Price sequences, perceived variability, and choice
| DOI | https://doi.org/10.1108/JPBM-11-2012-0211 |
| Published date | 19 July 2013 |
| Pages | 314-321 |
| Date | 19 July 2013 |
| Author | Eric Dolansky,Mark Vandenbosch |
| Subject Matter | Marketing,Product management,Brand management/equity |
Pricing strategy & practice
Price sequences, perceived variability, and
choice
Eric Dolansky
Department of Marketing, Brock University, St Catharines, Canada, and
Mark Vandenbosch
Ivey Business School, University of Western Ontario, London, Canada
Abstract
Purpose – Sequences of prices are becoming more commonplace but there is limited research on their behavioral effects. The purpose of this paper is
to determine if a sequence of past prices, and particularly its variance, has a strong effect on choice. Will people pay significantly more for a seller who
has a more predictable history of past prices?
Design/methodology/approach – Past theory is drawn upon to create predictions regarding how individuals will perceive and value past sequences
of prices. One experimental study is conducted to test preference and choice based on past price sequences.
Findings – Individuals more frequently choose a vendor with past prices that fall into a predictable pattern, even when doing so results in higher future
prices to be paid.
Originality/value – This paper not only tests notions that have anecdotal support (e.g. preference for fixed vs floating interest rates, despite the higher
cost of doing so), but also demonstrates that a person’s distaste for perceived variability is sufficiently strong so as to result in a willingness to pay40
percent more for this predictability.
Keywords Price perception, Variability, Decision making, Uncertainty management, Risk, Prices, Sales prices, Price positioning, Consumer risk
Paper type Research paper
Introduction
With increasing changes in the methods used to present prices
to consumers, such as dynamic pricing systems (Kopalle et al.,
1996), sequences or series of prices have become more
commonplace. Simple internet searches yield graphs of past
prices for airline fares, gasoline, consumer electronics, and
more. This availability of price information has made it easy
for consumers to compare not only on price but on a vendor’s
pricing history, and this past history may confer or remove an
advantage to a seller. For example, if a consumer perceives a
vendor’s past prices negatively, that consumer may not
consider the vendor as highly in the future. Yet, we know very
little about the effect that sequences of prices have on
purchase judgments (e.g. Kopalle et al., 2009).
In this note, we examine the effect of price sequences on
choice. A price sequence has been defined here as an observed
series of prices across time used in a purchase decision. In
contrast, research studying consumer response to price has
concentrated on using a single price as the focal stimulus in
relation to other variables (e.g. fairness, estimations of value
and quality, etc.). The existing paradigm for incorporating
past prices into present decisions has been that of the
reference price, wherein all past price information is
condensed into a single price or, in the case of range-
frequency theory, two price range endpoints (Mazumdar et al.,
2005). Because reference price models incorporate new prices
one at a time into an internal reference price, and do not
examine longer histories of prices, volatility in prices is
smoothed out through a weighted averaging process. This
view has also not included the effect of a price sequence’s
variance (perceived or mathematical), which has been shown
to have an effect on choice (Dolansky and Vandenbosch,
2012) nor has it included the uncertainty about future prices.
In contrast, the research reported in this paper focuses on this
variability.
Drawing upon well-established research areas, an
experiment was designed and conducted to explore the idea
that the sequence of prices could have an effect on purchase
decisions. The key objective of this paper is to determine if
there is value to lower perceived variability; in other words,
are people willing to pay more to a vendor, even if prices are
higher (or will be in the future), if those prices are perceived
to be less variable. This counter-intuitive choice could be
explained by the impact of perceived variability on choice.
That people tend to value certainty has been established both
anecdotally (e.g. a preference for a fixed vs floating interest
rate on a mortgage) and through past research findings
(e.g. Dolansky and Vandenbosch, 2012; Gneezy et al., 2006).
In this paper, we find that a preference for less variability,
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
22/4 (2013) 314–321
qEmerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/JPBM-11-2012-0211]
314
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