The influence of redundant comparison prices and other price presentation formats on consumers’ evaluations and purchase intentions

Two studies explore the conditions under which redundant reference price information (ARP) is likely to influence consumers’ perceptions of an advertised sale price. Study 1 suggests that an ARP enhances offer-value, but only for consumers who are not involved with the product. Study 2 incorporates a wider array of price presentation tactics (SP Only, SP+ARP, SP+%Saving and SP+ARP+%Saving) and investigates a range of responses (transaction value, acquisition value and subsequent purchase intentions). Again, results suggest that ARP only influences perceived transaction value, and saving information only impacts purchase intentions. Most importantly, these effects are seen only when involvement is low.     

Quality-adjusted price comparison of non-homogeneous products across Internet retailers

This study compares prices offered by multiple Internet retailers. This task is challenging because e-tailers cannot present their entire assortments to each consumer. Therefore, the quality of the product assortments presented by different e-tailers to each consumer is not directly comparable on an item-by-item basis, resulting in non-homogeneous offerings across retailers. We further consider the interaction between retailers (product information presentation format) and consumers (product information search strategies), which makes price comparisons among the retailers even more non-homogeneous. To grapple with this quality-adjusted price comparison problem for non-homogeneous products, we use a stochastic-frontier hedonic-price regression model to find the “lowest” theoretical price for a product given its characteristics. We then assess the price efficiency of the product as the ratio between this lowest price and the offered market price. This framework allows for the comparison of retailers in their ability to offer the “best deals” even when their actual assortments are not directly comparable in quality. Moreover, this framework provides Internet retailers with a relative measure of price efficiency. This helps them understand when and where they offer competitive prices to consumers. We illustrate our approach empirically in a comparison of price efficiency among three major Internet travel agents on a sample of posted itineraries and airfares. Furthermore, we demonstrate that the price efficiency of an Internet travel agent depends on the format of its website and on consumers' search strategies.     

Assimilation of advertised reference prices: the moderating role of involvement

This study examines the hypothesis that the level of involvement influences the assimilation of advertised reference prices (ARPs) into consumers’ existing internal reference prices (IRPs). In addition, it investigates the nature of the relationship between the change in IRP and the perceived discrepancy between the ARP and IRP. Results from two different product categories are consistent with assimilation-contrast theory and reveal a nonlinear relationship between the change in IRP and the perceived ARP–IRP discrepancy. In addition, the results are consistent with involvement theory and with prior research on how involvement influences the extent to which consumers elaborate on and are persuaded by advertised information. Specifically, highly involved consumers assimilate a smaller portion of the ARP into their existing IRPs. Implications for research and practice are highlighted.     

Does consumer knowledge affect consumer responses to advertised reference price claims?

As expected, internal reference prices (IRPs) and purchase intentions for two product categories (microwave ovens and disposable razors) differed according to whether consumers possessed a high or low level of consumer knowledge about the product in this factorial design experiment. Contrary to theory and expectations, neither internal reference points nor purchase intentions were affected by exposure to comparative price advertisements. Students were used as subjects in a before-after procedure with approximately two weeks between pre- and postmeasures of IRPs and purchase intentions. Postmeasures were taken immediately after exposure to ads containing three levels of advertised reference prices. t tests indicated differences between high and low knowledge group IRP means before ad exposure. However, no ANOVA differences were detected in change in IRP or purchase intention scores after ad exposure. © 1994 John Wiley & Sons, Inc.     

Loyalty differences in the use of internal and external reference prices

Recent findings in reference price research suggest that consumer characteristics may affect whether they use an internal reference price (IPR) or an external reference price (ERP) in price judgments. In this paper, we investigate the role of one such characteristic, brand loyalty, in the use of either type of reference price. Specifically, we employ a latent class-type approach to divide consumers on the basis of their brand loyalty into an ERP and an IRP segment. Analysis of the margarine and liquid detergents categories shows that consumers who are highly loyal to a brand are likely to use external reference prices whereas less brand-loyal consumers rely on internal reference prices. We discuss the implications of this finding and suggest directions for future research.     

Consumers’ responses to price presentation formats in rebate advertisements

Although rebates offer an important and popular promotion tool in retailing, little research has investigated whether their presentation format can influence consumers’ evaluations of and purchase intentions toward products featured in rebate ads. Retailers generally use two different rebate ad formats: one that transparently shows both before- and after-rebate prices and the other that displays the after-rebate price in relatively large print and the before-rebate price in small print. Three experimental studies attempt to determine which format is more effective for eliciting favorable consumers’ responses, and the results show that the format emphasizing only after-rebate prices generally leads to lower purchase intentions because of the negative affect it elicits. Furthermore, the effect of a rebate presentation format is moderated by the rebate amount, consumers’ price knowledge, and rebate processing time. The results show that consumers’ responses to different rebate presentation formats entail both emotional responses and rational evaluations.     

Increasing Price Transparency: Implications of Consumer Price Posting for Consumers' Haggling Behavior and a Seller's Pricing Strategies

In an attempt to gain a better position in haggling, consumers often seek a seller's pricing information (e.g., whether the posted price is negotiable, the discount and transaction prices) before going to that seller. Although traditionally difficult to obtain, such information is becoming increasingly available due to consumer price posting (CPP), whereby consumers post and share their purchase price information on the Internet. In this analytical study, we consider a market in which a seller, who chooses between a fixed price policy and a haggling policy, serves two types of consumers who differ in their willingness to pay and haggling costs. We explore how CPP can affect consumers' behavior and the seller's pricing strategies (i.e., pricing policy and the associated prices). In the absence of CPP, our model features a two-sided uncertainty: the seller does not know individual consumer's type and thus may find it optimal to use a haggling policy to price discriminate consumers, whereas consumers do not readily observe the seller's cost type and pricing policy, and thus are uncertain whether their haggling will be fruitful. In the presence of CPP, consumers' uncertainty about the seller's pricing policy is resolved. Because CPP can improve price transparency, inhibit consumers' acceptance of a posted price and spur price haggling, it seems apparent that it should benefit consumers and hurt the seller. However, our analysis shows that CPP can lead to fewer purchases, higher prices and even a greater seller profit. It further shows that although CPP surely increases information accessibility, it can also reduce the amount of information available to consumers. These results are in sharp contrast to the conventional wisdom in the literature.     

Profiling the reference price consumer

Researchers in marketing have devoted considerable attention to understanding how price impacts the purchase decision. Some individuals, termed memory-based reference price (MBR) consumers, take into account price expectations developed from past purchase behavior when making a current choice. Other individuals, termed stimulus-based reference price (SBR) consumers, make choices by constructing a reference point from the currently observed distribution of prices. Using a latent class model of structural heterogeneity applied to purchase histories from the toilet tissue category, we classify households in terms of the pricing mechanism used in buying decisions. We find strong evidence that memory-based (internal) reference price consumers are more price sensitive than other consumers. Moreover, we find that variables associated with the accessibility of price information are predictive of consumer use of memory-based reference prices. Managerial implications of these results are discussed.     

Spending propensity and price perceptions

ABSTRACT

This article presents a systematic investigation of how Spending Propensity moderates consumers’ perceptions of prices. Results from three studies are presented. Studies 1 and 2 reveal that, in the absence of any external cues, consumers who are predisposed to spending freely evaluate a posted price more favorably than those who are not. Such consumers also report anticipating less pain associated with spending than those who are not inclined to spend. Additionally, Study 2 informs that simple price communication tactics, without any real reduction in price, may be effective at mitigating the pain felt among those who are less inclined to spend. Furthermore, such tactics are capable of reducing, and even reversing, the gap between those who are not predisposed to spending and those who are. Finally, Study 3 explores how spending propensity moderates consumers’ perceptions of a discount.     

Price Awareness and Consumers’ Use of Deals in Brand Choice

There is evidence that consumer knowledge of prices is limited, implying that, on occasions, consumers may not be fully informed of prices when making a brand purchase. On such occasions, how do consumers make their brand choice decision? One possibility is that consumers use their expectation of prices. This raises an interesting question. To what extent is brand purchase either a function of preferences and posted prices or, of preferences and expectation of brand prices? Another important issue relates to the role of displays and features in simplifying consumer brand choice. First, do promotions cause consumers to restrict their attention to only promoted brands? Second, do promotions affect the price aware consumers more than the price unaware consumers? Our study uses scanner data on ketchup and peanut butter categories to answer the foregoing questions. We find that between 40 and 50% of the purchases are made by consumers using expectations of prices rather than posted prices. Consumers using price expectations may be thought of as being “unaware” of prices. We also find that promotions cause some consumers to focus exclusively on promoted brands, and this effect is greater on the price aware consumers than on the price unaware consumers. Our findings have an important bearing on the rationality of consumer expectation of prices, especially of the promoted brands. Price aware consumers act as a check against firms promoting without accompanying price cuts.     

An information processing review of the subjective value of money and prices

This article draws on current and classical psychological theories of consumer behavior to review current findings in the psychology and economics literature on the subjective value of money, using an information processing framework. Consumers subjectively value both prices and money. That is, consumers value an identical economic value as a price or as a sum of money differently depending on their individual characteristics, price presentation characteristics, monetary form characteristics, and the consumer context due to subjectivity in their: Perception (biases in assessing the subjective value of money and prices); Inferences (whether consumers use price information to make other judgments); affect (the feelings and emotions associated with spending and saving); memory (errors and biases in recall of money and prices); and information integration (the manner in which consumers integrate costs and benefits to make decisions of whether, when, how much, and what to spend on).     

The effects of informative and non‐informative price patterns on consumer price judgments

Converging evidence from laboratory experiments and empirical models of scanner data suggests that product price evaluations are often based on a comparison to an internal reference price. Research indicates that the reference price may reflect various characteristics of previously encountered prices including the mean, the range, and the last price encountered. In this research, the authors test whether, for prices purportedly sampled over time, the reference price reflects temporal patterns of the price sequence (ascending and descending prices). In four studies, participants viewed prices purportedly sampled at one time point or at multiple time points and then evaluated a target price. Price distributions differed only in their temporal pattern, whereas the mean, the range, and in some conditions, the last price, were held constant. The results reveal that the price pattern does not affect price judgments when prices are purportedly sampled at one time point. However, for ascending and descending price sequences purportedly sampled over time, the price pattern affects price judgments. Based on these findings the authors propose that consumers flexibly select the internal reference price used for price evaluations. © 2006 Wiley Periodicals, Inc.     

Consumers’ choice of private label considering reference price and moderating effect

Retailers frequently place private labels (PLs) next to the top-moving sales national brands (NBs) and utilize comparative pricing that is related to the national brands. There is thus always an external reference price between the private labels and the national brands. In this study, two categories of products were selected, and a hierarchical non-linear model used to study the impact of external reference prices on consumers’ choice of private labels. In addition, the effects of package size and average disposable income (ADI) were introduced into the analysis for the relationship between external reference price and consumers’ choice of private label. The findings show an inverted U-shaped curve between consumers’ choice of private labels and the external reference price discrepancy. Consumers in areas with high ADI are more likely to buy private labels. Package size and ADI have different direct and moderating effects on two categories of products. This study contributes to reference dependence theory and category management.     

How consumers form product quality perceptions in absence of fixed posted prices: Interaction of product cues with seller reputation and third-party reviews

The uncertainty about product quality has increased in online settings, and consumers' often use multiple product cues to assess product quality. The authors have tested the simultaneous effects of multiple product cues in Pay-what-you-want (PWYW) online settings. PWYW lacks posted prices and allows buyers to decide the prices. This paper investigates how consumers process multiple cues of varying diagnostic nature simultaneously and form product quality perceptions. Specifically, study 1 examines the interactions among seller reputation, online product presentation, and external reference price and study 2 examines the interaction effect of third-party reviews and online product presentation and the external reference price. The results add to the theoretical domain by suggesting that consumers' online cue processing behaviour is much more complicated than previously presented in the literature.     

Reputation-based pricing and price improvements

Dealers often offer price improvements, relative to posted quotes, to their clients. In this paper, we propose an explanation to this practice. We also analyze its effects on market liquidity and traders’ welfare. Enduring relationships allow dealers to avoid informed trades by offering price improvements to clients who do not trade with the dealer when they are informed. A dealer never observes whether a specific client is informed or not but he can avoid informed orders by conditioning his offers on past trading profits. Cream-skimming of uninformed order-flow increases the risk of informed trading for dealers without a relationship. Thus, authorizing price improvements increases bid-ask spreads and impairs the welfare of investors without a relationship. It may even decrease the welfare of investors who develop a relationship as they sometimes need to trade at posted quotes. The model predicts a positive relationship between (a) the price improvements granted to a specific investor and past trading profits with this investor or (b) the frequency of price improvements and bid-ask spreads.     

Consumers' Interpretations of the Semantic Phrases Found in Reference Price Advertisements

Consumers are frequently presented with a higher reference price to compare with a lower advertised selling price. The research on reference prices has traditionally been conducted based on the implicit assumption that consumers’ interpretations of a given semantic phrase, e.g., “Regular Price/Sale Price,”are consistent across all consumers, but this fundamental assumption has never been tested. Guidelines issued by the Federal Trade Commission and the Council of Better Business Bureaus, as well as regulations enacted by approximately half of all states, appear to be based on a similar assumption. However, given the variability among consumers’ perceptions found in other areas of consumer research, it is reasonable to expect that consumer interpretations of semantic phrases may vary. Given the potential variability, a pricing claim may be deemed informative or deceptive depending on the meaning the particular consumer attaches to the claim. This article presents a discussion of the vagueness in pricing claims as a step toward evaluating deception.     

Misperceptions of Grocery Advertising

A survey of food shoppers showed that consumers underestimate the number of advertised grocery store items reduced in price and the average amount these products are marked down. Newspaper advertisements appear to be relied upon more by consumers who believe that advertised brands are of better quality than those not advertised.     

Believability and consumer perceptions of implausible reference prices in retail advertisements

Based on results from three studies, this research addresses questions relating to the role of perceived believability of a reference price set at an implausible level. Compared to effects of more plausible levels of reference prices, an implausible reference price is shown to be capable of positively influencing both perceptions of a fair price and the highest price that would be paid for an advertised product, as well as more evaluative dependent variables such as perceived value of the advertised offer and purchase willingness estimates. The perceived believability of the price offer is associated with a stronger impact on evaluative dependent variables than price-related estimates. Results indicate the importance of scrutiny of retailers' use of advertised reference prices by public policy advocates, and suggest implications for theoretical bases used to address reference pricing issues. © 1996 John Wiley & Sons, Inc.     

Internal reference price response across store formats

Reference price models have a long tradition in marketing and consumer research. Pricing strategies can utilize consumer response to gains and losses relative to internal reference prices, which are price expectations developed from past-observed prices. Consequently, many previous studies have been devoted to analyzing differences in internal reference price response across product categories and consumer characteristics. However, knowledge about internal reference price response across different store formats is missing. Our study aims to fill this research gap. To do so, we estimate a reference price model for the same set of brands and the same sample of consumers across two store formats (discount chain vs. supermarket chain). The prices for the brands in our model are similar across store formats. Results from our proposed model show that the same consumers are loss-averse at the discount chain while gain-seeking at the supermarket chain. Predicted by previous literature, we attribute the difference in internal reference price response to the different price image of the store formats. Overall, our research contributes to the reference price literature and provides important implications for pricing strategies at stores with different price image.     

Same but different - The effect of the unit of measure on the valuation of a unit price

Unit prices are a ubiquitous phenomenon. The respective legal norms leave a certain freedom of choice with regard to the reference unit. However, research on the impact of alternative measurement units on consumer behaviour is still in its infancy and its findings are inconclusive. Moreover, this influence has so far only been measured directly. Investigating the product category bottled beer (with its essential product attributes ‘brand’, ‘price’, ‘alcohol content’ and ‘size of packaging unit’), a Choice Based Conjoint experiment provides empirical evidence that a large (per 1 L) compared to a small (per 100 mL) size unit of measurement leads to a significant shift of importance towards the product attribute ‘price’ at the expense of the ‘brand’. In addition, consumers react more sensitively to price changes. At the strategic level, retailers can use these insights to sharpen their positioning through a suitable unit price measure. When making operational decisions, retailers should bear in mind that the reference unit influences the likelihood of purchase, the scope for price increases and the opportunities for up-selling.