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Reference Price Theory

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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.

A General Test Of Reference Price Theory In The Presence Of Threshold Effects

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Author : Kalyan Raman
language : en
Publisher:
Release Date : 1994

A General Test Of Reference Price Theory In The Presence Of Threshold Effects written by Kalyan Raman and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with Prices categories.

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.

Inference Not Reference

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Author : Ryan Hamilton
language : en
Publisher:
Release Date : 2019

Inference Not Reference written by Ryan Hamilton and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

Reference price theories have dominated research into how consumers evaluate prices and make price-based choices. Given the widespread acceptance of reference price theories, it is notable that so little consideration has been given to what happens when the central assumption of these theories is violated: how do consumers evaluate prices when they do not have stable, well-defined reference prices? The authors propose an alternative to reference price theories, in which consumers instead use a general cue, specifically, a retailer's price image, or overall reputation for charging high or low prices, as a top-down inferential heuristic. This alternative account predicts a pattern of price perceptions, price estimates, and choices that cannot be accounted for using prevailing reference price theories. In each of the domains, reference price theories either predict no differences based on retailer price images or predict the opposite of the reported findings. These predictions are tested against those of prevailing reference price accounts in a series of nine empirical studies that offer converging evidence in support of the proposed theory.

Pricing Strategy And The Formation And Evolution Of Reference Price Perceptions In New Product Categories

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Author : Benjamin Lowe
language : en
Publisher:
Release Date : 2006

Pricing Strategy And The Formation And Evolution Of Reference Price Perceptions In New Product Categories written by Benjamin Lowe and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Electronic dissertations categories.

Abstract : This study examines how pioneer and follower pricing strategies affect the formation and evolution of reference price perceptions in new product categories. It contributes to our understanding of pricing new products by integrating two important research streams in the field of marketing - reference price theory and the theory of pioneer brand advantage. This is the first research to address reference price effects for radically new product categories. Prior research has focused solely on products in existing categories, typically in fast moving consumer goods categories. Using three experiments to causally establish the consequences of pioneer and follower pricing strategies on consumer perceptions, three critical research issues are addressed for the first time, consistent with calls for research in the literature: 1. Which reference price do consumers utilise in new product categories? 2. What is the role of consumer confidence in reference price for new product categories? 3. How do reference price perceptions form and evolve as a result of pioneer and follower pricing strategy? In the literature, a frequently cited issue is the fragmented operationalisation of reference price perceptions. With little theory to guide researchers in terms of which measures should be used, experiment 1 provides new theory, finding as hypothesised, that fair price perceptions as opposed to expected price perceptions are more likely to be evoked by consumers for new product categories. Experiment 1 also finds that using consumers' confidence in their reference price beliefs as an additional explanatory variable, does not improve over current reference price models. Overconfidence, a robust consumer behavioural phenomenon (Alba and Hutchinson 2000), might explain this result. Prior research has made several contributions to understanding reference price perceptions in established product categories. However, not much is known about how these reference price perceptions initially form and evolve. Experiments 2 and 3 address this gap by simulating an emerging market and examining the role of pioneership in shaping reference price perceptions. Experiment 2 found the pioneer, due to its perceptual prominence, is able to define the reference price and subsequently define perceptions of value. That is, the value consumers place on a product and their intentions to purchase the product are about the same whether the pioneer follows a penetration (initial low price) or skimming (initial high price) strategy. Experiment 3 extends experiment 2 by examining what happens in the emerging market when a follower brand enters. The follower enters at a large or small discount to the pioneer, and the pioneer completes its penetration or skimming strategy, converging to a 'regular' price. As predicted, the pioneer's initial price frames subsequent price and value perceptions, signifying the importance of the pioneer as a referent brand. Lower initial prices erode value perceptions, whereas higher initial prices substantiate value perceptions. The follower's pricing strategy does not have as much influence as the pioneer's pricing strategy. Other findings from experiment 3 related to reference price theory in general. Specifically, there was strong evidence of an averaging process when forming reference prices. This adds theory to the measurement debate about operationalising reference price as some past price such as last price paid or some average of past prices. Experiment 3 also provides a further measurement contribution by supporting the use of brand specific measures of reference price, rather than category based measures. More generally, because of the causal research design, this thesis provides strong evidence of the use of reference prices in consumer decision making: a key concern emphasised by one of the area's seminal articles (i.e., Kalyanaram and Winer 1995), which stresses the need to provide evidence that consumers actually use reference prices, and not just act as if they do.

The Reference Price Effect Of Historical Price Lists In Online Auctions

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Author : Xiaotian Liu
language : en
Publisher:
Release Date : 2023

The Reference Price Effect Of Historical Price Lists In Online Auctions written by Xiaotian Liu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.

This study investigates the reference price effect of historical price lists - which are provided in the auction description - on ending prices. This paper estimates and compares three different theories for the reference price effect of price lists: adaptation-level theory, range theory and range-frequency theory. In contrast to previous research, we find support for range theory. Specifically, the maximum price on the historical price list positively impacts the auction ending price, while the price range has a negative effect. Furthermore, the reference price effects are attenuated by the number of prices on the list and the type of product sold.