert
the following aspects:
Scale is an ordered, one dimensional scale
a.) Gross Profit from which respondents choose one option
b.) Net Profit that best aligns with their view. To analyze
c.) Return on Investment responses to Likert Scale, each category is
assigned to a numerical value such as
Useful information about the trend of
Always which is equal to 5 a Never which is
profitability is available from profitability
equal to 1 for five-point scale. The total
ratios – gross profit ratio, net profit ratio,
assigned value will be determined by using
and ratio on return on investment. For a
the weighted mean. The scoring systems for
more effective comparative study, all
each item must be such a high score
franchise food carts, whether utilizing
consistently reflects a favorable response
psychological pricing or not, were asked to
and a low score consistently reflects an
assess their usual average rate in the terms
unfavorable response.

Page 10 of 21
 The consolidated points from the branch
representatives answer to each item over a
PRESENTATION, ANALYSIS, AND
five-point scale were a s follows:
INTERPRETATION OF DATA
A. Franchise Food Cart Classification
The formula used:
Table 3. Summary of the number of
Item Range Interpretation participants classified according to the
Scale Level of Utilization products offered.
5 4.21-5.00 Always
FOOD DRINKS
4 3.41-4.20 Often
USER 13 5
3 2.61-3.40 Sometimes
NON-USER 11 2
2 1.81-2.60 Seldom
TOTAL 24 7
1 1.00-1.80 Never
C= fr/Sf
In this table, franchise food carts are
Where:
distinguished regarding whether they are
f= frequency users or non-users of psychological pricing.
Aside from that, they are also categorized
r= rating according to the products they offered such
3. Median as food and drinks. The researchers
The median is the value separating the higher considered the main product as a basis for
half of a data sample, a population, or a the division.
probability distribution, from the lower half.
The formula is given by
𝑥 𝑛+1 𝑖𝑓 𝑛 𝑖𝑠 𝑜𝑑𝑑 B. Level of Utilization
2
𝑥̃ = {𝑥 𝑛 + 𝑥 𝑛 +1
2 2 Table 4– Value Interpretation
𝑖𝑓 𝑛 𝑖𝑠 𝑒𝑣𝑒𝑛
2
Range Interpretation
The researchers opt to use median as a basis Item
of testing the hypothesis. Profitability ratios Level of
Scale
higher the median value represents efficiency Utilization
and high profit whereas the lower ones 5 4.21-5.00 Always
represent inefficiency and low profit. The 4 3.41-4.20 Often
respondents having usual average rates 3 2.61-3.40 Sometimes
higher than the median value would then be 2 1.81-2.60 Seldom
compared to the lower ones. 1 1.00-1.80 Never

Page 11 of 21
 Table 4 shows the values assigned to each remaining three respondents said never used
assessment. Using the Likert Scale, the Charm/odd Pricing. For the Prestige Pricing,
corresponding interpretation for every three said they used it always, three said often,
weighted mean can be known. three said sometimes, one said seldom, and the
remaining eight respondents said never used
Through the study, the researchers were Prestige Pricing. For the BOGOF, two out of 18
able to answer the question on the level of said they used the strategy always, five said
utilization of psychological pricing strategies sometimes, and the remaining eleven said the y
used by franchise food carts in SM City never used BOGOF. For comparative Pricing,
one said they used the strategy always, one said
Baguio. Answers were derived from the
often, one said sometimes, one said seldom,
information given by the respondents as
fourteen said they never used the Comparative
presented below: Pricing.
Table 5 – Tally on Level of Utilization -
Psychological Pricing Table 6. Values and Interpretation for Level of
Utilization - Psychological Pricing
Charm/ Prestige Comparative
Odd Pricing Pricing BOGOF Pricing
Weighted
Always 8 3 2 1 Mean Interpretation
Often Charm/Odd
3 3 0 1
Pricing 3.72 Often
Sometimes Prestige Pricing
4 3 5 1 2.56 Seldom
Seldom 0 1 0 1 BOGOF 2 Seldom
Never Comparative
3 8 11 14
Pricing 1.56 Never
TOTAL 18 18 18 18

Table 5 illustrates the information given by the

respondents. Each of them were asked to rate
the level of utilization of each psychological
pricing strategies used by their food carts.
For the Charm/odd Pricing, eight out of
eighteen said that they use the strategy always,
three said often, four said sometimes and the
Among the psychological pricing strategies,
the findings show that Charm/Odd Pricing,
having a weighted mean of 3.72, is the most
often used psychological pricing strategy
followed by Prestige Pricing and BOGOF as
seldom used.

Page 12 of 21
C. PROFITABILITY ANALYSIS
Profitability reflects the final result of the business operations. Profit earning is considered
essential for the survival of the business. There are two types of profitability ratios – profit
margin ratio and the rate of return ratios. Profit margin ratio shows the relationship between
profits and sales. Useful information about the trend of profitability is available from
profitability ratios.

The Gross Profit Ratio, Net Profit Ratio, and Ratio on Return on Investment is a good
indicator of profitability of a business. On the basis of these ratios, investors get an idea about
the overall efficiency of business the management gets an idea about the efficiency of
manager. (B, 2015)

Table 7. Summarization of the Gross profit, Net profit and Return on investment in the
classification of food

Profitability Ratio
Gross Profit Net Profit Return on Investment
NON- NON- NON-
USER USER TOTAL USER USER TOTAL USER USER TOTAL
10%-20% 1 3 4 1 2 3 1 2 3
21%-30% 1 1 2 3 3 6 3 1 4
31%-40% 2 1 3 3 2 5 4 4 8
41%-50% 1 2 3 3 3 6 2 3 5
51%-60% 5 3 8 0 2 2 1 2 3
61%-70% 0 1 1 2 0 2 2 0 2
71%-80% 2 1 3 0 0 0 0 0 0
81%-90% 0 0 1 0 0 0 0 0 0
91%-100% 0 0 0 0 0 0 0 0 0
TOTAL 12 12 24 12 12 24 12 12 24
In this table, the number of participant in the classification of food are divided according
to the range of gross profit percentage, net profit percentage and return on investment
percentage they earn. Same with the succeeding tables, the number of users and non-users of
psychological pricing are separated.

The usual average rates ranging from 52%-60% represents the median value of the data. As the
basis, any numbers above the yellow line signifies inefficiency or low profit. On the other side,
any numbers below or in the yellow line itself means efficiency or high profit. Table 7 shows the

Page 13 of 21
total number of those who surpassed the median value. With this, there is a great number of
users of psychological pricing have higher gross profit and return on investment than those who are not
users of such pricing strategy. In terms of net profit, there is no significant difference between users and
non-users of psychological pricing strategy.

Table 8. Summarization of the Gross profit, Net Profit and Return on investment in the
classification of drinks.

Profitability Ratio
Gross Profit Net Profit Return on Investment
NON- NON- NON-
USER USER TOTAL USER USER TOTAL USER USER TOTAL
10%-20% 0 0 0 1 0 1 0 0 0
21%-30% 0 0 0 2 0 2 1 0 1
31%-40% 1 0 1 0 0 0 1 0 1
41%-50% 1 0 1 1 0 1 3 0 3
51%-60% 1 0 1 1 0 1 0 1 1
61%-70% 2 1 3 0 1 1 1 0 1
71%-80% 0 0 0 1 0 1 0 0 0
81%-90% 1 0 1 0 0 0 0 0 0
91%-100% 0 0 0 0 0 0 0 0 0
TOTAL 6 1 7 6 1 7 6 1 7

Table 8 focuses only to respondents whose main product is drinks. The table shows that there
are more users of psychological pricing who earn higher gross profit and net profit than those
non-users. In terms of the ratio on return on investment, there is no significant difference
between the user and non-user of psychological pricing.

Page 14 of 21
Table 9. Summary of Gross Profit, Net Profit and Return on Investment

Profitability Ratio

Gross Profit Net Profit Return on Investment

NON- NON- NON-

USER USER TOTAL USER USER TOTAL USER USER TOTAL

10%-20% 1 3 4 2 2 4 1 2 3

21%-30% 1 1 2 5 3 8 3 1 4

31%-40% 3 1 4 3 2 5 5 4 9

41%-50% 2 2 4 4 3 7 5 3 8

51%-60% 6 3 9 1 2 3 1 3 4

61%-70% 2 2 4 2 1 3 3 0 3

71%-80% 2 1 3 1 0 1 0 0 0

81%-90% 1 0 1 0 0 0 0 0 0

91%-100% 0 0 0 0 0 0 0 0 0

TOTAL 18 13 31 18 13 31 18 13 31

Results show that a great number of users of psychological pricing have higher gross profi t, ne t
profit and return on investment than those who are not users of such pricing strategy.

Page 15 of 21
CONCLUSION

In our world where business industry is dominating, people always seek for something
that would give them any assurance of success. In an answer, there is franchising. It is not too
risky and yet it is still beneficial. Some franchisor like the other businesses uses psychological
pricing. Psychological pricing on the other hand is a pricing/marketing strategy based on the
theory that certain prices have a psychological impact. Based on data gathered there is a
significant difference between users and non-users of psychological pricing as to profitability
ratios. In terms of types of Psychological pricing strategy, Charm/odd pricing is often use by
Franchising Food Cart, for Prestige pricing is seldom, or BOGOF is seldom and for Comparative
pricing is never use by Franchising Food Cart.

RECOMMENDATION

This study recommends Franchising Food Cart to consider using Psychologica l Pricing
Strategy. This would give them opportunity to prolong the lifespan of their business without
occurring so much cost on their ends. Though psychological pricing strategy brings so much
benefits, franchisor should always take into account the long-term goals of the business rather
than the short-term success of it.

Page 16 of 21
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Page 18 of 21
 APPENDIX A

(AUTHORIZATION LETTER)

School of Accountancy and Business Management

Saint Louis University- Maryheights Campus

Bakakeng, Baguio City

Ma’am/Sir:

Greetings!

We, the students of Saint Louis University, School of Accountancy and Business Management currently
enrolled in Accounting 403a with the descriptive title Management Consultancy 1 (Thesis), are conducting a
research entitled “The Effect of Psychological Pricing to the Profitability of Franchise Food Carts in SM City
Baguio.” In this regard, may we ask your good personnel or manager to answer the attached questionnaire
which will be used in our research as our main information-gathering tool.

Rest assured that your answers will remain with utmost confidentiality and shall only be used for academic
purposes.

Thank you very much and God Bless!

Respectfully yours,

Researchers:

Jogen S. Aquino Mr. Mark Oliver Castañeda, CPA

Kathrine Joy M. Cruz Adviser

Whensly Ann H. Espiritu

Andrea Marie N. Naranjo

Florene Mae B. Pinol

Page 19 of 21
 APPENDIX B

(QUESTIONNAIRE)
“THE EFFECT OF PSYCHOLOGICAL PRICING TO THE PROFITABILITY
OF FRANCHISE FOOD CARTS IN SM CITY BAGUIO”
Food Cart: _____________________________________________
Floor Level: ____________________________________________
Psychological pricing is a pricing/marketing strategy based on the theory that certain prices have a psychological impact.
Kindly put a check on the circle that best describes your business.
1. Specify which one most closely describes the product that your food cart offers.
Food
Drinks
Others (Please specify) __________________
2. Does your food cart currently use psychological pricing?
Yes
No
If NO, proceed to no. 4
3. Rate the following types of psychological pricing strategies based on the frequency of use/l e ve l of uti l i zati on.
Encircle the number that corresponds to your answer.
Legend: 5 – Always 4 – Often 3 – Sometimes 2 – Seldom 1 – Never
Psychological Pricing
Strategy Description of Strategy

a.) Charm Pricing Using pricing that ends in “9” and “.99” 5 4 3 2 1
(e.g., Php 60 to Php 59)

b.) Prestige Pricing Making all numerical values into rounded figures. 5 4 3 2 1
(e.g., Php99.99 is converted to Php 100)

c.) ‘BOGOF’: Buy Customers pay the full price for one product/ service 5 4 3 2 1
one, get one to get another for free.
free

d.) Comparative Offering two similar products simultaneously but 5 4 3 2 1

Pricing making one product’s price much more attractive
than the other.

4. Given below are the three aspects of profitability. Kindly check on the range that best corresponds to your usual

business average rate.

FACTORS
10-20%

21-30%

31-40%

41-50%

51-60%

61-70%

71-80%

81-90%

100%
91-

a.) Gross Profit

b.) Net Profit
c.) Return on Investment

Page 20 of 21
 APPENDIX C
(LIST OF RESPONDENTS)

1. Mister Donut
2. Guby’s Chicharon Espesyal
3. Bibingkinitan
4. Magic Binatog
5. Manong Taho
6. Siomai House
7. Tokyo Tempura
8. Juice Avenue
9. Krispy Krust Empanada
10. Scoopery
11. Kettle Corn
12. The Mango Farm
13. Fancie
14. Zagu
15. Crave Chicharon
16. Do Eat Cotton Candy
17. Plato Wraps
18. Twisto Fries
19. Mr. Softly Ice Cream
20. Fruits N’ Waffle
21. Mr. Taco
22. King Corn
23. Poppero
24. I Love Bubble Waffle
25. Fruitas
26. Farron Café
27. Takuyaki
28. Nacho Shack
29. Buko Express
30. Potato Corner
31. Peanut World

Page 21 of 21