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Article
Publication date: 1 March 2005

David M. Hardesty and Tracy A. Suter

The focus and intended contribution of this research are to understand better how retailers should strategically present external reference price information varying in…

Abstract

Purpose

The focus and intended contribution of this research are to understand better how retailers should strategically present external reference price information varying in the context from which it originates (online vs bricks and mortar).

Design/methodology/approach

A two reference price environment (online e‐tail, bricks‐and‐mortar retail) × two external reference price ($252.99, low; $379.99, high) between subjects experimental design with a single control condition was employed.

Findings

Results from an experimental study provide empirical support, suggesting that consumers expect to pay less in online e‐tail settings than bricks‐and‐mortar retail settings. Additionally, results suggest that bricks‐and‐mortar retail external reference prices influence consumer e‐tail price expectations, price fairness, and satisfaction perceptions more than online e‐tail external reference prices when reference prices are high. When external reference prices are low, both online e‐tail and bricks‐and‐mortar retail external reference prices are equally effective.

Research limitations/implications

Price setters should use bricks‐and‐mortar external reference prices when the external reference price is high, as consumers are impacted positively by these reference prices.

Practical implications

The research results suggest a time to use bricks‐and‐mortar external reference prices and suggest that online external reference prices have similar impact regardless of the size of the external reference price.

Originality/value

This research is the first of its kind to evaluate the impact of the context of the reference price on consumer evaluations.

Details

Journal of Product & Brand Management, vol. 14 no. 2
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 24 July 2007

Tong Yin and Audhesh K. Paswan

This research paper aims to examine the relationships among the factors associated with changing shopping environment, consumer knowledge and reference price.

Abstract

Purpose

This research paper aims to examine the relationships among the factors associated with changing shopping environment, consumer knowledge and reference price.

Design/methodology/ approach

A self administered online survey was used to collect data (final sample size was 265). After checking for non‐response bias, data was factor analyzed and checked for reliability and validity. Hypotheses were tested using structural Equation Modeling procedure.

Findings

Product search opportunity is associated with product and price knowledge. Price volatility is negatively associated with internal reference price. Further, consumers' price comparison propensity and price knowledge positively influence external reference price. Finally, price volatility has a significant negative influence on consumer knowledge and IRP orientation.

Research limitations/implications

The sampling frame is a major limitation, in addition to not including variables such as product type and other measures of price volatility. Future research should expand the sampling frame and include other variables as well as other aspects of price volatility.

Practical implications

These findings provide insights into advertised price claims in the information rich internet age. Managers also benefit from the finding that the internet, particularly price comparison, influences external reference price. Consequently, managers must be cautious with their advertised price claims and not exaggerate the value of offerings or cost savings too much.

Originality/value

This topic is important because retailers extensively use reference price or price comparison to increase consumers' perception of the product value. However, not much research attention has been given to this topic.

Details

Journal of Product & Brand Management, vol. 16 no. 4
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 13 November 2018

Jay P. Carlson and Larry D. Compeau

Prior research has demonstrated that reference prices can affect consumer responses, but the reference prices examined have been presented along with semantic cues [e.g…

Abstract

Purpose

Prior research has demonstrated that reference prices can affect consumer responses, but the reference prices examined have been presented along with semantic cues [e.g. manufacturer’s suggested retail price (MSRP) and Compare At]. This study is unique in investigating the effects of reference prices that do not include a semantic cue (i.e. “cue-less”) on consumers’ responses. It also studies consumers’ beliefs about factory outlet stores, a seldom-studied store type in which cue-less reference prices are used.

Design/methodology/approach

One qualitative study and one experiment were carried out in this research.

Findings

The qualitative study revealed that a price tag including cue-less reference prices was unlikely to be viewed as a seller mistake or with suspicion, but nonetheless did confuse some respondents. The experiment demonstrated that while consumers find cue-less reference prices to be somewhat less believable that high MSRPs, these beliefs do not appear to come into play when consumers judge attractiveness (e.g. perceived value). Additionally, the results suggest that consumers believe that a product available for sale in a factory outlet store is likely to have been previously available at a different type of store.

Originality/value

This research advances the theory of the effects of reference prices on consumers’ responses by examining the common practice of not labeling reference prices with semantic cues. It also extends the literature regarding consumer beliefs about factory outlet stores.

Details

Journal of Product & Brand Management, vol. 27 no. 4
Type: Research Article
ISSN: 1061-0421

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Book part
Publication date: 20 August 2012

Patricia M. Danzon and Andrew J. Epstein

Purpose – This study examines the effect of price regulation and competition on launch timing and pricing of new drugs.Methods – Our data cover launch experience in 15…

Abstract

Purpose – This study examines the effect of price regulation and competition on launch timing and pricing of new drugs.

Methods – Our data cover launch experience in 15 countries from 1992 to 2003 for drugs in 12 major therapeutic classes. We estimate a two-equation model of launch hazard and launch price of new drugs.

Findings – We find that launch timing and prices of new drugs are related to a country's average prices of established products in a class. Thus to the extent that price regulation reduces price levels, such regulation directly contributes to launch delay in the regulating country. Regulation by external referencing, whereby high-price countries reference low-price countries, also has indirect or spillover effects, contributing to launch delay and higher launch prices in low-price referenced countries.

Implications – Referencing policies adopted in high-price countries indirectly impose welfare loss on low-price countries. These findings have implications for US proposals to constrain pharmaceutical prices through external referencing and drug importation.

Details

The Economics of Medical Technology
Type: Book
ISBN: 978-1-78190-129-8

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Article
Publication date: 24 February 2012

Rajesh Chandrashekaran

The purpose of this article is to investigate whether involved consumers utilize the same set of reference prices to evaluate an offer as compared to those who are less…

Abstract

Purpose

The purpose of this article is to investigate whether involved consumers utilize the same set of reference prices to evaluate an offer as compared to those who are less involved. Additionally, this study aims to investigate whether the processes employed in the two groups are different.

Design/methodology/approach

A total of 200 students were enrolled to participate in a realistic shopping experience over a two‐week period. In the course of the study, subjects were asked to provide information on their reference prices. They were also asked to evaluate an advertised offer for a pair of jeans. The data were analyzed using a structural equations methodology.

Findings

Under high involvement, consumers utilize perceived normal price, an external market‐based reference price, to adjust their internal standards, which in turn is used to evaluate retail price. In contrast, low‐involvement consumers do not use their internal standards. Rather, they evaluate retail prices directly against external market‐based references.

Originality/value

Despite decades of research on the role of reference prices, the moderating role of involvement on reference price utilization has not been researched adequately. The findings reported here add to existing knowledge in the field and shed additional light on the process by which consumers evaluate posted prices. The findings also emphasize the need to segment the market on the basis of reference price utilization and to design appropriate communication strategies for each.

Details

Journal of Product & Brand Management, vol. 21 no. 1
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 1 December 2000

Oded Lowengart and Shlomo Mizrahi

Examines the conditions and different structural settings in which a retailer is likely to apply an international reference price strategy to an imported product. We…

Abstract

Examines the conditions and different structural settings in which a retailer is likely to apply an international reference price strategy to an imported product. We define the term “international reference price” as an external reference price that reflects the product’s price in different countries. It can be set by providing true but incomplete information rather than by outright manipulation of the reference price, which may involve providing consumers with false information. This study offers a model that describes both the consumer’s utility calculations regarding price information seeking and the retailer’s utility calculations regarding the application of international reference price. It is shown that instability of economic markets combined with access to information technology motivate consumers to seek information about prices. It is also shown that in unstable markets retailers have incentive to provide true but incomplete information about the product’s price in another market. In this setting, the retailer’s use of an international reference price might actually damage consumer welfare. This potential damage may be reduced by international cooperation to establish economic agreements.

Details

International Marketing Review, vol. 17 no. 6
Type: Research Article
ISSN: 0265-1335

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Article
Publication date: 3 July 2007

Sara Campo and María J. Yagüe

This paper seeks to incorporate the study of the effect of price promotions into the traditional scheme of perceived price.

Abstract

Purpose

This paper seeks to incorporate the study of the effect of price promotions into the traditional scheme of perceived price.

Design/methodology/approach

The model is validated with an empirical analysis and applied to the study of the purchase behavior of a tour package.

Findings

The results point out that price promotions directly and indirectly affect the formation process of perceived price. Thus, some differences are observed in the intensity of the above‐mentioned relationship according to the tendency of the consumer to seek advantageous prices. The results obtained might therefore be of great help to service managers in scheduling their promotional activities.

Originality/value

A theoretical model that captures the effect of promotions in the consumer's price perception is configured.

Details

International Journal of Service Industry Management, vol. 18 no. 3
Type: Research Article
ISSN: 0956-4233

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Article
Publication date: 11 January 2008

Begoña Álvarez Álvarez and Rodolfo Vázquez Casielles

The purpose of this present paper is to analyse the influence prices have on consumers' purchase decisions. Specifically, three aspects related to this variable are…

Abstract

Purpose

The purpose of this present paper is to analyse the influence prices have on consumers' purchase decisions. Specifically, three aspects related to this variable are considered: formation of reference prices, effects of price variances on the buying behaviour and the influence of price promotions on the purchasing process.

Design/methodology/approach

The paper elaborates two household panels, one national (Taylor Nelson Sofres Group) and the other regional (elaborated by us) which complements the information provided by the former.

Findings

The results confirm the use of reference prices by consumers, highlighting the importance of the stimuli present at the point of sale for their formation. Likewise, the paper observes the interrelation of strategic decisions, emphasising the collateral effects derived from them.

Originality/value

The paper cautions retailers that immediate discounts as a promotional strategy may be successful, but this does not apply to all product categories.

Details

Asia Pacific Journal of Marketing and Logistics, vol. 20 no. 1
Type: Research Article
ISSN: 1355-5855

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Article
Publication date: 3 August 2015

Rajat Roy

Extant literature on pricing posits that consumers’ internal reference price (IRP) drives willingness to pay (WTP), when external pricing cues are available. This positive…

Abstract

Purpose

Extant literature on pricing posits that consumers’ internal reference price (IRP) drives willingness to pay (WTP), when external pricing cues are available. This positive IRP-WTP relationship is further moderated by involvement and price consciousness. The purpose of this paper is to test how the IRP-WTP relationship will be moderated by involvement and price consciousness, albeit in the pay-what-you-want (PWYW) context. In the PWYW setting consumers can pay any amount of money (including nothing) and no external pricing cues are provided.

Design/methodology/approach

A survey was engaged to measure the key variables, and the data was analyzed using hierarchical multiple regression with spotlight analyses.

Findings

In the normal everyday pricing context, involvement strengthens the IRP-WTP relationship, while price consciousness weakens it. Contrary to this normal pricing wisdom, in the PWYW context, it was found that both involvement and price consciousness weaken the IRP-WTP relationship, thereby driving down consumers’ WTP.

Research limitations/implications

Future studies should use experimental design to manipulate some of the independent variables used in the study, focus on the mediating processes that underlie PWYW decision-making and extend the findings in the context of wider demographics.

Practical implications

Managers should focus on segmentation, branding and product experiences to ensure higher returns of PWYW businesses.

Originality/value

This paper addresses lack of overall research in the PWYW area, and also addresses some key gaps left by extant research of Kim et al. (2009) that was published in the Journal of Marketing.

Details

Marketing Intelligence & Planning, vol. 33 no. 5
Type: Research Article
ISSN: 0263-4503

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Article
Publication date: 9 May 2016

Rajat Roy, Fazlul K. Rabbanee and Piyush Sharma

The purpose of this paper is to investigate the direct and indirect effects of social visibility (private vs public), purchase motivation (intrinsic vs extrinsic vs…

Abstract

Purpose

The purpose of this paper is to investigate the direct and indirect effects of social visibility (private vs public), purchase motivation (intrinsic vs extrinsic vs altruistic) and external reference price (ERP) (absent vs present) on consumers’ pricing decisions in pay-what-you-want (PWYW) context.

Design/methodology/approach

Two empirical studies with a fitness gym as the research setting were used to test all the hypotheses; first, a lab experiment with undergraduate student participants and, the second, an online experiment with a consumer panel.

Findings

Both studies show that consumers allocate a higher share (RATIO) of their internal reference prices (IRPs) to the prices to be paid (PTP) in PWYW context, in private under intrinsic purchase motivation and in public under extrinsic or altruistic motivation and this effect is more pronounced in the absence of ERP.

Research limitations/implications

Future research may validate and extend the findings of this paper with other product or service categories, different manipulations for the key variables, other research methods such as field experiments and expand our model by including other relevant variables.

Practical implications

The findings of this paper will help managers understand how individual customers’ purchase motivation and the social visibility in the PWYW setting affect their pricing decisions and how providing external pricing cues may moderate these effects.

Originality/value

Prior research on PWYW shows mixed findings about the direct effects of many variables on consumers’ pricing decisions, but it ignores the differences in consumers’ purchase motivations and offers mixed evidence about the influence of social visibility and ERPs on payment decisions. The authors address all these gaps in this paper.

Details

European Journal of Marketing, vol. 50 no. 5/6
Type: Research Article
ISSN: 0309-0566

Keywords

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