The Effects of Price Promotions on Consumers’ Price Beliefs

Abstract

Reference prices, which are extensively used in retail advertisements, have received considerable attention in the marketing literature. The present study looks at the extent to which external reference prices, included in price promotions, affect consumers’ price beliefs. Based on Helson’s Adaptation-Level theory, consumers form internal reference prices, which they use as a basis for evaluating market prices. Researchers then draw from both Adaptation-Level and Assimilation-Contrast theories to explain the process by which external reference prices influence consumers’ internal reference prices. While consumers may assimilate or contrast external reference prices, only assimilated prices have the ability to affect consumers’ internal price standards. To examine the extent to which consumers assimilate external reference prices, we conducted a first experiment, which revealed that the impact of external reference prices on consumers’ internal price standards was surprisingly monotonic. Results from our second experiment showed that the chosen absolute and relative savings presentation formats did not generate changes in subjects’ internal reference prices. We discuss our findings in relation to the measurement of internal reference prices and change thereof, exaggerated external reference prices, and price familiarity.