Specifying Price Judgments with Range–Frequency Theory in Models of Brand Choice

Abstract

To construct a price judgment, consumers compare a focal price with one or more reference prices. However, reference price operationalizations in the brand choice literature use single-point summary measures that cannot account for several distributional effects. To account for effects beyond the first moment of the reference price distribution, the authors specify price judgments in models of brand choice in accordance with range–frequency theory. The findings indicate that range–frequency price judgments provide a more complete specification of reference price effects and become more important with an increase in the second and third moments of a reference price distribution. The data also indicate that range effects are stronger for coupon users and frequency effects are stronger for consumers exposed to a trend of prices. The results have several implications for choice modeling, pricing theory, and pricing strategy.