How price increases affect future purchases: The role of mental budgeting, income, and framing

Abstract

This article suggests that mental budgeting processes provide a further understanding of how and to what degree price increases negatively affect a customer's future purchase behavior in a particular category of expenses. Furthermore, the authors analyze how customer income and different price presentation tactics alter this reaction. Results of two experimental studies using both students and non-students show that customer income attenuates the negative effect of a price increase on the likelihood of a future purchase in a particular expense category. As an underlying mechanism, the influence of customer income on future purchase behavior is partially mediated by the degree to which customers engage in mental budgeting. Moreover, mental budgeting strengthens the negative effect of a price increase on a future purchase in the same category of expenses, whereas it does not alter the effect of a price increase on a future purchase in another category. Finally, the framing of a price increase as a percentage versus in absolute terms leads to a lower likelihood of a future category purchase.

Are humans rational? Exploring factors influencing impulse buying intention and continuous impulse buying intention

“…Recently, online stores have begun to use cash refund promotion to induce consumer buying. Homburg et al () confirmed that mental budgeting is an important factor that influences a customer's future purchase behavior. Cash refund promotion is different from normal price discount promotion in which consumers understand that they can have the discount only after their purchasing reaches a certain level.…”

How electricity providers communicate price increases – A qualitative analysis of notification letters

“…Framing. Price framing refers to presenting prices and price changes in various ways (Weisstein et al, 2013); in absolute vs. relative terms (Homburg et al, 2010) and related to time-horizons (temporal framing) (Gourville, 1998). Homburg et al (2005) showed that high price increases reduce repurchase intention.…”

Saudi Smokers' Behaviors After a 100% Tax Increase

“…Inness, Barling, Rogers and Turner (2008) found that the initial effect of an increased price on tobacco lasts for a month, but dissipates by the second month; if smoking reduction or cessation is not seen within a month then it is unlikely to happen-with an addictive product like tobacco, consumers either adapt to the new price or find an alternative (Becker and Murphy, 1988). How price increases are described can have an effect on purchase: Homburg, Koschate and Totzek (2010) found that an increase framed in percentages rather than in absolute terms has a greater negative impact. Callison and Kaestner (2012) conclude that there is "insufficient justification" for claiming that higher taxes reduce the incidence of smoking among adults, "even young adults"; their data shows that the association between the number of cigarettes consumed daily and the size of tobacco tax is negative, small, and statistically insignificant.…”