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Article
Publication date: 19 June 2017

Jiaming Liu, Chong Wu and Tianyi Su

The purpose of this paper is to discuss the role of reference effect on newsvendor’s decision behavior in a market with strategic customers and work out the newsvendor’s…

Abstract

Purpose

The purpose of this paper is to discuss the role of reference effect on newsvendor’s decision behavior in a market with strategic customers and work out the newsvendor’s optimal pricing policy and ordering quantity.

Design/methodology/approach

This study utilizes the prospect theory and strategic customer framework to analyze the decision-making behavior on the newsvendor’s optimal pricing policy and ordering quantity. The paper further presents an extension of newsvendor model and provides the model’s properties. The paper finally analyzes the results with various parameters on the model and reports on the insights generated by the model.

Findings

The paper indicates that the ordering quantity is not altered with the changing proportion of strategic customers and myopic customers, but the ordering quantity and the pricing strategy are influenced in terms of newsvendor’s reference effect, loss aversion, product cost, and salvage price.

Practical implications

The research findings have important implications for decision makers. Previous researches have studied the incomplete rationality newsvendor’s decision-making behavior mainly by analyzing the vendor’s risk preferences or loss aversion, but the effect of reference point also plays an important role in analyzing the decision-maker’s behavior. The paper provides the optimal pricing policy and ordering quantity with the reference effect considering the strategic customers behavior. This model is also a valid complementarity to behavioral operations management research area.

Originality/value

The paper examines the role of reference effect in newsvendor problem with the strategic customers and analyzes the impact of parameters such as loss aversion on the newsvendor’s decision behavior.

Details

Management Decision, vol. 55 no. 5
Type: Research Article
ISSN: 0025-1747

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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: 2 November 2010

Ben Lowe and Frank Alpert

The purpose of this paper is to integrate literature in the pioneer brand advantage area with the literature on reference prices to examine how reference prices work in a…

Abstract

Purpose

The purpose of this paper is to integrate literature in the pioneer brand advantage area with the literature on reference prices to examine how reference prices work in a pioneer and follower brand context. There is evidence to suggest that pioneers have a psychological advantage over follower brands, yet how that manifests in terms of reference price effects is not fully understood. The study tests whether the pioneer price and follower price have equal influence on reference prices, or whether the pioneer has a stronger influence.

Design/methodology/approach

This research uses a longitudinal experiment to simulate a market of a pioneer brand followed by follower brand, and measures the relative effects of pioneer and follower prices on reference price, value perceptions and purchase intentions. This approach allows greater confidence in the causal nature of the findings.

Findings

The results indicate a clear and strong causal effect for the pioneer's price on price and value perceptions of the pioneer and follower, whereas the follower's price only seems to influence perceptions of the follower, not the pioneer. This suggests that consumers overweight the price of the pioneer brand (as exemplar) in the category, and reference price perceptions are systematically biased in its direction. However, these effects were stronger for the more innovative product category being examined. For a less innovative pioneer this effect was not so strong. These findings imply that reference price is brand specific but the more innovative the pioneer brand the more influence it has on reference prices.

Research implications

These findings are consistent with and extend the literature on pioneer advantage by suggesting that the pioneer can define ideal levels of objective attributes such as price, rather than just defining the ideal attribute combination of subjective, less discernible attributes. This highlights and presents a more complete picture of the natural advantages to product innovation. It also implies the need to consider the multi‐faceted nature of reference price in measurement and research.

Originality/value

A number of studies have examined reference price effects in existing and established product categories. Yet few studies have examined reference price effects in new product categories despite calls in the literature to do so. This study is one of the first studies to examine reference price effects in new product categories and contributes by integrating the literature on pioneer brand advantage with the literature on reference price by examining asymmetric pricing effects between pioneer and follower brands in new product categories.

Details

Journal of Product & Brand Management, vol. 19 no. 7
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 18 August 2014

Ben Lowe, Fanny Chan Fong Yee and Pamela Yeow

The purpose of this study is to resolve inconsistencies in the literature about how one-time price promotions affect reference prices. Specifically, this study suggests…

Abstract

Purpose

The purpose of this study is to resolve inconsistencies in the literature about how one-time price promotions affect reference prices. Specifically, this study suggests that the measure of reference price used within a study (e.g. expected price or fair price) can affect the outcomes of that study.

Design/methodology/approach

This research uses three separate experiments, replicating and extending existing work, to simulate purchasing decisions for products in the context of a price promotion. Experiments allow careful control of the confounds presumed to cause the inconsistencies between studies.

Findings

Study 1 shows that measurement of different reference prices within the same experiment leads to carryover effects, which inflate the correlation between measures. Expected price and fair price appear to be conceptually and empirically distinct and should be measured separately to reduce design artifacts. Study 2 shows that one-time price promotions affect fair price, but not expected price, and Study 3 shows expected price and fair price converge after multiple promotions.

Research limitations/implications

Independent measurement of reference price concepts allows robust claims about their distinctiveness. These findings have implications for how reference price should be measured in survey research and for pricing and promotional strategy.

Originality/value

This research contributes by showing how the measure of reference price used affects the outcomes of price promotion studies. It does this through the replication and extension of past research. Replication allows greater confidence in the findings of past research, and testing the same findings under different conditions allows for the boundaries of existing research to be delimited and generalizations to be made.

Details

Journal of Product & Brand Management, vol. 23 no. 4/5
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 11 July 2016

Soyeon Kim, Jae-Eun Chung and YongGu Suh

This paper aims to explore multiple reference effects with regard to customers’ post-consumption evaluations in a cross-cultural context. The authors propose to test an…

Abstract

Purpose

This paper aims to explore multiple reference effects with regard to customers’ post-consumption evaluations in a cross-cultural context. The authors propose to test an integrative model of three types of reference effects (disconfirmation, attractiveness of alternatives and self-image congruity) and their relationship to customers’ evaluations associated with satisfaction and loyalty. Additional insight into the link between reference points and customer satisfaction is provided by examining the moderating influence of the cultural orientation of customers: South Korean (an Eastern, collectivist and high uncertainty avoidance culture) versus American (a Western, individualistic and low uncertainty avoidance culture).

Design/methodology/approach

The data for this study were collected through a Web-based survey. Based on a sample of 723 Korean and American consumers, multi-group analysis of structural equation modeling was used to test the proposed model and the moderating effect of culture.

Findings

Overall, the results indicated that American customers’ use of reference points in their post-consumption evaluations is significantly different from that of Korean customers. Specifically, disconfirmation had a stronger effect on Korean customers than on their American counterparts, whereas the attractiveness of alternatives had a stronger effect on American customers than on those from Korea. Moreover, self-image congruity was found to be equally important in both cultures.

Research limitations/implications

Owing to the comparison of American and Korean participants in this study, these results may not be applied to customers from other countries. Moreover, the study is limited to post-consumption evaluations in restaurants and generalization of the results to other industries may be ill advised. Thus, further research is required to replicate the results and include customers from different countries in more diverse consumption settings.

Practical implications

The findings provide useful guidance for efficient marketing strategies to generate positive consumer outcomes across borders. Marketers must consider the interaction of cultures and customers to better understand customer perceptions and evaluations about their experiences. This understanding will enable the marketers to more effectively communicate with their target markets and allow them to tailor advertising to different segments of their customer base contingent upon their cultural orientations.

Originality/value

Although the role of reference effects has begun to attract considerable interest among consumer behavior researchers, much of this research has been conducted in a single cultural context. Because the global economy is becoming increasingly cross-cultural, it is valuable to conduct international consumer research to further the understanding of consumers’ post-consumption evaluation processes using multiple reference points from a global perspective.

Details

International Journal of Contemporary Hospitality Management, vol. 28 no. 7
Type: Research Article
ISSN: 0959-6119

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Article
Publication date: 1 October 2004

Bidisha Burman and Abhijit Biswas

One main concern regarding the use of reference prices in advertisements relates to the possibility of deception due to consumers' positive response towards exaggerated or…

Abstract

One main concern regarding the use of reference prices in advertisements relates to the possibility of deception due to consumers' positive response towards exaggerated or implausible claims. This paper examines the moderating roles of a contextual variable‐market price dispersion for a product category, and that of an individual level variable‐need for cognition, in influencing consumer evaluation of reference prices across two experiments. The results support the hypothesized effects of need for cognition and demonstrate that, for low need, for cognition individuals, increasing the level of reference price results in positive effects on value perception and shopping intention.

Details

Journal of Product & Brand Management, vol. 13 no. 6
Type: Research Article
ISSN: 1061-0421

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Book part
Publication date: 1 October 2008

Andrew Grodner and Thomas J. Kniesner

Our econometric research allows for a possible response of a person's hours worked to hours typically worked by members of a multidimensional labor market reference group…

Abstract

Our econometric research allows for a possible response of a person's hours worked to hours typically worked by members of a multidimensional labor market reference group that considers demographics and geographic location. Instrumental variables estimates of the canonical labor supply model expanded to permit social interactions pass a battery of specification checks and indicate positive and economically important spillovers for adult men. Ignoring or incorrectly considering social interactions in male labor supply can misestimate the response to tax reform by as much as 60%.

Details

Work, Earnings and Other Aspects of the Employment Relation
Type: Book
ISBN: 978-1-84950-552-9

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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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Abstract

Details

Review of Marketing Research
Type: Book
ISBN: 978-0-7656-1306-6

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Article
Publication date: 9 August 2013

Russell K.H. Ching, Pingsheng Tong, Ja‐Shen Chen and Hung‐Yen Chen

Drawing on extant literature on narrative persuasion, online advertising, and transportation theory, this research aims to study Internet‐based online narrative…

Abstract

Purpose

Drawing on extant literature on narrative persuasion, online advertising, and transportation theory, this research aims to study Internet‐based online narrative advertising and investigate the effects of four pertinent advertising design elements, interactivity, entertainment, vividness, and self‐referencing, on consumer products and the moderating effects of advertisement involvement on these relationships.

Design/methodology/approach

Data were collected using an online questionnaire that contained measures adapted from prior studies. Participants first selected a product that they would seriously consider purchasing and answered a set of questions prior to viewing a narrative online advertisement, which was followed by a different set of questions. Structural equation modeling was used to empirically test the authors’ proposed model.

Findings

Greater levels of interactivity, vividness, entertainment, and self‐referencing in narrative online advertisements led to more favorable attitudes toward a product. In particular, self‐referencing had a substantial effect on transportation in forming product attitudes. Advertisement Involvement moderates (i.e. enhances) the effect of self‐referencing on attitudes toward a product.

Practical implications

If properly designed, a narrative online advertisement can fully utilize Internet‐enabled features and can maximize their potential to produce a favorable consumer attitude toward a featured product.

Originality/value

This study advances narrative advertising research and provides empirical evidence to highlight the effects of the pertinent characteristics of Internet‐based advertising, interactivity and entertainment in the conversion process of transportation and consumer attitudes. Moreover, this study identifies and sheds light on important contingencies (i.e. advertisement involvement) of the focal relationships.

Details

Internet Research, vol. 23 no. 4
Type: Research Article
ISSN: 1066-2243

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