Price promotions and their effect upon reference prices
| Date | 18 August 2014 |
| Pages | 349-361 |
| DOI | https://doi.org/10.1108/JPBM-01-2014-0485 |
| Published date | 18 August 2014 |
| Author | Ben Lowe,Fanny Chan Fong Yee,Pamela Yeow |
| Subject Matter | Marketing,Product management,Brand management/equity |
Pricing strategy & practice
Price promotions and their effect upon
reference prices
Ben Lowe
Kent Business School, University of Kent, Canterbury, UK
Fanny Chan Fong Yee
Hang Seng Management College, Hong Kong, and
Pamela Yeow
Kent Business School, University of Kent, Canterbury, UK
Abstract
Purpose – The purpose of this study is to resolve inconsistencies in the literature about how one-time price promotions affect reference prices.
Specifically, this study suggests that the measure of reference price used within a study (e.g. expected price or fair price) can affect the outcomes
of that study.
Design/methodology/approach – This research uses three separate experiments, replicating and extending existing work, to simulate purchasing
decisions for products in the context of a price promotion. Experiments allow careful control of the confounds presumed to cause the inconsistencies
between studies.
Findings – Study 1 shows that measurement of different reference prices within the same experiment leads to carryover effects, which inflate the
correlation between measures. Expected price and fair price appear to be conceptually and empirically distinct and should be measured separately
to reduce design artifacts. Study 2 shows that one-time price promotions affect fair price, but not expected price, and Study 3 shows expected price
and fair price converge after multiple promotions.
Research limitations/implications – Independent measurement of reference price concepts allows robust claims about their distinctiveness. These
findings have implications for how reference price should be measured in survey research and for pricing and promotional strategy.
Originality/value – This research contributes by showing how the measure of reference price used affects the outcomes of price promotion studies.
It does this through the replication and extension of past research. Replication allows greater confidence in the findings of past research, and testing
the same findings under different conditions allows for the boundaries of existing research to be delimited and generalizations to be made.
Keywords Fair price, Reference price, Expected price, Sales promotions
Paper type Research paper
An executive summary for managers and executive
readers can be found at the end of this issue.
Introduction
The study of consumer reference prices has a long tradition in
marketing and makes several contributions to the literature on
consumer decision making (Mazumdar et al., 2005). A
number of studies examine how price promotions affect
reference prices (DelVecchio et al., 2007;Lowe and Barnes,
2012), and these are important because promotions can lower
a consumer’s reference price. Understanding how price
promotions affecting reference price perceptions is
instrumental to designing effective promotions and managing
reference price. However, little consensus exists about the
degree to which one-time price promotions affect reference
price (Chandrashekaran and Grewal, 2006;Sinha and Smith,
2000). Following Sinha and Smith (2000), one-time
promotions reflect an infrequent price promotion, as opposed
to multiple, more frequent price promotions. Replicating and
extending prior research, this article proposes that the
literature’s inconsistency is explainable by the
operationalization of reference price. Specifically, the aim of
this research is to ascertain how consumer response to price
promotions differs depending on the reference price which is
measured. Consequently, in some circumstances, reference
price effects may be a function of measurement artifacts.
Few researchers examine systematically the
operationalization of the reference price concept, despite clear
conceptual differences between alternative measures (i.e. fair
price as a normative price or expected price as a
memory-based price) and the need to understand the issue of
overlapping constructs (Mazumdar et al., 2005, p. 99).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
23/4/5 (2014) 349–361
© Emerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/JPBM-01-2014-0485]
349
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