Reference Pricing How effective is it
There is a psychological theory that states that people for perceptions based on present and past stimuli (Helson, 1964). This has been extended by marketing academics to include the concept of reference pricing. They do this by stating that consumers, based on their previous exposure to products and their promotion - have an internal 'learnt pricing level that they believe is equitable for a given product (Jacobson & Obermiller, 1990). This essay examines the role of reference pricing in the pricing decision, and particularly the evidence on which this theory is based. It will be concluded that although the reference price provides a starting guideline for making the price decision - there is little evidence to support the theory in actually setting price structures.Put simply, a reference price is a standard against which observed prices are compared (Biswas & Blair, 1991). There are two types of reference price: internal and external. External reference prices are ones that exist in the environment and are used by consumers to assess the value of an item. Examples of these reference prices include reduced promotional prices and a competitor's price (Biswas, Wilson & Licata, 1993). The second major type of reference p
Putler, D.S. (1992). Incorporating reference price effects into a theory of consumer choice. Marketing Science, 11, 287-309 Biswas, A., Wilson, E.J. & Licata, J.W. (1993). Reference Price Studies in Marketing: A synthesis of research results. Journal of Business Research, 27, 239-256. While the reference price concept does appear to affect a products demand (as shown by Kalyanaram and Winer (1995) there is some debate over how accurate the estimates of these observations are. For example the researchers noted that there is no evidence to support the fact that consumers used reference prices in making purchase decisions. Gijsbrects (1993) notes that rather than affecting purchase probabilities - the reference price concept yields a better fit in consumer brand choice models. There is also considerable debate over whether reference prices are a single point or a distribution of points (Biswas & Blair, 1991). Indeed some theorists suggest that there are up to eight definitions of reference price (Jacobson & Obermiller, 1990). Until such problems can be sorted out, the accuracy of any reference price research must be questioned.
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Approximate Word count = 2243
Approximate Pages = 9 (250 words per page double spaced)
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