Reference Price and Price Perceptions: A Comparison of Alternative Models

Abstract

Reference price effects on consumer price perceptions are often explained by Helson's adaptation-level theory, in which the cognitive representation of reference price is the prototype of the relevant category. However, recent conceptualizations and empirical evidence suggest the possibility of an exemplar model, which may be specified using Volkmann's range theory or Parducci's range-frequency theory.In two experiments, these three contextual models of reference price effects are pitted against one another. Based on the MANOVA and model fitting, range-frequency theory accounted for reference price effects that the other theories could not, suggesting that consumers compare the target price against specific members of the category rather than the category prototype. A third experiment demonstrated that range and frequency effects are moderated by the stimulus presentation condition, suggesting that consumers place greater weight on extreme prices anchoring the range for internal reference prices than for external reference prices.

Social norms and rank-based nudging: Changing willingness to pay for healthy food.

“…However, the implications of the rank-based models have not been explored within the literature on food evaluation or within the marketing and consumer research literature more generally (although see Niedrich et al, 2001;Niedrich et al, 2009). In these literatures, the reference level account still predominates.…”

A similarity-based range-frequency model for two-category rating data

“…Although these context effects are quite general and extend to judgments along abstract or complex dimensions, they have been tested most rigorously in the domain of psychophysical judgment, with its careful control of stimulus attributes and context. Such tests have demonstrated strong support for Parducci's (1965) range-frequency theory of judgment over historically competing models based on one or two contextual referents (Niedrich, Sharma, & Wedell, 2001).…”

“…Although these context effects are quite general and extend to judgments along abstract or complex dimensions, they have been tested most rigorously in the domain of psychophysical judgment, with its careful control of stimulus attributes and context. Such tests have demonstrated strong support for Parducci's (1965) range-frequency theory of judgment over historically competing models based on one or two contextual referents (Niedrich, Sharma, & Wedell, 2001).Range-frequency theory proposes that two principles are responsible for contextual shifts in evaluations. According to the range principle, judgments describe the dimensional location of the target relative to the subjective minimum and maximum values of the activated contextual distribution.…”

Detecting price thresholds in choice models using a semi-parametric approach

“…But one theory assumes that every price change is either a loss or gain regardless of how small the change might be (Kahneman and Tversky 1979;Tversky and Kahneman 1981). The other theory assumes that there is a latitude of indifference within which consumers are not sensitive to changes in price (Sherif and Hovland 1961;Janiszewski and Lichtenstein 1999;Niedrich et al 2001). The latter theory is often called range theory-we will refer to it as loss aversion theory with a non-zero threshold (e.g., Kalyanaram and Little 1994;Han et al 2001;Raman and Bass 2002;Pauwels et al 2003).…”