An Investigation of Reference Price Segments

Empirical research on reference price has typically assumed that consumers use either an internal reference price (IRP) or an external reference price (ERP), but not both, in brand choice decisions. In this article, the authors assume that consumers use both IRP and ERP but may consider one of them more salient than the other. The authors develop a model that segments consumers on the basis of the differences in the importance they assign to each type of reference price as well as in their brand preferences and responses to marketing-mix variables. The authors calibrate the model on data for four categories: liquid detergents, ketchup, tissue, and yogurt. In all four categories, the proposed model performs significantly better than the one that assumes that consumers use either IRP or ERP exclusively. The authors discuss the managerial implications of this finding.

[1]  Peter R. Dickson,et al.  Point-of-purchase behavior and price perceptions of supermarket shoppers , 1986 .

[2]  Russell S. Winer,et al.  A reference price model of brand choice for frequently purchased products. , 1986 .

[3]  John G. Lynch,et al.  Choices from Sets Including Remembered Brands: Use of Recalled Attributes and Prior Overall Evaluations , 1988 .

[4]  Donald R. Lichtenstein,et al.  Contextual Influences on Perceptions of Merchant-Supplied Reference Prices , 1989 .

[5]  R. Bucklin,et al.  Reference Effects of Price and Promotion on Brand Choice Behavior , 1989 .

[6]  Gary J. Russell,et al.  A Probabilistic Choice Model for Market Segmentation and Elasticity Structure , 1989 .

[7]  Manohar U. Kalwani,et al.  A Price Expectations Model of Customer Brand Choice , 1990 .

[8]  Russell S. Winer,et al.  An Empirical Analysis of Internal and External Reference Prices Using Scanner Data , 1992 .

[9]  Bruce G. S. Hardie,et al.  Modeling Loss Aversion and Reference Dependence Effects on Brand Choice , 1993 .

[10]  G. Tellis,et al.  Contextual and Temporal Components of Reference Price , 1994 .

[11]  J. Little,et al.  An Empirical Analysis of Latitude of Price Acceptance in Consumer Package Goods , 1994 .

[12]  Purushottam Papatla,et al.  Loyalty differences in the use of internal and external reference prices , 1995 .

[13]  G. Kalyanaram,et al.  Empirical Generalizations from Reference Price Research , 1995 .

[14]  Lakshman Krishnamurthi,et al.  A comparative analysis of reference price models , 1997 .

[15]  D. Bell,et al.  Looking for Loss Aversion in Scanner Panel Data: The Confounding Effect of Price Response Heterogeneity , 2000 .