Profiling The Reference Price Consumer

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Profiling The Reference Price Consumer

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Author : Sangkil Moon
language : en
Publisher:
Release Date : 2006

Profiling The Reference Price Consumer written by Sangkil Moon and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.

Consumers have distinctive price responses that reflect the manner in which they process price information. Many retailers assume that consumers make purchase decisions by simply trading off product preferences with product prices. In contrast, reference price theory argues that consumers use psychologically encoded prices when making a choice. Because the market-level reaction to price depends on the way that consumers use price information, it is important for retailers to understand the extent to which consumers in a particular trading area rely on reference prices. Given this information, retailers are better able to develop optimal pricing policies. In this research, we develop a procedure which classifies individual households into one of three price response segments: a no reference price segment (NRP), a memory-based reference price segment (MBR), and a stimulus-based reference price segment (SBR). NRP consumers take prices as given; they do not compare prices to a reference value. In contrast, MBR and SBR consumers compare current price to a reference value to determine whether a price level is reasonable. MBR consumers base their reference on past prices, while SBR consumers base their reference on the current price of a focal brand. Based upon past research, we assume that this focal brand is the last brand used by the consumer. Both types of reference price mechanisms assume that some aspect of past choice behavior (prices or product selection) impacts the current decision. For this reason, past marketing activity affects current purchase behavior whenever consumers rely on reference prices. We classify consumers into reference price segments using purchase histories of consumers in the toilet tissue product category. Significantly, our results clearly show that reference price consumers (MBR and SBR) constitute the vast majority of the market. In choosing a brand, both MBR and SBR consumers exhibit a characteristic known as loss aversion: they have a strong negative reaction to prices above the reference price and a weaker positive reaction to prices below the reference price. We find that MBR consumers, who recall prices from memory, are considerably more price and promotion responsive than SBR consumers, who rely entirely on price information available at the point of purchase. Our analysis shows that MBR consumers (relative to SBR consumers) pay lower prices, switch brands more frequently, and buy more often under promotional conditions. We believe that this difference occurs because MBR consumers continually monitor the pricing environment and buy when pricing conditions are favorable. Our work implies that MBR and SBR consumers will react differently to retail pricing policies. For example, we would expect that frequent promotions created by a HI-LO retailer would create an alternating pattern of positive and negative impacts for MBR consumers (due to perceived gains and losses over time). However, the impact of these HI-LO promotions on the SBR consumer depends on the depth of the discount: only those promotions that generate prices below the price level of the focal brand will have an effect. In contrast, an EDLP retailer minimizes the gain/loss mechanism of MBR consumers due to infrequent promotions. However, by choosing the price levels of the product category assortment carefully, the same EDLP retailer can ensure that all SBR consumers have a variety of products with reasonable prices, regardless of the identity of the focal brand. In choosing a retail pricing strategy (such as HI-LO versus EDLP), the retailer must take into account the intensity of retail competition, the extent to which the retailer has power in the distribution channel, and the purchase behavior characteristics of consumers in the trading area. However, all else being equal, we would expect the retailer facing a market dominated by MBR consumers would wish to alternate promotions on different brands over time and to publicize this information through advertising. This would ensure that consumers always find a brand whose price falls below its reference value. In contrast, a retailer facing a market dominated by SBR consumers can expect that a heavily promoted brand in one week will become the focal brand in future weeks. Thus, brands priced below the usual price level of this focal brand will benefit from past promotional activity, while brands priced above this focal brand will be hurt. For this reason, the retailer facing SBR consumers should confine promotions to the higher priced items in the category. By providing an analytical tool for understanding the reference price characteristics of the consumer population, our work allows the retailer to forecast the likely impact of changes in pricing policy.

Contextual And Temporal Components Of Reference Price

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Author : K N (Raj) Rajendran
language : en
Publisher:
Release Date : 2006

Contextual And Temporal Components Of Reference Price written by K N (Raj) Rajendran and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.

An emerging consensus in marketing is that consumers respond to price relative to some standard or reference price. Most researchers modeling brand choice have reasoned that this standard is based on past prices of the brand. The authors argue that consumers do use reference prices, but one that is also based on context- other prices in the store-rather than on past prices alone. An analysis of households' brand choices in two subcategories and over three cities support this premise. Within context, the lowest price seems to be an important cue for reference price, whereas within time, a brand's own past prices seem to be the most important cue. Households' use of a contextual reference price also varies predictably across some consumer characteristics. Though their model can be applied to other categories, the findings have important managerial implications: Managerial focus on temporal reference prices could lead to an everyday high price, whereas focus on contextual reference prices could lead to an everyday low price. Only the inclusion of both contextual and temporal reference prices justifies variable pricing.

The Effects Of Price Promotion On Consumers Price Beliefs

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Author : Xavier Renard
language : en
Publisher:
Release Date : 2002

The Effects Of Price Promotion On Consumers Price Beliefs written by Xavier Renard and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with categories.

Reference Price Theory

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Author : Daniel Steven Putler
language : en
Publisher:
Release Date : 1988

Reference Price Theory written by Daniel Steven Putler and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1988 with Consumer behavior categories.

The Formation And Role Of Reference Prices In The Choice Of Consumer Services

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Author : Jutta Matti Laitamaki
language : en
Publisher:
Release Date : 1990

The Formation And Role Of Reference Prices In The Choice Of Consumer Services written by Jutta Matti Laitamaki and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1990 with Consumers categories.

Consumer Reference Price

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Author : Jiranee Surased
language : en
Publisher:
Release Date : 2000*

Consumer Reference Price written by Jiranee Surased and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000* with categories.

The Effect Of Reference Price And Loss Aversion On Consumer Brand Choice Category Purchase And Quantity Decisions

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Author : Mingmei Pang
language : en
Publisher:
Release Date : 2017

The Effect Of Reference Price And Loss Aversion On Consumer Brand Choice Category Purchase And Quantity Decisions written by Mingmei Pang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.

In this study I investigate the effects of reference price on three consumer purchase decisions: consumer brand choice, purchase incidence, and purchase quantity. First, I compare the impact of internal reference price (IRP) and external reference price (ERP) on the three consumer purchase decisions. I hypothesize that (a) consumers rely more on ERP (vs. IRP) in brand choice and purchase quantity decisions, and more on IRP (vs. ERP) in purchase incidence decision; and (b) consumers use both IRP and ERP simultaneously to evaluate shelf price in all three consumer purchase decisions. Second, I examine the impact of consumers’ loss aversion tendencies on the three consumer purchase decisions. I hypothesize that loss aversion affects all three consumer purchase decisions; that is, consumers respond more sensitively to a loss than to a corresponding gain. I estimate models of brand choice, purchase incidence and purchase quantity using multinomial logistic regression, binary logistic regression, and Poisson regression, respectively. Hypotheses are generally supported based on empirical analyses of scanner data for a battery product category. This study contributes to the literature in two ways. First, it is the first study to test the direct impact of reference price on purchase incidence decisions. Second, it is the first study to incorporate both IRP and ERP variables into purchase incidence and purchase quantity decisions. Overall, this study contributes an understanding of the influence of reference price on three consumer purchase decisions, which provides both manufactures and retailers with valuable knowledge to formulate optimal pricing and promotion strategies.

Reference Price In Online And Offline Channels

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Author : Marta Arce-Urriza
language : en
Publisher:
Release Date : 2014

Reference Price In Online And Offline Channels written by Marta Arce-Urriza and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

This paper (Chapter 3 of a dissertation on online shopping behavior) evaluates the role of reference price on consumer behavior at the online channel, focusing on whether it plays a relevant role, how it is formed, the importance of two broad types of reference prices, internal reference price (IRP) and external reference price (ERP), and potential differences to those effects observed offline. Using a unique data set of online and offline grocery purchases from the same sample of consumers of a large multichannel grocery chain, we analyze purchases and unplanned no-purchases in the orange juice category for consumers who face equal prices across online and offline channels, and use multinomial logit models which account for IRP and ERP effects. To avoid that IRP and ERP drop out of our multinomial estimations, we use item-specific measures for both of them. IRP is measured as the price observed for each alternative by consumers on their last visit to the store, whereas ERP is measured according to four different formulations: ERP (mean), ERP (low), ERP (high) and Rank. In our data we find that ERP (mean) performs better than any other formulation for ERP. One of the main contributions of the chapter is that reference price effects on consumer behavior differ across online and offline channels. Regarding reference price in general, we find that the impact of reference price is greater offline. Regarding IRP and ERP, we find that at both channels, the impact of IRP is greater than that of ERP, but that the relative impact of IRP with regard to ERP is greater online than offline. Besides, results show that whereas the impact of IRP is similar online and offline, the impact of ERP is significantly greater offline; in fact ERP is not significant online. Additionally, the influence of purchase frequency on the impact of IRP and ERP on brand choice across channels is evaluated. For frequent shoppers, the effects of IRP and ERP coincide with those observed for the general population. However, they are slightly different for infrequent shoppers. Results indicate that the role of ERP increases considerably for infrequent shoppers compared to frequent shoppers, and that it becomes significant in the online channel for infrequent shoppers. These results are of remarkable interest for retailers because they would help them to organize correctly the timing of promotion and price changes online. Moreover, these findings become especially relevant for multi-channel retailers operating both online and offline. As shown by a simulation detailed in the chapter, a change in price impacts IRPs and ERPs, and these changes in IRPs and ERPs influence alternatives' choice probabilities in the category. This change in alternative's choice probabilities translate into differences in sales' distribution in the category and, consequently, on the revenues obtained by the retailer. If retailers do not consider that the impact of reference prices differs across channels, they may follow inadequate pricing strategies for the online and offline channels. In fact, for the category of orange juice, we find that the grocery retailer could increase its revenues by 3.43% if it discriminated prices across shopping channels.

Consumer Price Perception And Preferences

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Author : Mai Anttila
language : en
Publisher:
Release Date : 1990

Consumer Price Perception And Preferences written by Mai Anttila and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1990 with Consumers categories.

The Relative Influence Of Multiple Internal Reference Price Standards On Consumer Evaluations Of A Deal

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Author : Rajiv Vaidyanathan
language : en
Publisher:
Release Date : 1993

The Relative Influence Of Multiple Internal Reference Price Standards On Consumer Evaluations Of A Deal written by Rajiv Vaidyanathan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993 with Consumer behavior categories.