Advertised Reference Price Research Articles

Comparative Price Advertising: Believe It or Not

Advertisers' attempts to enhance consumers' perceptions of the of a deal by using comparative price advertisements, in which they implicitly or explicitly compare the selling price to some suggested reference price, is widespread. Rare is the price advertisement that only proclaims the selling or price. Although the additional information contained in an advertised reference price may be useful to consumers, a crucial issue concerns the deceptive power of comparative price advertising that provides inflated and exaggerated reference prices. Under these circumstances, it is possible for consumers to develop perceptions of the deal that are not based on actual savings. Such issues have been the focus of a number of lawsuits and have spurred research on what constitutes deception (see Grewal, Grewal, and Compeau 1993 for a description of relevant FTC guidelines and summary of major legal cases against popular retailers). In a comprehensive review of the literature, Grewal and Compeau (1999) examine critical public policy issues associated with pricing strategies. The authors stress that although many substantive conclusions can be drawn from the extant research, several gaps still exist. They also provide a conceptual framework to understand key issues, and emphasize the need for additional research to investigate whether firms can (intentionally or unintentionally) mislead consumers. This research focuses on one gap, the effects of the advertised reference price and the selling price on consumers' believability of the advertised reference price as well as their perceptions of the of the deal. BACKGROUND Researchers have spent over two decades assessing the effectiveness of comparative price advertisements. The primary substantive issue centers on whether consumers are influenced by advertised references prices. Based on an integrative review of the literature, Compeau and Grewal (1998) conclude that the mere presence of a comparison price enhances consumers' internal reference prices and overall perceptions of value, reduces search intentions, but has no significant effect on purchase intention. However, the effect on believability was not assessed because of an insufficient number of studies that have addressed this issue. In general, including a reference price in an advertisement provides the consumer with a point of comparison by which to judge the lower selling price, thus providing a basis for a more favorable evaluation of the deal. Moreover, as the gap between the advertised reference price and the selling price (i.e., advertised savings) increases, perceptions of will also increase. However, t his effect is thought to occur only so long as consumers believe that the advertised reference price has some validity. Empirical research (see Compeau and Grewal 1998, Urbany et al. 1988) supports the conclusion that reference prices, even when exaggerated, can enhance subsequent evaluations. In light of the potential harm that can come to consumers, it is important to further scrutinize the extent to which consumers believe advertisers' claims and how these claims influence consumers' evaluations of the offers. CONCEPTUAL FRAMEWORK Thaler (1985) suggests that a consumer's overall perception of the value of a purchase is not just the acquisition (i.e., the associated with possessing the product), but also includes an assessment of the deal, i.e., the transaction value. Thaler suggests that transaction utility is the comparison between the reference price and the sale price. If the reference price is greater than the sale price, the transaction utility is positive. Thaler's (1985) transaction utility has been adapted for use in understanding comparative price advertising effects, and has been called transaction value--the pleasures associated with getting a good deal (Grewal, Monroe, and Krishnan 1998). …

Advertised Reference Price Effects on Consumer Price Estimates, Value Perception, and Search Intention

Research suggests that consumers respond to reference prices relative to some internal standards developed from experience. In dispute, however, is whether reference prices that are implausible produce the same effects on consumers as plausible reference prices. The two integrative reference price models available in the literature predict conflicting results, and empirical studies have not provided consistent support for either. Based upon a three-stage study involving prices for tennis shoes and telephones, results of this research support a differential response between plausible and implausible advertised reference price exposure conditions. Findings suggest that implausible prices have no effect on consumer's internal price continuum, perception of value, or intention to search. Furthermore, the findings suggest that plausible reference prices affect a consumer's price continuum differently than previous models predict. The authors discuss these findings, propose a modified reference price model, and provide practical implications for marketers.

Comparative Price Advertising: An Integrative Review

After two decades of research, public policymakers, researchers, and managers still have questions regarding the use, abuse, and overall effectiveness of comparative price advertising. Using an integrative review of the literature as a basis, the authors examine the state of substantive knowledge regarding comparative price advertising effects. They use meta-analytical procedures to assess the effects of (1) presence of an advertised reference price, (2) advertised reference price levels, and (3) advertised sale price levels on consumers’ internal reference price, perceived value, price offer believability, purchase likelihood, and search intentions. Evidence indicates that comparative price advertising is a powerful advertising tool, with a strong opportunity for deception, that requires careful management and monitoring.

Believability and consumer perceptions of implausible reference prices in retail advertisements

Based on results from three studies, this research addresses questions relating to the role of perceived believability of a reference price set at an implausible level. Compared to effects of more plausible levels of reference prices, an implausible reference price is shown to be capable of positively influencing both perceptions of a fair price and the highest price that would be paid for an advertised product, as well as more evaluative dependent variables such as perceived value of the advertised offer and purchase willingness estimates. The perceived believability of the price offer is associated with a stronger impact on evaluative dependent variables than price-related estimates. Results indicate the importance of scrutiny of retailers' use of advertised reference prices by public policy advocates, and suggest implications for theoretical bases used to address reference pricing issues. © 1996 John Wiley & Sons, Inc.

Does consumer knowledge affect consumer responses to advertised reference price claims?

AbstractAs expected, internal reference prices (IRPs) and purchase intentions for two product categories (microwave ovens and disposable razors) differed according to whether consumers possessed a high or low level of consumer knowledge about the product in this factorial design experiment. Contrary to theory and expectations, neither internal reference points nor purchase intentions were affected by exposure to comparative price advertisements. Students were used as subjects in a before‐after procedure with approximately two weeks between pre‐ and postmeasures of IRPs and purchase intentions. Postmeasures were taken immediately after exposure to ads containing three levels of advertised reference prices. t tests indicated differences between high and low knowledge group IRP means before ad exposure. However, no ANOVA differences were detected in change in IRP or purchase intention scores after ad exposure. © 1994 John Wiley & Sons, Inc.

Technical research note: The effect of double deals on consumer attitudes

Two types of consumer sales promotions, advertised reference price and free premium with purchase, were manipulated in a 3 × 3 analysis of variance design to investigate the effect of double retail deals on consumer attitudes. Results suggest that the effect of a free premium on consumer attitudes depends on the level of the advertised reference price. Counter to expectations, at low levels of advertised reference price, consumers' brand image and perceived quality are more favorable when the value of the free premium is low than when the value of the free premium is high. At a high level of advertised reference price, consumers' brand image and perceived quality are less favorable when the value of the free premium is low, than when the value of the free premium is high. At a medium level of advertised reference price, consumers' product attitudes are similar across free premium values. Theoretical and practical implications of the findings are discussed.