Customers’ use of prices and internal reference prices to evaluate new food products

Abstract

Purpose

The purpose of this paper is to demonstrate the heterogeneous effects of gains and losses on the perception of new products. It seeks to argue that the heterogeneity in these effects (partly) stems from the price-perceived quality relationship which is more important for quality-seeking customers.

Design/methodology/approach

A multilevel logit model was applied to household panel data on purchases of new yoghurt and sausage products in Germany. The multilevel model allowed to estimate heterogeneous price effects and accounted for the nested structure in panel data.

Findings

Significant variation in the effects of gains, losses, and promotions were found. Internal reference prices (IRPs), which served as indicator of loss-averse vs quality-seeking customers, were found to moderate these effects. Monetary losses have less negative effects for customers with high IRPs. Negative interaction effects of IRPs with monetary gains and promotions indicate that quality-seeking customers are less attracted by gains and promotions.

Practical implications

The heterogeneity in the price effects confirms the strategic importance of new product prices to influence customers’ perception of value. The price-quality relationship is an explanatory approach for heterogeneous price effects and should not be neglected in price setting. The inclusion of customer-specific reference price information yields deeper insights into customers’ use of prices to evaluate new products.

Originality/value

This study is the first to estimate asymmetric gain and loss effects in the analysis of new product trial. A customer-specific view in price setting is emphasized by taking customer-specific reference prices into account.

Citation

Lemmerer, A. and Menrad, K. (2015), "Customers’ use of prices and internal reference prices to evaluate new food products", British Food Journal, Vol. 117 No. 4, pp. 1411-1424. https://doi.org/10.1108/BFJ-07-2014-0270