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Emerald Group Publishing Limited
Executive summary of “The mediation effects of sticker shock”
Article Type: Executive summary and implications for managers and executives From: Journal of Product & Brand Management, Volume 24, Issue 4
This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefits of the material present.
Using different pricing strategies as a means of positively impacting consumer’s perceptions of value is a widely-deployed tactic among retailers. A common way of indicating greater value to the buyer is to simultaneously display the original price and sale price (SP). The former is known as the “advertised reference price” (ARP) and contrasts with the lower actual price the product is being sold for. Price discounts can trigger purchases, so advertising the savings generated by the difference between ARP and SP increases the appeal to consumers.
Nevertheless, shoppers normally use further pricing information before deciding whether or not to purchase. In addition to using “external reference prices” like ARP and SP, the customer will make comparisons with him or her “internal reference prices” (IRP). These are situated in an individual’s memory and are based on previous experiences and perceptions of fairness. Authors have claimed that IRP constitutes a “range of values” and that a consumer will use certain points across the range depending on each specific context. Evidence suggests that internal and external price references combine to influence the final outcome.
It is indicative in the literature that a key intention of sellers is to utilize ARP and SP to alter the IRP of consumers. This produces notions of a “gain condition” occurring when SP is lower than IRP and a “loss condition” arising when SP is greater than IRP. The difference between the seller’s SP and the IRP of the individual consumer has previously been referred to as “sticker shock”. It is premised on the belief that people make choices based on the resulting benefit or loss in relation to a reference point which they use. Here, the degree of sticker shock will be determined by the point from the IRP range that the buyer selects. But, sticker shock is assumed to increase when discounts get larger and move the SP closer to the buyer’s IRP. Positive sticker shock occurs when the retailer lowers the original price to the extent that SP is significantly below the reference price held by the consumer. This is perceived to be a “great deal” by the consumer who may then slightly revise the IRP used. When SP is higher than IRP, the resulting sticker shock is negative. Different scholars contend that consumer reaction is stronger to losses than to gains and argue that they are likelier to keep the IRP in its original position when negative sticker shock is perceived.
Various findings confirm that positive correlation exists between size of price discount and purchase intention. Potential customers are able to simultaneously consult ARP and SP information to determine the attractiveness of the deal. It is also suggested that intention to buy is influenced by sticker shock. This is predominantly impacted by falling SP in both gain and loss situations. In spite of differences in IRP stability, the price discount becomes larger in each case. There is added belief among researchers that sticker shock has a mediating effect on the link between price discount and purchase intention. The rationale behind this view is that a consumer notes and appraises SP and IRP together before sticker shock is perceived and then used to aid the decision-making process.
Consequently, a central aim of the present study is to examine how sticker shock impacts the relationship between price discount and purchase intention in both perceived gain and perceived loss scenarios. A pre-test was conducted to ascertain two levels of discount as indicated by different realistic SPs. Advertised reference price was set as $89.95 and the sale prices were $54.95 and $79.95 to respectively indicate discounts of 39 per cent and 13 per cent. The university graduates recruited for the study were randomly exposed to one of the two SP groups. Females accounted for 37.6 per cent of the 389 participants, whose average age was 21.63 years.
Running shoes were selected as the product for the study because of their high familiarity among student populations. Subjects were given a booklet containing one of two advertisements for the shoes and a questionnaire addressing the issues under consideration. The advertisements and accompanying information were identical save for the level of discount. Sticker shock was defined as the difference between SP and the IRP of consumers. Based on earlier research practices, Zhuang and Alford used fair price as a measure of IRP.
Analysis of the data confirmed expectations that:
price discount has a positive impact on sticker shock;
purchase intention is positively influenced by price discount;
sticker shock positively affects intention to buy; and
sticker shock partially mediates the impact of price discount on purchase intention.
The authors point out that the level of price discount influences consumer’ perceptions of the scale of loss or gain. Assessment of both internal and external reference prices enables the SP to be more effectively evaluated in terms of whether it appeals enough to prompt a purchase. It is suggested that buying intention could increase as the price discount grows regardless of whether IRP is higher or lower than SP. This is attributed to perceived price discount and perceived sticker shock combining to persuade consumers that a good deal is being offered.
Managers are advised to be cognizant of this and to also adopt strategies which can prove effective in influencing the internal reference point of consumers and thus increase the attractiveness of the product being sold. According to Zhuang and Alford, warranty programs, product design and brand building might be areas to focus on. Initiatives aimed at informing potential buyers that the product is unique, of superior quality or is associated with a leading brand are put forward as ways of increasing IRP. Ensuring that consumers receive appropriate information through the different channels used is deemed important where developing IRP is concerned.
Additional studies could examine the impact of sticker shock in different shopping contexts and ascertain how other promotional and transactional aspects influence the IRP of consumers. Further comparison of the relative impact of positive and negative sticker shock on purchase intention is another research possibility. The authors also recommend examining the significance of personal characteristics like price consciousness and responsiveness to sales. Sticker shock implications for price bundling could be explored, while the validity of findings here can be tested by using non-student samples or conducting longitudinal research.
To read the full article enter 10.1108/JPBM-04-2014-0547 into your search engine.
(A précis of the article “The mediation effects of sticker shock”. Supplied by Marketing Consultants for Emerald.)