Mode matters: an exemplar‐prototype hybrid (EPH) model of reference price formation
| Date | 18 July 2008 |
| DOI | https://doi.org/10.1108/10610420810887626 |
| Published date | 18 July 2008 |
| Pages | 272-279 |
| Author | Devon DelVecchio,Adam W. Craig |
| Subject Matter | Marketing |
Pricing strategy & practice
Mode matters: an exemplar-prototype hybrid
(EPH) model of reference price formation
Devon DelVecchio
Richard T. Farmer School of Business, Miami University, Oxford, Ohio, USA, and
Adam W. Craig
Moore School of Business, University of South Carolina, Columbia, South Carolina, USA
Abstract
Purpose – This research aims to integrate two theories of reference price formation and to test the resulting exemplar-prototype hybrid (EPH) model’s
predictions. Study 1 tests the predictions of the EPH model regarding price attractiveness ratings. Study 2 helps to document the process by which the
EPH model operates.
Design/methodology/approach – The investigation consists of a pair of laboratory experiments that manipulate the skew (positive, negative) of
historic price data, and the frequency of the modal price (high, low) in the price history.
Findings – Both the skew of prices to which consumers are exposed and the frequency with which the modal price occurs affect recall of the modal
price and evaluations of the attractiveness of subsequent prices.
Research limitations/implications – Consumers rely on information about both the price range and individual price points to form reference prices.
Common models of reference price effects may be improved by including a non-linear estimate of the effect of modal price frequency.
Practical implications – Managers are advised to offer a consistent regular price from which occasional discounts of varying value are offered to
create a strong memory trace in consumers’ minds for the higher “regular” price and avoid such a trace for any one discounted price.
Originality/value – Prior studies detail aspects of the relationship between reference prices and the attractiveness of market prices. This is the first
attempt to integrate, rather than contrast, the two predominant types of theories (range-based, price-point based) of reference price formation.
Keywords Prices, Pricing policy, Consumer behaviour, Product management
Paper type Research paper
It is widely accepted that consumers judge the attractiveness
of the market price of a product relative to an internal
reference price that is based on observed prices for that
product (e.g. Lattin and Bucklin, 1989; Mazumdar et al.,
2005; Winer, 1986). Reference prices arise due to repeated
exposure to prices such as those stemming from searching
across retailers, be they online or brick-and-mortar, or from
longitudinal exposure to prices across shopping trips at a
particular retailer (Kalyanaram and Wi ner, 1995). The
predominant theory of how consumers form and update
reference prices given exposure to multiple prices is based on
Helson’s (1964) adaptation-level theor y (Neslin, 2002).
Adaptation-level theory contends that an individual’s
perception of a focal stimulus is dependent upon its
relationship to preceding stimuli. In the context of reference
prices, prior prices form the adaptation level, or anchor,
against which the current price is judged. Thus, the frame of
reference per adaptation-level theory is a prototypic price
point (which we refer to as a reference price point).
Alternatives to the prototypic price-point view of reference
prices are based on exemplar models of categorization.
Exemplar models hold that multiple particular instances
representing a set are recalled to form the basis against which
new information is judged (e.g. Fiske and Taylor, 1991).
Emerging from a pair of exemplar models, range theory
(Volkmann, 1951) and range-frequency theory (Parducci,
1965) are views of reference prices in which a reference
“price” is a range of prices or a latitude of acceptable prices
rather than a sing le price point (e.g. Janiszewski and
Lichtenstein, 1999; Niedrich et al., 2001). From a reference
price range perspective, a price at the low end of the
acceptable range of prices is more attractive than one at the
high end. In support of a range view of reference prices,
Janiszewski and Lichtenstein (1999) and Niedrich et al.
(2001) demonstrate that models of reference price ranges
outperform the adaptation-level model of reference prices in
predicting the perceived attractiveness of market prices.
The findings of Janiszewski and Lichtenstein (1999) and
Niedrich et al. (2001) appear to question the role of the
frequency of occurrence of any specific historic price in
determining the attractiveness of the current price. However, as
Janiszewski and Lichtenstein (1999, p. 366) recognize, the
modal price may play an important role in affecting price
perceptions when there “is a domin ant ‘going price’”.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
17/4 (2008) 272–279
qEmerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610420810887626]
272
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