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Article
Publication date: 1 January 2004

Mai Anttila

The membership in the European Union (EU) affected price perceptions of citizens in many European countries at the beginning of 2002. How did the transition from the…

Abstract

The membership in the European Union (EU) affected price perceptions of citizens in many European countries at the beginning of 2002. How did the transition from the national currency to the Euro, the new single currency of EU, actually take place? Examines the confusion among Finnish consumers concerning internal reference prices in different product and service categories immediately after the transition to the Euro. Proposes tentatively and empirically tests a framework model. Provides the relationships between the paper's key constructs of consumer price perception and some attitudinal and behavioral variables shortly after transition to Euro currency. Basically price perception took place in similar way, when Markka and Euro scales were utilized. This result was shown, first, by analyzing price perception strategies of consumers, and, second, by showing with correlation analysis that as internal reference price increases, the width of price latitude increases, and, third, by modelling reference price perception on the basis of Volkmann's range theory. Money illusion effect was found to exist to some extent.

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Journal of Product & Brand Management, vol. 13 no. 1
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 1 January 1993

Katherine Fraccastero, Scot Burton and Abhijit Biswas

Draws from various theoretical bases and empirical research tooffer managerial recommendations concerning the communication of saleprice information in advertisements…

Abstract

Draws from various theoretical bases and empirical research to offer managerial recommendations concerning the communication of sale price information in advertisements. Addresses the manner in which the manipulation of price cues, semantic cues and product cues in an advertisement can enhanceperceptions of utility via increases in the internal reference price, the perceived value implied by the offering price, and perceptions of product quality.

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Journal of Consumer Marketing, vol. 10 no. 1
Type: Research Article
ISSN: 0736-3761

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Article
Publication date: 1 December 1997

Jodie E. Monger and Richard A. Feinberg

States that reference price has emerged as a central feature in consumer decisions. The goal of this study was to explore the contribution of mode of payment to the…

Abstract

States that reference price has emerged as a central feature in consumer decisions. The goal of this study was to explore the contribution of mode of payment to the formulation of personal reference prices (what one believes to be a fair price for a product) and reservation prices (the highest price one is willing to pay for a product). Reference prices for the products were significantly influenced by mode of payment (check, cash, credit card). Those in the credit card condition formulated significantly higher reference and reservation prices than when other modes of payment were considered. That credit cards can raise reference prices leads to a better understanding of why consumers spend more with credit cards.

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Pricing Strategy and Practice, vol. 5 no. 4
Type: Research Article
ISSN: 0968-4905

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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.

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

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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.

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

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Article
Publication date: 31 May 2005

Danny Yuan‐Shuh Lii and Monle Lee

The purpose of this study is to examine differences in consumers’ perceptions of an acceptable price range and their responses to the advertised reference price in terms…

Abstract

The purpose of this study is to examine differences in consumers’ perceptions of an acceptable price range and their responses to the advertised reference price in terms of internal reference price, price‐search intention, and perceived value between online and offline retail channels. This research uses a 2 (plausible and implausible reference prices) x 2 (online and offline retail channels) between‐subjects experimental design. A convenient sample of 151 Taiwanese graduate students that have prior experience shopping online are recruited as subjects. Results are shown and managerial implications and directions for future research are then discussed.

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International Journal of Commerce and Management, vol. 15 no. 2
Type: Research Article
ISSN: 1056-9219

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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.

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Journal of Product & Brand Management, vol. 27 no. 4
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: 20 November 2009

Yuan‐shuh Lii, Monle Lee, Ming‐ji James Lin and Hsin‐jen Trust Lin

The purpose of this paper is to examine the type and number of reference prices used and their formation process in consumers' price judgments across product and service…

Abstract

Purpose

The purpose of this paper is to examine the type and number of reference prices used and their formation process in consumers' price judgments across product and service categories.

Design/methodology/approach

A pretest of a group of 50 graduate students is conducted to determine the service and product stimuli. Questionnaires for shampoo and hair salons, respectively, are sent out to the employees in four different companies. The subjects are asked to provide information on five commonly used measures of reference price: price most frequently charged; lowest market price; fair price; normal price; and reservation price.

Findings

Although consumers use the same process to evaluate the retail price, the number and types of internal reference prices (IRP) used by consumers for their price judgments are different. In the case of shampoo, consumers use the fair price and the normal price to determine the offer value. In the case of hair salons, consumers use the price most frequently charged, the fair price, and the normal price for their evaluation. The findings suggest that the relative importance of IRP differs between product and service categories.

Research limitations/implications

This paper suggests that the relative importance of IRP differs between product and service categories. Further research is needed to determine if the findings also apply in different cultural environments.

Practical implications

These findings have important implications for managers when creating price communication strategies, they should pay close attention to the specific reference prices and maintain these IRPs within a standard range when determining offer value.

Originality/value

This paper supports a multi‐dimensional view of reference prices and suggests the need to consider multiple reference prices when examining consumers' responses to price information.

Details

International Journal of Commerce and Management, vol. 19 no. 4
Type: Research Article
ISSN: 1056-9219

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Article
Publication date: 24 May 2013

Peter De Maeyer and Hooman Estelami

The objective of this paper is to propose and empirically test a potential mechanism for how consumers form reference prices. The proposed peak‐end rule of reference price

Abstract

Purpose

The objective of this paper is to propose and empirically test a potential mechanism for how consumers form reference prices. The proposed peak‐end rule of reference price formation says that reference prices are formed as a weighted average of the highest observed price and the most recent price.

Design/methodology/approach

The authors argue why the peak‐end rule observed in satisfaction contexts may also apply to the process by which consumers form reference prices. They then test the proposed peak‐end rule using IRI scanner panel data for decaffeinated coffee.

Findings

Fit and predictive validity of a choice model improves when a reference price term based on the peak‐end rule is added. While the most recent price has a greater impact on reference price, the effect of the highest observed peak price is also significant, managerially and statistically.

Research limitations/implications

The study provides evidence for a novel and behaviorally plausible reference price formation process.

Practical implications

Temporarily charging a high price has a longer‐lasting effect on reference price than would be suggested by other reference price models, which typically involve a quickly decaying lag effect. Temporarily charging a very high price to restore the reference price may therefore be a useful pricing tactic.

Originality/value

While the peak‐end rule is amply supported as a mechanism by which consumers form global satisfaction judgements, its application to reference price formation is novel, and has some potentially useful implications.

Details

Journal of Product & Brand Management, vol. 22 no. 3
Type: Research Article
ISSN: 1061-0421

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