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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: 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: 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.

Details

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

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Article
Publication date: 24 April 2007

Ben Lowe and Frank Alpert

The purpose of this paper is to provide guidance within the reference price literature by investigating which is the best measure of reference price for the, as yet…

Abstract

Purpose

The purpose of this paper is to provide guidance within the reference price literature by investigating which is the best measure of reference price for the, as yet, unstudied context of new product categories. The paper also intends to examine another reference price issue for the new product category context: whether greater price uncertainty in this context makes it worthwhile to measure consumer confidence in reference price perceptions.

Design/methodology/approach

This research uses the experimental method to determine which measures of reference price are best suited to the new product context, by removing all other confounding influences.

Findings

The findings confirm that consumers tend to evoke the fair price concept for new product categories and the expected price concept for existing categories. The paper also finds that confidence in reference price measures, while theoretically useful, does not add to the understanding of reference price effects in new product categories, probably because respondents tended to be overly confident in their perceptions, despite lacking in more objective measures of product category knowledge.

Originality/value

Several studies in the literature have commented on the issue of fragmented measurement in the reference price domain. Some studies have offered theoretical guidance on measures to use. This is the first study to provide empirically tested theory on which measures to use and is the first study to examine reference price effects in new product categories including testing the usefulness of the confidence measure.

Details

Journal of Product & Brand Management, vol. 16 no. 2
Type: Research Article
ISSN: 1061-0421

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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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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

Keywords

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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

Keywords

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Article
Publication date: 20 July 2015

Weiling Zhuang and Bruce Alford

This study aims to extend prior studies by examining the mediation effects of sticker shock on the relationship between price discount and buying intention. Sticker shock…

Abstract

Purpose

This study aims to extend prior studies by examining the mediation effects of sticker shock on the relationship between price discount and buying intention. Sticker shock refers to the discrepancy between a brand’s sale price (SP) and an individual’s internal reference price (IRP) (Winer 1985).

Design/methodology/approach

Prior marketing research on sticker shock is primarily model-based. The authors employed a between-subject experimental design, and hypotheses were tested using a series of regression functions (Baron and Kenny 1986).

Findings

The results suggest the effect of price discount on buying intention is partially mediated by sticker shock.

Practical implications

The research results suggest that consumers take into account price messages from different sources, such as advertised reference price, SP and IRP. IRP is a key reference point that consumers use to develop the “gain” or “loss” perception. Firms may apply different strategies to influence consumers’ internal reference point and, in turn, influence the perception of the attractiveness of the sale product.

Originality/value

This study contributes to the literature by first testing the mediation effects of sticker shock on the relationship between price discount and buying intention.

Details

Journal of Product & Brand Management, vol. 24 no. 4
Type: Research Article
ISSN: 1061-0421

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Article
Publication date: 9 February 2015

Shiu-Wan HUNG, Min-Jhih Cheng and Shiu-Chun Hsieh

The purpose of this paper is to propose that online group buying is different from the traditional purchase model in that an aggregation of purchases on the internet can…

Abstract

Purpose

The purpose of this paper is to propose that online group buying is different from the traditional purchase model in that an aggregation of purchases on the internet can lead sellers to adopt various bargaining strategies. When buyers and sellers do not have the opportunity to meet face to face, consumer satisfaction is an important consideration for sellers.

Design/methodology/approach

This study investigates the influence of sellers’ strategies for offering bargains on consumers’ satisfaction, considering buyers’ characteristics and involvement. Data are analyzed by employing the multivariate analysis of variance.

Findings

The results demonstrate that the stage decreasing range strategy results in the highest level of consumer satisfaction with online group buying. In addition, consumers’ cognitive style, computer self-efficacy and involvement have a significant moderating effect on the relationship between incentive strategy and consumer satisfaction.

Practical implications

The findings show that for group buying consumers, stage decreasing range strategy reveals certain advantages, such as a short waiting time for gathering group buyers. Enterprises or online sellers that propose special offers for online group buying as part of their competitive strategy should consider the stage decreasing range strategy. Moreover, enterprises and sellers can adjust their operations according to consumers’ individual characteristics and construct good relationships in online group buying.

Originality/value

This study has investigated the influence of incentive strategies for offering bargains in online transactions on consumer’s satisfaction. The results of this study will provide some guidelines for managers of the e-retailing firms to maximize their abilities in terms of marketing activities.

Details

International Journal of Retail & Distribution Management, vol. 43 no. 2
Type: Research Article
ISSN: 0959-0552

Keywords

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