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Consumer Price Sensitivity and Price Thresholds
Abstract
We examine consumers’ price sensitivity using a new approach that incorporates probabilistic thresholds for price gains and price losses in the reference price models. We model the threshold as a function of company, competitor and consumer specific factors. Model application to scanner panel data for coffee shows that our model is superior in fit compared to ordinary logit and two existing reference price models. Our results indicate that higher own-price volatility makes consumers more sensitive to gains and less sensitive to losses, while intense price promotion by competing brands makes consumers more sensitive to losses but does not influence consumers’ sensitivity to gains. Two clear segments that differ in the size of their thresholds emerge. Managerial implications of these results for segmentation and understanding brand power are discussed.
... Our knowledge of the impact of price fluctuations on consumers' behavior stems mainly from the literature on consumer-packaged goods, which, different from RM goods, are storable and purchased on a regular basis. Such studies demonstrate an increase in price sensitivity due to the uncertainty generated by volatile prices, leading to higher paid prices, and a broader range of acceptable prices (Winer 1986;Janiszewski and Lichtenstein 1999;Han et al. 2001;Murthi et al. 2007). The literature in the context of revenuemanaged goods is rather limited. ...
... The latter have a steeper slope suggesting that demand is more elastic when price volatility is low. Additionally, an important component of their work is the degree of price recall-a measure commonly used in the marketing literature (e.g., Han et al. 2001;Murthi et al 2007) and ranges between 0 and 1-with values closer to 1 reflecting high consumer price recall. 1 As is evident from the figure, the degree of price recall also plays a role in affecting the elasticity of demand. In particular, when the degree of price volatility is low, high recall induces a more elastic demand. ...
... Variations in inventory and prices applied to revenue management practices affect consumers' purchasing behavior. This is largely demonstrated in the literature of consumerpackaged goods (Winer 1986;Janiszewski and Lichtenstein 1999;Han et al. 2001;Murthi et al. 2007) and, in the last decades, has found confirmation for revenue-managed goods (Mantin and Rubin 2018;Morlotti et al. 2024). Previous studies focusing on revenue-managed goods show that price fluctuations decrease price sensitivity, with interesting opportunities for firms. ...
Price fluctuations largely influence consumers’ purchasing behavior in two opposite directions: they affect price sensitivity and the acceptable price ranges, while favoring consumers to exhibit strategic behavior by waiting for prices to come back down. Firms selling revenue-managed goods can exploit this tradeoff to efficiently implement revenue management practices. We illustrate how to incorporate price volatility into the classic Expected Marginal Seat Revenue model. Our results reveal that, in certain market conditions, such integration could result in a significant increase in revenue. We further provide guidance to support pricing decisions when faced with the price sensitivity—strategic consumers tradeoff.
... These operational difficulties mix with firm internal obstacles. Many organizations are concerned with price sensitivity in their customer segmentation (Han et al., 2001;Wakefield and Inman, 2003). With price sensitivity in mind, managers refrain from charging value-based prices as they may seem rather high when costs and competitor prices are known (Shen et al., 2012). ...
... Empirical research found that more than often, the pleasure seeking, lazy heuristics-based System 1 is used by customers in price evaluations, leading to deviations from the rationally expected results (Tversky and Kahneman, 1974;Gilovich et al., 2002;Griffin et al., 2012). Three essential and repeatedly confirmed behavioral patterns in customer price perception with System 1 are price-quality inferences, the use of internal reference prices and price fairness considerations (Han et al., 2001;Homburg and Koschate, 2005; Koschate-Fischer and Wüllner, 2017). ...
... Regarding the reference price formation, this study's key prediction is that buyers form lower reference price ranges for products developed by consumer innovators than for similar products from firms. Furthermore, it is hypothesized that prices deviating from this reference have a less accentuated (negative) effect on price judgements of usergenerated products than on price evaluations of firm-developed offers (Monroe, 1971;Han et al., 2001;Ofir, 2004). Consequently, the buyers' reaction on gaps between the focal and the reference price is expected to affect purchasing decisions less strongly if consumer innovators offer a product. ...
... Price is the value of any product or service and depends on the ratios of benefits to sacrifices that a service provider offers (Zeithaml, 1988). A price is a marketing tool that influences customers' purchase decisions and can directly impact a firm's sales and profitability (Han & Lehmann, 2001). Price is the monetary value of any product or service which a customer pays to buy, purchase or book that product or service. ...
... A fair price charged by a QSR has a favourable influence on the customer's impression of the quality (Zhong & Moon, 2020). Customers evaluate the dining experience against the price paid for the same, which in turn, directly affect their intention to purchase and thereby, the business sustainability (Han & Lehmann, 2001). ...
Customers' perceptions of service quality are essential for service companies' survival in today’s challenging business environment. While much research has been conducted on service quality, relatively few have examined how demographic variables influence the connection between the quality of service and price on customer satisfaction in the fast-food outlets or what is now known as Quick Service Restaurant (QSR). The present study attempts to gain a deeper insight into the association of Customer Satisfaction (CS) with Service Quality (SQ) and Pricing (value). Simultaneously, the current study also explores how the demographic variables moderate the relationship between the constructs described above. It is a quantitative research that used a standardized, self-administered online questionnaire and a random sample technique to collect data from 360 customers of QSR in India. SPSS and Smart PLS were used to analyze the data obtained. Smart PLS was used to ascertain the impact of price and SQ on CS and the effect of moderating variables. The finding suggests that both price and SQ have a positive and significant relation with CS. The demographic variables moderate the relationship between price and customer satisfaction; however, only income moderates the relationship between SQ and CS. These results suggest that restaurant QSR managers/owners should strengthen Service Quality to enhance Customer Satisfaction. Hence, the manager/owner should provide value for money and quality service to their customer to satisfy them.
... Similarly, Saha & Prasad (2019) found that 22% of the population perceived OTT content prices as expensive. Price sensitivity is the extent to which the cost of a service influences a consumer's purchase choice (Han et al., 2001). In terms of OTT platforms, affordability is a key factor that drives user adoption, particularly among younger, price-conscious consumers (Bhattacharyya et al., 2022). ...
This study examines the factors influencing students' purchase intention to upgrade to premium services on freemium OTT platforms, with a focus on peer influence as a moderator. Using a quantitative approach, data was collected through an online survey from 308 students. Structural equation modeling (SEM) was employed to test the hypothesized relationships. Content variety emerged as the only significant predictor of purchase intention, suggesting that a diverse content offering strongly drives students' upgrade decisions. Surprisingly, perceived enjoyment, trust, and price sensitivity did not show significant direct effects. Peer influence, while not directly affecting purchase intention, moderates the impact of content variety, diminishing its positive effect when social influence is high. It also marginally moderates the effects of price sensitivity and perceived enjoyment, intensifying their roles. These findings offer valuable insights into the interplay between content and social factors in shaping students’ behavior on freemium OTT platforms
... Very often, consumers have a range of prices they consider acceptable (Erdmann et al., 2023;Jakuba et al., 2022;Sar, 2022). Previous behavioral pricing research shows that some consumers have lower and upper price thresholds in purchase decision-making (Marshall & Bee Leng, 2002;Han et al., 2001;Kalwani & Yim, 1992;Monroe, 1990;Monroe & Petroshius, 1981;Kalyanaram & Winer, 1995;Mazumdar & Jun, 1992). Thanks to advances in information technology and the transparency of price information on the internet, consumers can arrive at a perceived price for an online service offer that is more acceptable to them. ...
During the COVID-19 pandemic, the tourism sector encountered multiple challenges. Numerous governments chose to lock down their cities and countries. Despite this, many companies found their online businesses making the greatest leaps in their portfolios, and social media platforms became one of the most valuable sources of information for purchase decisions. There have been numerous studies on the effects of social media reviews—a form of electronic word-of-mouth (eWOM)—on consumer behavior. Few were found to be related to their impact on group package tours (GPTs) while considering mixed eWOM, that is, both the positive and negative forms present in word-of-mouth communication. As the tourism sector gradually revives, the need to further explore how tourism and hospitality service providers can adapt to changes in post-pandemic consumer behavior has become imperative. The influence of social media reviews on consumers’ value perceptions of a GPT to Japan, allowing for the influence of the marketing mix element of advertised price, was examined through online experiments in this study. Positive, negative, and mixed eWOM were examined. It was found that eWOM was more influential on consumers’ value perceptions than the advertised price for all price acceptability levels. Mixed eWOM was found to negatively affect consumers’ final price perceptions which override the impact of quality perceptions in value formations. The value perceptions of the GPT became less acceptable when eWOM was mixed compared to when eWOM was absent or was positive. Mixed eWOM had a negative effect on value perceptions but not as great as when negative eWOM was present, and this was consistently found to apply for all price acceptability levels of the GPT. This study’s contribution to eWOM research and implications for the post-pandemic recovery of tourism and hospitality service providers are made, together with suggested strategies using innovative technologies and communications to enhance their adaptive resilience in the new normal.
... Besides testing the concept of just-noticeable-differences, this study will profile the people whose responses are consistent with this theory. Demographics will be included in the models because some research suggested that demographics may be linked with price thresholds (Han et al. 2001). Three personal traits will also be tested: time preferences, risk preferences, and impulsivity. ...
Psychologists have tested the concept of just-noticeable-differences (Weber’s Law) and found it to be valid for many sensory phenomena. Marketers have applied this idea to pricing, suggesting that relatively small price changes should not be noticed and the response to changes should be related to the magnitude of the base prices. This study uses two surveys of US adults to test this principle for furniture purchases and develops profiles of the individuals who respond in ways consistent with it. Because more than 45 percent of subjects said they would respond to small percentage changes in price, the analysis provides limited support for the concept of just-noticeable-differences. The analyses of the profiles for the price change responses concludes that three measures are important: time preferences, risk preferences, and social desirability bias (SDB). Researchers should incorporate these measures into their models to improve price sensitivity estimates.
... In a highly price sensitive consumer market, economic factors have a significant impact on consumer behavior. When the economic environment improves, consumers may be more willing to choose premium products, but when economic pressure is high, price becomes the determining factor (Han et al., 2001). The platform's green promotion strategy needs to take consumers' actual payment ability into account. ...
From the perspective of behavioral economics, this report focuses on the Tmall platform to explore the impact of sustainable promotion strategies on consumer decision-making behaviors on e-commerce platforms. Firstly, the research analyzed the existing research status through a literature review, then collected the behavioral data of consumers in promotion activities through a questionnaire survey, and conducted model analysis combined with behavioral economics theory to evaluate the effect of promotion strategies. The purpose of the study is to reveal the mechanism of different promotion strategies in the consumer decision-making process and to provide substantive recommendations for optimizing the promotion strategies of e-commerce platforms to enhance the user experience, promote green consumption, and promote the sustainable development of e-commerce platforms. The research results can provide theoretical support and practical guidance for e-commerce platforms and policymakers in promoting sustainable consumption.
... Young consumers with varying levels of price sensitivity exhibit distinct differences in consumer behavior, loyalty, perceived value, and emotions. Price significantly influences the decision-making process of young travelers and is closely related to their purchasing behavior [52]. It is also one of the most influential tools for tourism managers [53]. ...
The blind box market is fast-growing, from toys, baseball cards, and vibrant second-hand products to the recent growing tourism market, becoming the latest trend sweeping through China, not only in offline retailing but also online businesses and e-commerce. For young consumers, the element of mystery is a big part of the fun that not everyone can obtain the most special and desirable products. The present research aims to elucidate how travel blind boxes attract young consumers in terms of their psychological connections to travel destinations. In particular, building upon psychological distance theory, this study examines the relationship between perceived similarities between travel destinations and hometowns and the attraction of travel blind boxes. Contributing to the existing literature that mainly describes the phenomenon of the blind box craze but often fails to identify its underlying mechanisms, the present study advances our understanding of such trendy marketing practices by investigating the mediating role of the “aha moment” and the boundary conditions of electronic word-of-mouth recommendations and price sensitivity.
... Current studies in microeconomics have found that there usually is a sensitivity threshold on price (Terui & Dahana, 2006). Consumption would not likely decrease substantially with increasing prices unless price exceeds such a threshold (S. Han et al., 2001). Combining with the comparatively stable price on food at annual level for recent years (FAO, 2021), the increasing food price is possibly below the threshold to influence consumer's food choice. ...
The growing global meat consumption has serious consequences on human health, the environment and ultimately impacts global food security. Therefore, identifying the drivers of meat consumption and predicting its evolution is necessary. We compared four machine learning methods in modelling meat consumption, leading to the selection of a random forest-based model to detect main drivers for global meat consumption. Our results show that per capita meat consumption is mainly driven by socioeconomic factors, such as national GDP and urbanization. However, the strength of these drivers declined between 1990 and 2018. Pork, beef, and poultry consumption are mainly driven by socioeconomic factors, whereas mutton consumption appears driven by other factors such as the per capita agricultural land. In this work, the model-agnostic interpretability method is introduced to measure the marginal effect of each driver on meat consumption. We found that there may be insufficient evidence to support the inverted U-shaped relationship between per capita GDP and meat consumption, which is reported in previous studies. Our analysis may provide avenues for predicting meat consumption at the national scale
... The most attractive strategies, according to the consumers' opinions so far, are discounting healthy food more often and applying a lower VAT (value-added tax) rate on them. Pricing strategies (e.g., price reductions/increases, the "buy one get two" strategy, bonus systems, etc.) are seen as a promising approach because sales promotions form an important part of the marketing mix [12,13]. The price gradient more favorable to large unit sizes receives wide criticism because it can trigger consumers to over-purchase and eventually waste food [14]. ...
The recent consecutive economic and social crises impose sustainable “from farm to fork” food chain management to feed the global population. In this study, we investigated the price perceptions of young consumers (Gen Z) in purchasing foods in Greece to find out the determinants ensuring sustainable, future food consumption. We used eight overall price perception determinants, five with negative roles, namely value and price consciousness, coupon and sales proneness, and price mavenism, and three with positive roles, namely price–quality, price–value, and prestige–sensitivity for the formation of the study’s questionnaire. A total of 514 students (Gen Z, 85%) answered the questionnaire, promoted through the Google platform during September and October 2023. The data were analyzed with statistical tools, combining cross and chi-square tests. Between the negative determinants, the “value consciousness” price perceptions (71.02%) were the most important parameters in purchasing food, followed by “price consciousness” (55.02%) parameters. “Coupon proneness”, 48.4%, and “sales proneness”, 49%, were equally lower, while “price mavenism” parameters were minimally preferred by only 26.4% of the participants. Participants exhibited a major preference for the “value to price” interconnection (66.7%), such as good value for money, value exceeding a product’s price, and overvalued low-priced foods, while their preference for the “quality to price” interconnection was significantly lower (48.8%), such as in terms of getting what you pay for, more money for better quality, and priced, quality foods. The “prestige–sensitivity” price perception was outside of their preferences in terms of food purchasing (only 7.1%). Our findings indicate that young consumers (Gen Z) pay more attention to the values of negative and positive parameters concerning price perceptions when purchasing food rather than quality, coupons and sales, low prices, and mavenism, or even the prestige of the foods. This means that value issues such as the perceived environmental impact (green value), the climate crisis, the social signaling potential, and others are significant concerns, including their price perceptions for food purchases.
... Price sensitivity reflects the extent to which consumer purchasing behaviour can be influenced by changes in the price levels of products (Goldsmith and Newell, 1997;Al-Mamun et al., 2014). According to Han et al. (2001) and Ghali-Zinoubi and Toukabri (2019), consumers with a high price sensitivity primarily consider price when making purchasing decisions. They tend not to buy organic foods, as they are usually more expensive (Ghali-Zinoubi and Toukabri, 2019), and they will respond strongly to price changes. ...
A key challenge in this century is to ensure safe food for a growing global population while limiting environmental impacts and addressing climate change. Although pesticides ensure high yields, there are downsides to their intensive use, including negative effects on the environment, such as water, soil, and air contamination, as well as on biodiversity. To promote a sustainability transition, innovative farming systems that do not require the use of pesticides yet are non-organic can be part of the solution. To explore the attitudes toward a pesticide-free, but non-organic farming system, we examined attitudes and factors that drive German consumers to accept pesticide-free food products, using an online questionnaire to survey 1,010 German consumers. A range of hypotheses were evaluated to determine the factors that influence consumer decisions. Partial least squares structural equation modelling (PLS-SEM) served to assess consumer attitudes and acceptance of pesticide-free milk, butter, and cheese. The study results show that attitudes and acceptance for pesticide-free food products are driven by health consciousness, chemophobia, and perceived consumer effectiveness; they are inhibited by price sensitivity. We find attitudes towards pesticide-free food products to positively moderate the effect of health consciousness, while chemophobic attitudes and perceived consumer effectiveness positively moderate acceptance of pesticide-free food products. Our findings can support researchers, food industry professionals, and regulatory leaders seeking scalable pesticide-free agricultural production methods.
... Price sensitivity refers to the degree to which consumers' purchasing decisions are influenced by price changes (Han et al., 2001;Kintler et al., 2023). Various factors can affect price sensitivity, such as consumer preferences, market conditions, and external events like economic crises (Fu, 2023). ...
This research investigates the intricate dynamics influencing consumer purchase intentions within the fast-moving consumer goods (FMCG) sector, focusing on the impact of product quality, price sensitivity, and brand reputation. A quantitative research design was adopted, with data collected from a sample of 500 respondents through an online survey. Descriptive statistics, correlation analysis, regression analysis, and ANOVA were employed to analyze the data comprehensively. The findings reveal a strong positive correlation between perceived product quality and consumer purchase intentions, emphasizing the importance of maintaining high-quality standards. Price sensitivity was found to negatively impact purchase intentions, highlighting the need for strategic pricing strategies. Brand reputation emerged as a significant predictor of purchase intentions, emphasizing the enduring value of strong brand equity. Demographic analyses identified distinct target segments based on age and income levels. The study contributes valuable insights for FMCG companies in developing tailored marketing strategies and enhancing market competitiveness.
... Pricing strategies (e.g. price reductions/increases, the "buy one get two" strategy, bonus systems etc.) are seen as a promising approach because sales promotions form an important part of the marketing mix [12,13]. Two systematic reviews on the effects of price perceptions and consumer shopping behavior highlight the importance of assessing possible different parameters of pricing strategies on dietary behaviors, and the limited evidence available addressing these parameters [14,15]. ...
The recent consecutive economic and social crises impose sustainable “form farm to fork” food chain management to feed the global population. In this study we investigate young consumers (Gen Z) price perceptions in purchasing foods in Greece to find out the determinants ensuring sustainable, future food consumption. We used 8 overall price perceptions determinants, 5 with negative roles namely value & price consciousness, coupon & sales proneness, price mavenism and 3 with positive roles namely price-quality, price-value, and prestige-sensitivity for the formation of the study’s questionnaire. A total of 514 students (Gen Z by 85%) answered the questionnaire, promoted through the Google platform during September and October 2023. Data was analyzed with statistical tools, combining cross and chi-square tests. Between the negative determinants the “value consciousness” price perceptions (71.02%) were the most important parameters in purchasing food, followed by “price consciousness” (55.02%) parameters. “Coupon proneness” by 48.4% and “sales proneness” by 49% parameters were equally lower to the participants’ references, while “price mavenism” parameters were minimally preferred by only 26.4% by the participants. Participants exhibited major preference for “value to price” interconnection (66.7%) such as for good value for money, value exceeding its price, overvalued low priced foods, while their preference for “quality to price” interconnection was significantly lower (48.8%) such as for getting what you pay, more money for better quality, priced quality foods. The “prestige- sensitivity” price perception was out of their preference for food purchase (only 7.1%). Our findings indicate that young consumers (Gen Z) pay more attention to the value negative and positive parameters concerning price perceptions for food purchase rather than quality, coupons & sales, low price, and mavenism or even prestige of the foods. This means that value issues such as the perceived environmental impact (green value), the climate crisis, the social signaling potential and others are high in their concerns for their future including their price perceptions for food purchase.
... According to the adaptation level theory by Helson (1964), an individual will judge external price information using an internal standard, such as the mean of observed market prices. The internal reference price is considered as the covariance variable of the research, since the product serves as a point of comparison for past prices (Han, Gupta, and Lehmann, 2001), which are stored in the consumer's mind. By including the internal reference price as an analysis of the covariance variable, a factor that may have had an impact on the findings related to the research variables could be eliminated by creating a difference between the consumers participating in the research. ...
Marketing managers are able to influence consumers' perceptions of quality and their willingness to buy, using the frequency of price changes and price variability. This study aims to examine the differences in the frequency of price changes and price variability , in terms of the perceived quality and the willingness to buy. For this purpose, using values calculated according to the average and standard deviation of the market price of a specified product, we obtained two different price variations, ±1σ and ±2σ, and price stimuli determined at two different frequencies of price changes (three and seven times were considered), which resulted in four different participant groups. At the end of the study, a statistically significant difference was only found between consumers in the low price variability and infrequent price change condition and consumers in the high price variability and infrequent price change condition, in terms of the perceived quality.
... According to Mishra and Mishra (2010), consumers tend to perceive a change as more significant and impactful, even if the actual change is the same or smaller, when the stimulus crosses a threshold and moves into a new category. In other words, there is a latitude of acceptance, within which slight changes do not impact consumer perception, and this zone of indifference must be exceeded to induce a behavioral response (Han et al., 2001). ...
... Manrai et al. (1997) and Mostafa (2009) stated that environmental awareness leads to the purchase of green products. Karampour and Ahmadinejad (2014), Hsu et al. (2017) and Han et al. (2001) stated that price sensitivity has a positive and significant effect on purchase intention. Autio and Heinonen (2004), Casimir and Dutilh (2003) concluded that consumers show less desire to consume green products due to saving and reducing Contemporary Management Research 167 the cost of living. ...
The present study analyzes the effectiveness of consumer price sensitivity in expanding the use of green products. It investigates how the purchase behavior of Iranian consumers is affected by different aspects of perceived risk, such as financial, performance, psychological, and social risks. This study uses the four main concepts of 'Perceived Risk' (PR), 'Attitude towards Green Products' (AGP), 'Price Sensitivity' (PS), and 'Green Purchase Behavior'(GPB) to develop a model to increase green purchase intention. This research uses an experimental study, using a survey method (questionnaire distribution)to confirm the hypotheses and discover its management concepts, and uses Structural Equation Modeling (SEM). The results show that the variable of "Perceived Risk" has a positive effect on "Attitude towards Green Products" and "Price Sensitivity". "Attitude towards Green Products" has a positive effect on "green purchasing behavior" while "Price Sensitivity" has a negative effect on "green purchasing behavior". This study focuses on existing literature by providing experimental evidence showing the importance of green consumption in the Iranian industry. The present model provides valuable input to policymakers and marketers to work from the perspective of policies and green marketing strategies and the research Contemporary Management Research 154 framework of purchasing green products to preserve the environment and the prevalence of green consumption among consumers.
... Consumers are constantly in front of variety of promotions, and to understand how a decision is made to buy a product is a complicated task. There are many factors to take into consideration, some of them related to promotion itself, like duration of price reduction (André et al. 2021), discounted amount (Han et al. 2001). Other factors may be related to consumers, like budget, utility, and expectations (Krishna et al. 1991). ...
Each time a consumer makes a decision about buying a given product on promotion, there are two types of judgements, first explained by product characteristics, needs, or utility, and second is subconscious which is not observed. The main assumption of this article is that attractivity of a price promotion could be explained by non-linear relationship between price information and golden ratio (φ=1.618). Though research examined this subject by mathematical approach, there is still area to explore, so that the complex rules of evaluation process can be explicable. This article proposes a non-linear approach, by applying Autoencoder. Then, this model can provide a latent variable as a reference to evaluate a price discount, and to extract hidden information from initial price and discounted price. The aim is to demonstrate that consumer can perceive a price promotion as attractive, if the latent reference of Autoencoder model is close to golden ratio.
... Consumer decision making is massively influenced by pricing (Joergens, 2006;Han, Gupta & Lehmann, 2001). Boulstridge and Carrigan (2000) found that pricing is often prioritised, even if the consumer wishes to consume sustainably. ...
The research aimed to analyse the correlation between age and consumer behaviour within the fast fashion industry. The aim was to gain deeper insights into consumption patterns that can damage people and the planet. This insight was gained through a thematic analysis using an adapted ecology scale originally developed by Maloney and Ward (1972) This could conceivably help companies take a larger responsibility and provide solutions to the fast fashion problem. After an analysis of the key literature, focus groups were identified as the most appropriate application approach for this type of qualitative research. Based on the literature review key themes identified were pricing, quality, influences, technology and feelings.
The conclusion of the dissertation will discuss the key findings and provide recommendations.
... Consumers frequently see a product's high price as reflecting its outstanding quality, and vice versa. Price sensitivity is the degree to which changes in a product's price affect consumers' purchasing decisions (Han et al., 2001). Contreras and Ramos (2016) found a correlation between price sensitivity and consumer satisfaction and dissatisfaction levels. ...
... Individual differences will lead to significant differences in decision making when price transparency is present. Some individuals will be more price sensitive, meaning they will be more likely to switch to a cheaper healthcare provider when price transparency is present (Han et al., 2001;Ramirez and Goldsmith, 2009). Another individual difference that will lead to distinctive decision making is that some individuals will be more risk averse (Leclerc et al., 1995). ...
Healthcare costs continue to rise considerably in the United States; one proposed solution is to give consumers more choices regarding their healthcare decisions. Recent legislation has the aim of making healthcare pricing more transparent and providing consumers with an increased understanding of costs. This article offers a research agenda for studying healthcare price transparency and provides an overview of several potential implications for consumers. The authors review the recent legislation and its intended impact on consumer shopping in the healthcare market. Research propositions are focused on healthcare as a unique decision context, the power and peril of price information, the emerging healthcare information market, and individual differences in consumers. The authors also illustrate some of these issues with a price transparency dataset. Opportunities for future research and implications for marketing, healthcare providers, and policymakers are offered.
... Although Gierl et al. [66] did not find any significant difference between a famous brand and fictitious generic brands in their quasi-experimental study, the potential moderating effects of brands might be worth examining in this area of research. Thirdly, the study focused only on the impact of fan involvement and perceived risk on ticket purchase decisions, and other factors such as price sensitivity and social influence were not explored [67]. Lastly, the study did not find a significant mediating effect between the relationship of involvement and ticket availability. ...
Optimally deciding on the best deal for sport event tickets requires the ability to evaluate risk and make informed decisions in uncertain environments. This study examines how individual trait factors, such as experience, expertise, and involvement, influence consumers’ decision-making process when purchasing tickets online for sporting events. To examine and test the study hypotheses, 640 respondents from a Qualtrics survey panel were recruited from geographically confined subjects of New York City sports fans over a ten-day data collection period. The research subjects were surveyed to assess their perception of the expected likelihood of obtaining event tickets at a lower rate (ELR) and the expected likelihood that tickets would remain available (ETA) as the event day approached. MANOVA showed that there was a significant effect of the time period on the participants’ ETA and ELR risk assessments [Λ = 0.954, F (18, 1262) = 1.653, p < 0.05]. The ETA was highest ten days before the event and lowest the day before the event, with a similar pattern observed for the ELR. The mediation path analysis showed that fan involvement had a strong positive correlation with confidence (B = 0.496, p < 0.001). Confidence, in turn, was a significant predictor of the ELR (B = 5.729, p < 0.05) but not for the ETA (B = 1.516, p = 0.504). The positive mediation of confidence between fan involvement and the ELR indicates that consumers with higher fan involvement tend to have overconfidence in their ability to evaluate the uncertain purchase environment, which ultimately impacts their risk perception and decision-making. The study highlights the importance of considering both temporal and psychological factors when assessing the likelihood of ticket purchases and provides behavioral insights for sports marketers and ticket distributors.
... Third, this study also identifies price sensitivity and product involvement as the boundary conditions of the proposed effect. The existing literature on price sensitivity has only explored the effects of price sensitivity on status consumption (Goldsmith et al., 2010), price thresholds (Han et al., 2001), brand trust (Erdem et al., 2002), and online media (Shankar et al., 1999), and so forth, but has not explored the effects of consumer price sensitivity under different pricing format, so this paper also enriches the research on price sensitivity. In addition, previous research on product involvement has focused on the effects of product involvement on brand loyalty (Quester & Lim, 2003), product attribute judgements (Quester & Smart, 1998), and product perceived risk (Dholakia, 1997), and so forth, but has not explored the effects of product involvement under different pricing strategies, so this paper also enriches the research on product involvement. ...
Uniform pricing, which is a pricing strategy that sets a unified price for all products in the store or all products in the same category, is becoming increasingly popular over the past decades. However, scarce attention has been paid to investigating its impact on consumer behavior. This research investigates the influence of uniform pricing on product value judgments and purchase intentions. Four studies demonstrate that uniform pricing (vs. non‐uniform pricing) could induce stronger promotion perception, which leads to more positive product value judgments and purchase intentions. Moreover, price sensitivity and product involvement moderates this effect, and this effect only exist for high price‐sensitive consumers and low product involvement consumers.
... Another metric we used is the price of the solution. Price significantly influences consumers' purchasing behavior and sales [1]. Thus, we aimed to provide the cheapest solution. ...
The number of IoT devices in smart homes is increasing. This broad adoption facilitates users' lives, but it also brings problems. One such issue is that some IoT devices may invade users' privacy. Some reasons for this invasion can stem from obscure data collection practices or hidden devices. Specific IoT devices can exist out of sight and still collect user data to send to third parties via the Internet. Owners can easily forget the location or even the existence of these devices, especially if the owner is a landlord who manages several properties. The landlord-owner scenario creates multi-user problems as designers build machines for single users. We developed tags that use wireless protocols, buzzers, and LED lighting to lead users to solve the issue of device discovery in shared spaces and accommodate multi-user scenarios. They are attached to IoT devices inside a unit during their installation to be later discovered by a tenant. These tags have similar functionalities as the popular Tile models or Airtag, but our tags have different features based on our privacy use case. Our tags do not require pairing; multiple users can interact with them through our Android application. Although researchers developed several other tools, such as thermal cameras or virtual reality (VR), for discovering devices in environments, they have not used wireless protocols as a solution. We measured specific performance metrics of our tags to analyze their feasibility for this problem. We also conducted a user study to measure the participants' comfort levels while finding objects with our tags attached. Our results indicate that wireless tags can be viable for device tracking in residential properties.
... Furthermore, since high levels of consumer entitlement reflect customers' beliefs of deserving superior or personalized treatment (Boyd & Helms, 2005), we expect that the level of consumer entitlement will shape customers' expectations about the degree of personalized price reduction. The existing literature has well documented that consumers display different levels of elasticity to price cuts (Shankar & Krishnamurthi, 1996), which has been explained in both probabilistic (Han, Gupta, & Lehmann, 2001) and consumer-related terms (Mulhern, Williams, & Leone, 1998). With regard to the latter, the literature has shown that consumer entitlement sets higher expectations (in terms of deserving special treatment) due to raising customers' perceived importance for the retailer (Wetzel, Hammerschmidt, & Zablah, 2014;Nguyen & Shi, 2018). ...
This research investigates whether consumers express different levels of store patronage intention and expected amount of discount depending on the type of data they have to disclose to obtain a personalized price. Findings from two experiments—manipulating the type of data along with the type of incentive (Study 1) and the level of effort (Study 2)—reveal that behavioral (vs. biometric) data make customers perceive the outcome of the price personalization more equitable, thus lowering the privacy concern, and enhancing their sense of entitlement to receiving a benefit from the retailer. The impact of the type of data on perceptions of distributive justice changes as a function of the type of incentive provided to customers (Study 1) and the level of effort required to see the personalized price (Study 2). The collection of biometric data should be counterbalanced by a higher amount of personalized discount to lower consumers’ privacy concerns.
... Although having achieved impressing performance, these approaches all ignore a significantly important factor, i.e., the user's price preferences, which aim to describe how much money a user is willing to pay for an item. Many marketing studies have shown that users' buying behaviors are strongly influenced by the price factor [3,10,32]. Thus, the price preferences of users should be taken into consideration when predicting their actions. However, we face two main challenges when modeling users' price preferences for SBR. ...
Session-based recommendation aims to predict items that an anonymous user would like to purchase based on her short behavior sequence. The current approaches towards session-based recommendation only focus on modeling users' interest preferences, while they all ignore a key attribute of an item, i.e., the price. Many marketing studies have shown that the price factor significantly influences users' behaviors and the purchase decisions of users are determined by both price and interest preferences simultaneously. However, it is nontrivial to incorporate price preferences for session-based recommendation. Firstly, it is hard to handle heterogeneous information from various features of items to capture users' price preferences. Secondly, it is difficult to model the complex relations between price and interest preferences in determining user choices. To address the above challenges, we propose a novel method Co-guided Heterogeneous Hypergraph Network (CoHHN) for session-based recommendation. Towards the first challenge, we devise a heterogeneous hypergraph to represent heterogeneous information and rich relations among them. A dual-channel aggregating mechanism is then designed to aggregate various information in the heterogeneous hypergraph. After that, we extract users' price preferences and interest preferences via attention layers. As to the second challenge, a co-guided learning scheme is designed to model the relations between price and interest preferences and enhance the learning of each other. Finally, we predict user actions based on item features and users' price and interest preferences. Extensive experiments on three real-world datasets demonstrate the effectiveness of the proposed CoHHN. Further analysis reveals the significance of price for session-based recommendation.
Equipment manufacturers increasingly pursue servitization strategies, yet their salesforces frequently find that industrial customers display a low willingness-to-pay (WTP) for ancillary services, in particular when offered in conjunction with high-priced capital goods. Drawing on entitlement theory and a unique dataset gathered in a field survey among more than 440 decision-makers, we establish a negative relationship between vendors’ equipment prices and their industrial customers’ WTP for ancillary services. In a follow-up experimental study, we investigate the explanatory mechanism and find support for entitlement as the underpinning rationale. In a second experimental study, we explore dual-entitlement effects and show that customers’ perceptions of vendors’ profitability directly and indirectly impact their WTP for ancillary services. Our findings contribute to the emerging literature on customer entitlement and the dual-entitlement principle in industrial markets and offer practical implications for price communication and the sales process in capital goods markets.
The conventional legal wisdom in the context of Traditional Cultural Expressions (TCEs) is that TCEs need formal IP protection (through sui generis rights) to ensure that the indigenous communities have authority and rights over their works. We show in this paper that this claim is built on an incomplete understanding of TCEs (which is perhaps one of the reasons why countries have hardly adopted WIPO’s framework). We advance three arguments, namely (1) IP protection discourages TCEs’ usage, deepening the vulnerabilities of these communities, in fact TCEs evolve through a culture of openness and free flow of ideas, which is antithetical to IP regimes; (2) the demand for IP protection is hardly universal because it stems from distinct colonial experiences the Americas and Australia had with their indigenous communities, a history not shared by most of the world; and (3) there is a need to differentiate 'know-how' and 'knowledge', and since TCEs belong to the former, they will elude any IP framework, by definition.
Although price increases are common in business-to-consumer (B2C) and business-to-business (B2B) markets, research examining the consequences of price increases on financial performance outcomes in B2B contexts is scarce. This study takes a relationship perspective on price increases and examines how a portfolio price increase affects the financial performance of the customer relationship and whether and how this effect varies between international business customers from different cultures. Based on objective data from 966 international B2B customers of a chemical goods company, this study examines a large-scale field intervention. Results show that higher portfolio price increases, although rooted in an increase of upstream costs, have more severe harm to B2B customers’ sales revenue than lower portfolio price increases. These consequences vary with customers’ cultures as B2B customers with culture-specific communal norms are more susceptible to the magnitude of portfolio price increases than customers without such norms. International B2B companies, therefore, need to refrain from implementing uniform price increases and should consider their business customers’ cultural origin when designing and implementing price increases.
Dass Pricing durch seine direkte Wirkung auf die Bottom Line eine besondere Bedeutung hat, ist in der Marketingliteratur unbestritten. Aufgrund der zunehmenden Digitalisierung wird das Pricing im Marketingmix immer bedeutender. Den richtigen Preis zu finden, wird für Unternehmen immer schwieriger. Sie sind zunehmend gefordert, Preise zu differenzieren, Preise in Echtzeit anzupassen und die Vorteile der Künstlichen Intelligenz zu nutzen. Insbesondere Preisstrategien für digitale Produkte erfordern besondere Aufmerksamkeit. Viele bekannte Modelle der Preisermittlung können nicht übernommen werden, da beispielsweise die geringe Bedeutung der variablen Kosten keine ausreichende Berücksichtigung findet. Diese Arbeit hat das Ziel aufzuzeigen, wie das Pricing für digitale Produkte in der Zukunft erfolgen sollte/könnte. Zunächst werden die Besonderheiten der Preissetzung für digitale Produkte beleuchtet. Ferner werden innovative Preisstrategien für sowohl digitale als auch analoge Produkte untersucht. Es werden darauf aufbauend Anforderungen an eine künftige Digital-Pricing-Strategie formuliert. Insbesondere werden auch Überlegungen zur Preiskommunikation und zum „Behavioral Pricing“ angestellt.
Since price discounts are costly and can negatively affect consumers' perceptions of quality, it is crucial to identify the factors that make them effective in stimulating purchase behavior. Drawing on cue utilization theory, we examine price discount effectiveness in affecting consumers' reliance on the sale cue based on the provided product touch information as an intrinsic cue and individual consumer differences in sale proneness. Two experimental studies indicate that price discount information, product touch information, and sale proneness interact to determine consumers' responses. Perceived quality is the underlying mechanism behind the observed effects. For nonsale‐prone consumers, product touch information favorably influences responses to large price discounts by addressing product quality concerns and enhancing purchase confidence, but has no effect for regularly priced or low discounted products. For sale‐prone consumers, product touch information is not effective in increasing their responses regardless of the discount size. A qualitative study provides support for these results and highlights the role of perceived quality and purchase confidence. The research contributes to behavioral pricing, cue utilization theory, and sensory marketing and suggests that marketing managers should provide consumers with product touch information when implementing high discounts for products for which prepurchase touch is important.
As the importance of servitization and service-augmented solution delivery grows into a mainstream phenom-
enon for manufacturers, offering theoretically founded avenues to solve their specific internationalization
challenges is necessary. The study addresses the internationalization paradox faced by servitized manufacturers
generated by the specific hybrid nature of their product-service offering. As such, this research is meant to
understand the entry mode diversity for the internationalization of advanced servitization providers. Our pri-
mary research deal-level data follows 1885 potential sales negotiations for servitized products closed in 2018 by
a Poland-based multinational high-tech optics firm offering product-service systems. The results of the study
support the idea that manufacturers of advanced servitization could benefit from the implementation of entry
mode diversity. It is found that the sales deal success when entry mode diversity is implemented in a foreign
market is positively moderated when knowledge-intensive advanced servitization is included in the negotiation.
Purpose – Reference price is a key input in deciding product/service prices by organizations and has a significant influence on consumer purchase decisions. This study aims to provide a deeper understanding of reference pricing literature using bibliometric analysis and offers specific research questions for future research in this domain.
Design/methodology/approach – Using a sample of 309 articles published between 1977 and 2021, the study conducts bibliographic coupling, citation analysis, cluster analysis, content analysis, keyword analysis, and a three-field plot to map the intellectual structure of reference price.
Findings – The content analysis gave seven research clusters: (1) modeling reference price, (2) consumer perceptions of price (un)fairness, (3) price framing, (4) comparative price-based promotion, (5) reference price formulation, (6) pay-what-you-want (PWYW) pricing, and (7) range theory and price perceptions. The study also delineates reference price literature across several parameters like authorship, highest cited paper, most popular journal, institutions, region-wise publication trend, and author-networks. The emerging research themes for future scholars working in this domain have also been highlighted.
Originality– This is the first comprehensive study to explore reference price from a bibliometric lens. The study highlights and discusses the recent themes on reference price, from both academic and managerial perspectives.
The effect of reference price on brand choice decisions has been well documented in the literature. Researchers, however, have differed in their conceptualizations and, therefore, in their modeling of reference price. In this article, we evaluate five alternative models of reference price of which two are stimulus based (i.e., based on information available at the point-of-purchase) and three that are memory based (i.e., based on price history and/or other contextual factors). We calibrate the models using scanner panel data for peanut butter, liquid detergent, ground coffee, and tissue. To account for heterogeneity in model parameters, we employ a latent class approach and select the best segmentation scheme for each model. The best model of reference price is then selected on the basis of fit and prediction, as well as on the basis of parsimony in cases where the fits of the models are not very different. In all four categories, we find that the best reference price model is a memory-based model, namely, one that is based on the brand's own price history. In the liquid detergent category, however, we find that one of the stimulus-based models, namely, the current price of a previously chosen brand, also performs fairly well. We discuss the implications of these findings.
The authors examine the long-term effects of promotion and advertising on consumers' brand choice behavior. They use 8 1/4 years of panel data for a frequently purchased packaged good to address two questions: (1) Do consumers' responses to marketing mix variables, such as price, change over a long period of time? (2) If yes, are these changes associated with changes in manufacturers'advertising and retailers'promotional policies? Using these results, the authors draw implications for manufacturers' pricing, advertising, and promotion policies. The authors use a two-stage approach, which permits them to assess the medium-term (quarterly) effects of advertising and promotion as well as their long-term (i.e., over an infinite horizon) effects. Their results are consistent with the hypotheses that consumers become more price and promotion sensitive over time because of reduced advertising and increased promotions.
Amultinomial logit model of brand choice, calibrated on 32 weeks of purchases of regular ground coffee by 100 households, shows high statistical significance for the explanatory variables of brand loyalty, size loyalty, presence/absence of store promotion, regular shelf price and promotional price cut. The model is parsimonious in that the coefficients of these variables are modeled to be the same for all coffee brand-sizes. The calibrated model predicts remarkably well the share of purchases by brand-size in a hold-out sample of 100 households over the 32-week calibration period and a subsequent 20-week forecast period. The success of the model is attributed in part to the level of detail and completeness of the household panel data employed, which has been collected through optical scanning of the Universal Product Code in supermarkets.
Three short-term market response measures are calculated from the model: regular (depromoted) price elasticity of share, percent increase in share for a promotion with a median price cut, and promotional price cut elasticity of share. Response varies across brand-sizes in a systematic way with large share brand-sizes showing less response in percentage terms but greater in absolute terms. On the basis of the model a quantitative picture emerges of groups of loyal customers who are relatively insensitive to marketing actions and a pool of switchers who are quite sensitive.
This article was originally published in Marketing Science, Volume 2, Issue 3, pages 203–238, in 1983.
Recent work in marketing has drawn on behavioral decision theory to advance the notion that consumers evaluate attributes (and therefore choice alternatives) not only in absolute terms, but as deviations from a reference point. The theory has important substantive and practical implications for the timing and execution of price promotions and other marketing activities.
Choice modelers using scanner panel data have tested for the presence of these “reference effects” in consumer response to an attribute such as price. In applications of the theory of reference-dependent choice (Tversky and Kahneman 1991), some modelers report empirical evidence of loss aversion: When a consumer encounters a price above his or her established reference point (a “loss”), the response is greater than for a price below the reference point (a “gain”). Researchers have gone so far as to suggest that evidence for the so-called reference effect make it an empirical generalization in marketing (e.g., Kalyanaram and Winer 1995, Meyer and Johnson 1995).
It is our contention that the measurement of loss aversion in empirical applications of the reference-dependent choice model is confounded by the presence of unaccounted-for heterogeneity in consumer price responsiveness. Our reasoning is that the kinked price response curve implied by loss aversion is confounded with the slopes of the response curves across segments that are differentially responsive to price. A more price-responsive consumer (with a steeper response function) tends to have a lower price level as a reference point. This consumer faces a larger proportion of prices above his reference point, thus the response curve is steeperin the domain of losses. Similarly, the less price-responsive consumer sees a greater proportion of prices below his reference point, so the response curve is less steep within the domain of gains. As a result, any cross-sectional estimate of loss aversion that does not take this into account will be biased upward—researchers who do not control for heterogeneity in price responsiveness may arrive at incorrect substantive conclusions about the phenomenon. It is interesting to note that in this instance, failure to control for heterogeneity induces a bias in favor of finding an effect, rather than the more typical case of attenuation of the effect toward zero.
We first test our assertion regarding the referencedependent model using scanner panel data on refrigerated orange juice and subsequently extend this analysis to 11 additional product categories. In all cases we find, as predicted, that accounting for price-response heterogeneity leads to lower and frequently nonsignificant estimates of loss aversion. We do, however, find some categories in which the effect does not disappear altogether. We also estimate loss aversion using a “sticker shock” model of brand choice in which the reference prices are brand-specific. In line with the results of the majority of prior literature, we find smaller and insignificant estimates of loss aversion in this model. We show that this is because in the sticker shock model, there is no apparent correlation between the price responsiveness of the consumer and the representation of reference effects as losses or gains. Our findings strongly suggest that loss aversion may not in fact be a universal phenomenon, at least in the context of frequently purchased grocery products.
In recent years, manufacturers have become increasingly disposed toward the use of sales promotions, often at the cost of advertising. Yet the long-term implications of these changes for brand profitability remain unclear. In this paper, we seek to offer insights into this important issue. We consider the questions of i) whether it is more desirable to advertise or promote, ii) whether it is better to use frequent, shallow promotions or infrequent, deep promotions, and iii) how changes in regular prices affect sales relative to increases in price promotions. Additional insights regarding brand equity, the relative magnitude of short- and long-term effects, and the decomposition of advertising and promotion elasticities across choice and quantity decisions are obtained.
To address these points, we develop a heteroscedastic, varying-parameter joint probit choice and regression quantity model. Our approach allows consumers' responses to short-term marketing activities to change in response to changes in marketing actions over the long term. We also accommodate the possibility of competitive reactions to policy changes of a brand. The model is estimated for a consumer packaged good category by using over eight years of panel data. The resulting parameters enable us to assess the effects of changes in advertising and promotion policies on sales and profits.
Our results show that, in the long term, advertising has a positive effect on “brand equity” while promotions have a negative effect. Furthermore, we find price promotion elasticities to be larger than regular price elasticities in the short term, but smaller than regular price elasticities when long-term effects are considered. Consistent with previous research, we also find that most of the effect of a price cut is manifested in consumers' brand choice decisions in the short term, but when long-term effects are again considered, this result no longer holds. Last, we estimate that the long-term effects of promotions on sales are negative overall, and about two-fifths the magnitude of the positive short-term effects.
Finally, making reasonable cost and margin assumptions, we conduct simulations to assess the relative profit impact of long-term changes in pricing, advertising, or promotion policies. Our results show regular price decreases to have a generally negative effect on the long-term profits of brands, advertising to be profitable for two of the brands, and increases in price promotions to be uniformly unprofitable.
Considerable theoretical justification for consumers' use of psychological reference points exists from the research literature. From a managerial perspective, one of the most important applications of this concept is reference price, an internal standard against which observed prices are compared. In this paper, we propose three empirical generalizations that are well-supported in the marketing literature. First, there is ample evidence that consumers use reference prices in making brand choices. Second, the empirical results on reference pricing also support the generalization that consumers rely on past prices as part of the reference price formation process. Third, consistent with other research on loss aversion, consumers have been found to be more sensitive to “losses,” i.e. observed prices higher than reference prices, than “gains.” We also propose topics for further research on reference prices.
Rotating indifference curves are used to induce an income effect that favors superior brands at the expense of inferior brands in a discrete choice model. When calibrated on scanner panel data, the model yields an objective measure of brand quality which is related to the rate of rotation. The model also leads to asymmetric responses to price promotions where switching up to high quality brands is more likely than switching down. The model is capable of nesting the standard logit model, and is similar to a nested logit model when there exists clusters of brands of like quality. The model is used to explore a product line pricing decision where profits are maximized subject to the constraint that consumer utility is maintained.
A new model of consumer behavior is developed using a hybrid of cognitive psychology and microeconomics. The development of the model starts with the mental coding of combinations of gains and losses using the prospect theory value function. Then the evaluation of purchases is modeled using the new concept of “transaction utility.” The household budgeting process is also incorporated to complete the characterization of mental accounting. Several implications to marketing, particularly in the area of pricing, are developed.
This paper introduces new forms, sampling and estimation approaches fordiscrete choice models. The new models include behavioral specifications oflatent class choice models, multinomial probit, hybrid logit, andnon-parametric methods. Recent contributions also include new specializedchoice based sample designs that permit greater efficiency in datacollection. Finally, the paper describes recent developments in the use ofsimulation methods for model estimation. These developments are designed toallow the applications of discrete choice models to a wider variety ofdiscrete choice problems. Peer Reviewed http://deepblue.lib.umich.edu/bitstream/2027.42/47225/1/11002_2004_Article_138116.pdf
Scanner panel data analyses for sweetened and unsweetened drink categories (with four brands in each) support the presence of a region of price insensitivity around a reference price. The analyses also suggest that consumers with higher average reference price have a wider latitude of price acceptance. Consumers with a higher frequency of purchase (i.e., shorter average interpurchase time interval) are found to have a narrower latitude of price acceptance, because they are more aware of the range of price distributions. Finally, consumers with a higher average brand loyalty have a wider latitude of price acceptance, demonstrating greater tolerance of price fluctuations. Copyright 1994 by the University of Chicago.
This study examines consumers' response to retailers' price promotions. It shows that consumers discount the price discounts. It also suggests that the discounting of discounts and changes in purchase intention depend on the discount level, store image, and whether the product advertised is a name brand or a store brand. The study goes one step further to investigate the existence of promotion thresholds. We use experimental data and an econometric methodology to gather empirical evidence that consumers do not change their intentions to buy unless the promotional discount is above a threshold level. This threshold point differs for name brands and store brands. Specifically, we find that the threshold for a name brand is lower than that for a store brand. In other words, stores can attract consumers by offering a small discount on name brands while a larger discount is needed for a similar effect for a store brand. The study also indicates the existence of a promotion saturation point above which the effect of discounts on changes in consumers' purchase intention is minimal. These results confirm consumers' S-shaped response to promotions.
The effectiveness of a sales promotion can be examined by decomposing the sales "bump" during the promotion period into sales increase due to brand switching, purchase time acceleration, and stockpiling. The author proposes a method for such a decomposition whereby brand sales are considered the result of consumer decisions about when, what, and how much to buy. The impact of marketing variables on these three consumer decisions is captured by an Erlang-2 interpurchase time model, a multinomial logit model of brand choice, and a cumulative logit model of purchase quantity. The models are estimated with IRI scanner panel data for regular ground coffee. The results indicate that more than 84% of the sales increase due to promotion comes from brand switching (a very small part of which may be switching between different sizes of the same brand). Purchase acceleration in time accounts for less than 14% of the sales increase, whereas stockpiling due to promotion is a negligible phenomenon accounting for less than 2% of the sales increase.
The authors develop a joint estimation approach to segment households on the basis of their response to price and promotion in brand choice, purchase incidence, and purchase quantity decisions. The authors model brand choice (what to buy) by multinomial logit, incidence (whether to buy) by nested logit, and quantity (how much to buy) by poisson regression. Response segments are determined probabilistically using a latent mixture model. The approach simultaneously calibrates sales response on two dimensions: across segments and the three purchase behaviors. The procedure permits market-level sales elasticities to be decomposed by segment and purchase behavior (i.e., choice, incidence, and quantity). The authors apply the approach to scanner panel data for the yogurt category and find substantial differences across segments in the relative impact of the choice, incidence, and quantity decisions on overall sales response to price.
A model of grocery shopper response to price and other point-of-purchase information was developed and hypotheses were tested by using observations and interviews. The findings suggest that shoppers tended to spend only a short time making their selection and many did not check the price of the item they selected. Perhaps as a consequence, more than half could not correctly name the price of the item just placed in the shopping cart and more than half of the shoppers who purchased an item that was on special were unaware that the price was reduced. Other results on point-of-purchase information processing and behavior are discussed.
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.
When consumers are exposed to pricing and promotional activity by frequently purchased packaged goods, they may develop expectations that are used as points of reference in evaluating future activity. The authors build a model to test for the presence of these reference effects on brand choice behavior. The approach differs from previous research in two ways: (1) the model includes reference effects of promotion in addition to reference effects of price and (2) a threshold model is introduced to capture the formation of the consumer's promotional reference point. The authors calibrate a model of brand choice using IRI scanner panel data on ground coffee. The findings suggest that promotional activity has significant reference effects on consumer response.
The authors report results from a controlled experiment designed to investigate the impact of a brand's price promotion frequency and the depth of promotional price discounts on the price consumers expect to pay for that brand. A key feature of the work is that expected prices elicited directly from respondents in the experiment are used in the analysis, as opposed to the latent or surrogate measures of expected prices used in previous studies. As hypothesized, both the promotion frequency and the depth of price discounts are found to have a significant impact on price expectations. Evidence also supports a region of relative price insensitivity around the expected price, such that only price changes outside that region have a significant impact on consumer brand choice. Further, the authors find that consumer expectations of both price and promotional activities should be considered in explaining consumer brand choice behavior. Specifically, the presence of a promotional deal when one is not expected or the absence of a promotional deal when one is expected may have a significant impact on consumer brand choice. Finally, as in the case of price expectations, consumer response to promotion expectations is found to be asymmetric in that losses loom larger than gains.
The authors develop, calibrate, and test a disaggregate model of customer brand choice with customers' price expectations as the mediating construct. They use a two-stage modeling procedure. The first stage is the determination of how expected prices are formed. In the second stage, brand choice is assumed to depend on the brand's retail price and whether or not that price compares favorably with the brand's expected price. The authors also test the hypothesis of symmetry in customer response to positive deviations ("losses") and negative deviations ("gains") of the retail price from the expected price. Analysis of scanner-panel data in the coffee market reveals that the brand choice model in which customers are assumed to respond to retail prices by comparing them with the corresponding expected prices provides a significantly better fit than a traditional brand choice model. Consistent with prospect theory, customers are found to react more strongly to price losses than to price gains. Results from the calibration of the expected price model indicate that expected price is not only dependent on past prices, but is also affected by the frequency with which a brand is promoted, economic conditions, customer characteristics, and the type of store shopped.
The authors develop an approach to market segmentation based on consumer response to marketing variables in both brand choice and category purchase inci- dence. The approach reveals segmentation as v/ell as the nature of choice and incidence response for each segment. Brand choice and purchase incidence decisions are modeled at the segment level v/ith the disaggregate multinomial logit and nested logit models; segment sizes are estimated simultaneously with the choice and inci- dence probabilities. Households are assigned to segments by using their posterior probabilities of segment membership based on their purchase histories. The pro- cedure thereby permits an analysis of the demographic, purchase behavior, and brand preference characteristics of each response segment. The authors illustrate their approach with scanner panel data on the liquid laundry detergent category and find segmentation in price and promotion sensitivity for both brand choice and category purchase incidence. The results suggest that many households that switch brands on the basis of price and promotion do not also accelerate their category purchases and that households that accelerate purchases do not necessarily switch
This research focuses on how price changes influence the observed pattern of brand competition. The paper begins with a basic utility model formulation and examines the implications of three major classes of preference distributions on the expected patterns of competition. A price-tier model is proposed to operationalize the theory and to allow predictive testing. The price-tier model is estimated on 28 brands across four product categories.
The results show a specific asymmetric pattern of price competition. Higher-price, higher quality brands steal share from other brands in the same price-quality tier, as well as from brands in the tier below. However, lower-price, lower-quality brands take sales from their own tier and the tier below brands, but do not steal significant share from the tiers above. The results are consistent with a bimodal preference distribution, with the regular price indifference point being located toward the lower-quality end of the preference distribution for the categories analyzed.
The authors report the findings from an exploratory investigation of the use of UPC scanner data in the consumer packaged goods industry in the U.S. The study examines the practitioner community's view of the use of scanner data and compares these views with academic research. Forty-one executives from ten data suppliers, packaged goods manufacturers, and consulting firms participated in wide-ranging, in-person, interviews conducted by the authors. The interviews sought to uncover key questions practitioners would like to answer with scanner data, how scanner data is applied to these questions, and the industry's perspective regarding the success that the use of scanner data has had in each area.
The authors then compare and contrast practitioners' views regarding the resolution of each issue with academic research. This produces a 2 × 2 classification of each question as “resolved” or “unresolved” from the perspectives of industry and academia. Along the diagonal of the 2 × 2, issues viewed as unresolved by both groups are important topics for future research. Issues deemed resolved by both groups are, correspondingly, of lower priority. In the off-diagonal cells, industry and academics disagree. These topics should be given priority for discussion, information exchange, and possible further research.
Practitioners reported that scanner data analysis has had the most success and been most widely adopted for decision making in consumer promotions (i.e., coupons), trade promotions, and pricing. For example, logit and regression models applied to scanner data have revealed very low average consumer response to coupons which has directly led to reduced couponing activity. Managers also reported high levels of comfort with and impact from analyses of trade promotions and price elasticities. While industry views most of the issues in these areas to be resolved, academic research raises concerns about a number of practices in common commercial use. These include price threshold analysis and trade promotion evaluation using baseline and incremental sales.
In product strategy, advertising, and distribution management, practitioners reported that the use of scanner data has had more limited development, success, and impact. In the case of new product decisions, scanner data use has been slow to develop due to the inherent limitations of historical data for these decisions and a heavy reliance on traditional primary research methods. In advertising, scanner data is widely analyzed with models, but confusion among practitioners is very high due to controversies about methods (e.g., what level of data aggregation is best) and conflicting results. In distribution and retail management, scanner data use has tremendous potential but a mixed track record to date. Thus, practitioners view the use of scanner data as unresolved for most issues in product strategy, advertising, and distribution. This view is largely, though not entirely, consistent with academic research, which has only begun to address many of the key questions raised by practitioners.
In light of the large number of unresolved issues and mixed record of scanner data use to date, the authors offer a series of specific recommendations for immediate and long-term research priorities that are likely to have the greatest impact on commercial utilization of UPC scanner data. Topics of immediate priority include price thresholds and gaps, baseline and incremental sales, base price elasticity, competitive reactions, measurement of advertising effects, management of brand equity, rationalization of product assortments, and category management. Long-term priorities include a greater emphasis on profitability versus sales or market share, developing prescriptive models versus descriptive models, and the need for industry standards.
This paper provides some empirical generalizations regarding how the relative prices of competing brands affect the cross-price effects among them. Particular focus is on the asymmetric price effect and the neighborhood price effect. The asymmetric price effect states that a price promotion by a higher-priced brand affects the market share of a lower-priced brand more so than the reverse. The neighborhood price effect states that brands that are closer to each other in price have larger cross-price effects than brands that are priced farther apart. The main objective of this paper is to test if these two effects are generalizable across product categories, and to assess which of these two effects is stronger.
While the neighborhood price effect has not been rigorously tested in past research, the asymmetric price effect has been validated by several researchers. However, these tests of asymmetric price effect have predominantly used elasticity as the measure of cross-price effect. The cross-price elasticity measures the percentage change in market share (or sales) of a brand for 1% change in price of a competing brand. We show that asymmetries in cross-price elasticities tend to favor the higher-priced brand simply because of scaling effects due to considering percentage changes. Furthermore, several researchers have used logit models to infer asymmetric patterns. We also show that inferring asymmetries from conventional logit models is incorrect.
To account for potential scaling effects, we consider the absolute cross-price effect defined as the change in market share (percentage) points of a target brand when a competing brand's price changes by one percent of the product category price. The advantage of this measure is that it is dimensionless (hence comparable across categories) and it avoids scaling effects. We show that in the logit model with arbitrary heterogeneity in brand preferences and price sensitivities, the absolute cross-price effect is symmetric.
We develop an econometric model for simultaneously estimating the asymmetric and neighborhood price effects and assess their relative strengths. We also estimate two alternate models that address the following questions: (i) If I were managing the ith highest priced brand, which brand do I impact the most by discounting and which brand hurts me the most through price discounts? (ii) Who hurts whom in National Brand vs. Store Brand competition?
Based on a meta-analysis of 1,060 cross-price effects on 280 brands from 19 different grocery product categories, we provide the following empirical generalizations:
1. The asymmetric price effect holds with cross-price elasticities, but tends to disappear with absolute cross-price effects.
2. The neighborhood price effect holds with both cross-price elasticities and absolute cross-price effects, and is significantly stronger than the asymmetric price effect on both measures of cross-price effects.
3. A brand is affected the most by discounts of its immediately higher-priced brand, followed closely by discounts of its immediately lower-priced brand.
4. National brands impact store brands more so than the reverse when the cross-effect is measured in elasticities, but the asymmetric effect does not hold with absolute effects. Store brands hurt and are, in turn, hurt the most by the lower-priced national brands that are adjacent in price to the store brands.
5. Cross-price effects are greater when there are fewer competing brands in the product category, and among brands in nonfood household products than among brands in food products.
The implications of these findings are discussed.
We consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations; the first where the group of brands is managed by a retailer, and second where the brands compete in an oligopoly. We assume that demand is a function of actual prices and reference prices, and develop optimal dynamic pricing policies for each situation. In addition to researchers studying pricing strategy, our results may interest retailers choosing between hi-lo pricing and an everyday low price, and manufacturers assessing whether to follow Procter & Gamble's lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price.
A reference price is an anchoring level formed by customers based on the pricing environment. The literature suggests that demand for a brand depends not only on the brand price, but also whether the brand price is greater than the reference price (a perceived loss) or is less than it (a perceived gain). The responses to gains and losses are asymmetric. Broadly speaking, we find that when enough consumers weigh gains more than losses, the optimal pricing policy is cyclical. Likewise, when they weigh losses more than gains, a constant price is optimal. Thus, we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered: (1) decreasing unit variable costs due to learning effects, (2) the transfer of inventory to consumers who face lower inventory holding costs than do retailers, and (3) competitive effects. Our explanations apply even when the other explanations do not, i.e., in mature product categories where learning effects are minimal, when retailer inventories are minimized through the use of just-in-time policies and when competitive effects do not exist, as in a monopoly.
Greenleaf (1995) has shown numerically that in the presence of reference price effects, the optimal pricing policy for a monopolist can be cyclical. We first analytically extend Greenleaf's result to a monopolist with a constant cost of goods, facing a homogeneous market where all customers either weigh gains more than losses or vice versa. Using this building block we examine a monopolist retailer managing multiple brands. We assume that demand is a linear function of prices of multiple brands, and together with an expression which reflects the reference price effect. Further, we assume that the retailer maximizes average profit per period. Next, we analyze a duopoly and extend the results to an oligopoly. We assume that the manufacturers are able to set the retail prices, as in an integrated channel. Here, we retain the same demand function as for the retailer and derive Markov Perfect Nash equilibria. We use two alternative processes of reference price formation: the exponential smoothed (ES) past price process which is frequently used in the literature, and for the multi-brand situations, the recently proposed reference brand (RB) process (Hardie, Johnson, and Fader 1993). In the latter, the reference price is the current price of the last brand bought—the reference brand. We adapt the individual level RB formulation in Hardie et al., to an aggregate demand specification. For the ES process, we obtain most results analytically; for the RB process we use simulation. Finally, we extend our results to a population with two customer segments: Segment 1 which weighs gains more than losses, and Segment 2 which does the opposite, i.e., is loss averse.
When the market consists exclusively of Segment 1 customers and ES is the reference price process, we find that prices are cyclical in all cases analyzed, i.e., for a monopoly, a monopolist retailer managing multiple brands, a duopoly, and an oligopoly. If the RB formulation is the underlying process, a monopolist retailer managing two brands uses cyclical prices, but in a duopoly, the equilibrium solution is for the brands to maintain constant prices. When all customers belong to Segment 2 (i.e., they are loss averse) constant prices are optimal in all cases for both reference price formulations. When the population consists of both Segment 1 and Segment 2 and the ES process applies, we develop a sufficient condition for cyclical pricing policies to be optimal. The condition is expressed in terms of the proportion of the two segment sizes, the absolute difference between the gain and loss parameters of each segment, and their respective exponential smoothing constants. Interestingly, for reasonable values of the latter two factors, cyclical policies are optimal even when the proportion of Segment 1 is quite small. Similar magnitudes are obtained numerically for the RB case.
This paper investigates the impact of reference price effects on retailer price promotions and describes why these effects can make promoting profitable. First, we analyze the profit impact of reference price effects generated by a single period of promotion. The promotion can increase profit if the gain that these effects create in the promotion period outweighs the loss they create in future periods. We then describe how retailers can estimate the optimal strategy of recurring promotions that maximizes profits from reference price effects over a time horizon. Examples of such strategies are presented for a retailer selling a national brand of peanut butter. We obtain insights into how promotion prices, timing, and profits are affected by changes in costs, interest rates, consumers' reactions to reference price effects, and error in estimates used in the model. The retailer's optimal reaction to a trade deal is also examined. This strategy involves a phase of increased promotion activity sandwiched between phases of decreased activity. We explain these results using the effects described in the single-period model.
A number of recent papers have developed normative implications of the concept of reference price. In this paper, we extend that literature to incorporate the relationship between expected quality and reference price. We consider the case of a monopolist who makes time-varying decisions regarding price and product quality. Our results suggest that when the effect of a loss (price greater than reference price and product quality less than expected quality) on demand is greater than or equal to that of a corresponding gain, it is optimal for a monopolist to have constant price and product quality levels. When the effect of a gain on demand is greater than that of a corresponding loss, however, we find that it is optimal to maintain cyclical pricing and product quality policies.
This article examines how uncertainty about prices affects: (1) the budget consumers allocate for purchasing a product and (2) consumer price thresholds (i.e., the prices that are considered too high or a good deal). In an experimental setting, the purchase budget as well as the absolute values of both thresholds for uncertain subjects were higher than those for certain subjects. Moreover, a relatively large decline from the budget was needed before a price was considered a good deal, whereas a relatively small increase from the budget was sufficient for a price to be considered too high. Price uncertainty widened the difference between the upper (i.e., too high) price threshold and the budget, making uncertain subjects more tolerant to prices exceeding the budget than certain subjects. However, price uncertainty did not have a significant effect on the difference between the budget and the lower (i.e., good deal) price threshold.
Sumario: I. Prices and demand -- II. Developing internal costs for pricing -- III. Pricing decisions and price administration -- IV. Special topics on pricing.
The study investigates whether consumers exhibit asymmetry (i.e., different sensitivity) to negative ("loss") and positive ("gain") differences between the reference price and the purchase price in brand choice and purchase quantity decisions. Using panel data for two frequently purchased products with three brands in each product category, we find that consumers loyal to a brand ("loyals") respond to gain and loss with the same sensitivity in brand choice decisions. However, consumers not loyal to any brand ("switchers") respond more strongly to gains than to losses. In purchase quantity decisions, brand-loyal consumers are found to respond asymmetrically to gains and losses, but the direction of the asymmetry depends on whether the decision is made before or after the household inventory reaches a stock-out level (i.e., the level at which the household inventory needs to be replenished). When the decision is made after a stock-out, brand-loyal consumers are more responsive to a gain in the price of their favorite brand than to a loss. In contrast, when the quantity decision is made before a stock-out, loyals are more sensitive to a loss than to a gain. In only two of the six brands examined do we find evidence of asymmetry in switchers' quantity decisions. In both cases, switchers respond more strongly to a price loss than to a gain, regardless of whether the purchase decision is made before or after a stock-out.
This article assesses whether differences in prior knowledge result in differences in (1) price acceptability and (2) the extent to which different types of information are examined. Using a personal computer-based methodology, subjects who varied in their prior product knowledge provided price responses, and the time they spent examining various kinds of information was measured. Acceptable price-range and points (price limits) were found to be lowest for low-knowledge subjects. Further, the extent to which price and related extrinsic information was examined was found to be lowest for moderatly knowledgeable subjects. Results from a second study provide substantive support for the claim that increasing prior knowledge is accompanied by an increase in both limits of the acceptable price range. Copyright 1992 by the University of Chicago.
Single-source yogurt data are used to examine whether both internal and external reference prices affect purchase decisions. Internal reference prices are memory-resident prices based on actual, fair, or other price concepts. External reference prices are observed stimuli, such as "regular prices", that stores may display along with a sale price for comparability. Discrete choice models with variables representing the two types of reference prices are estimated, and both types of variables are found to have significant effects on purchase probabilities. This suggests that consumers may use multiple reference points in evaluating price in purchase decisions. In addition, a model using an indicator of a sale price discount explains purchase probabilities as well as one that models the actual discount, which suggests that consumers may be reacting to the indication of savings rather than to the amount of the discount. Copyright 1992 by the University of Chicago.
Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.
Analysis of decision making under risk has been dominated by expected utility theory, which generally accounts for people's actions. Presents a critique of expected utility theory as a descriptive model of decision making under risk, and argues that common forms of utility theory are not adequate, and proposes an alternative theory of choice under risk called prospect theory. In expected utility theory, utilities of outcomes are weighted by their probabilities. Considers results of responses to various hypothetical decision situations under risk and shows results that violate the tenets of expected utility theory. People overweight outcomes considered certain, relative to outcomes that are merely probable, a situation called the "certainty effect." This effect contributes to risk aversion in choices involving sure gains, and to risk seeking in choices involving sure losses. In choices where gains are replaced by losses, the pattern is called the "reflection effect." People discard components shared by all prospects under consideration, a tendency called the "isolation effect." Also shows that in choice situations, preferences may be altered by different representations of probabilities. Develops an alternative theory of individual decision making under risk, called prospect theory, developed for simple prospects with monetary outcomes and stated probabilities, in which value is given to gains and losses (i.e., changes in wealth or welfare) rather than to final assets, and probabilities are replaced by decision weights. The theory has two phases. The editing phase organizes and reformulates the options to simplify later evaluation and choice. The edited prospects are evaluated and the highest value prospect chosen. Discusses and models this theory, and offers directions for extending prospect theory are offered. (TNM)
In many markets, firms can price discriminate between their own customers and their rivals' customers, charging one price to consumers who prefer their own product and another price to consumers who prefer a rival's product. We find that when demand is symmetric, charging a lower price to a rival's customers is always optimal. When demand is asymmetric, however, it may be more profitable to charge a lower price to one's own customers. Surprisingly, price discrimination can lead to lower prices to all consumers, not only to the group that is more elastic, but also to the less elastic group. Copyright (c) 2000 Massachusetts Institute of Technology.
Female Head of Household: Coded as 1 if age is over age 45
- Age
- Male
Age of Male/Female Head of Household: Coded as 1 if age is over age 45, 0 otherwise.
“Commercial use of UPC scanner data
- Bucklin
“Looking for loss aversion in scanner panel data
- Bell
“Pay to switch or pay to stay
- Shaffer