External Reference Price Research Articles

Pay what you want pricing: should marketers use it to introduce innovative products?

ABSTRACT The paper examines the suitability of pay-what-you-want (PWYW) pricing in introducing incremental or radical innovative products. Four experimental studies were conducted: three lab-based and one field-based. The results indicated that customers voluntarily made non-zero payments in anonymous exchanges. However, the payout in the lab (willingness to pay) and field (actual payout) studies were invariably lower than the externally provided price anchors. Further, low-price external anchors exerted a stronger influence on consumer payout than high-price external anchors. Message framing (descriptive versus injunctive) and external price anchors were used to nudge consumers toward a higher payout. The study found that customers’ payout was closer to the external price anchor when the anchor reflected what others paid (descriptive framing). In contrast, the payout deviated significantly below the price anchor when the seller suggested it (injunctive framing). Message framing was more effective in high external reference price anchors. Managers should choose high or low reference prices depending upon the deviation in actual payment from the external reference price anchor. Managers should introduce radically innovative products using descriptive framing and high-price anchors.

Anchoring Effect and Influence of Knowledge on Consumers Willingness to Pay for Organic Food Online: An Online Experiment on Chinese Consumers of Organic Food

This study investigates how the anchoring effect affects peoples willingness to pay for organic food in an online purchasing environment.The aim of this study is to find out whether anchoring has an impact and how it affects peoples value perception of online organic food and, thus, their trust in and willingness to pay for organic food. Moreover, this study also aims to find out how knowledge of external reference prices of the same type of organic food provided by other online sellers moderates peoples willingness to pay when given a price anchor. This study uses an online survey to perform the experiment and uses quantitative analysis methods to validate the results. The study finds that anchoring does have an impact on peoples willingness to pay for organic food online, even when people face an exaggerated price provided by the online seller. Moreover, knowledge of external prices moderates peoples willingness to pay. People tend to adjust their willingness to pay towards the average level of external prices.

Consumer Price Perception and Reaction to Price Promotion in Online Shopping

Aims: Many observations and studies have pointed out that due to the economic downturn and fierce competition in the online market, online retailers must think about how to use effective price promotion strategies to attract consumers' attention and further stimulate their purchase intention. At present, online retailers still use the price promotion strategies used by offline retailers in formulating price promotion strategies. However, the Internet provides consumers with the benefit of being able to quickly search for price information when shopping online, resulting in a substantial reduction in the cost of searching for price information for consumers. In this case, the influence of these price promotion strategies may be weakened or even ineffective; and the provision of this benefit may also affect consumers' cognition, attitude, and behavior toward online retailers' price promotions. Therefore, this study intends to explore consumers' perception, processing, and search behavior for online price information.
 Methodology: A review of the literature of price-related articles was selected for analysis, including the level of acceptance level, type and quantity of external and internal reference prices and advertising reference prices, to understand concurrently how retailers formulated their price communication strategies to influence the perception of consumer price online and offline.
 Conclusion: This research proposes the countermeasures for on-line retailers when formulating price communication strategies, and provides the academic community with an in-depth understanding of consumers' attitudes and behavior patterns towards on-line price information.

All External Reference Prices Are Not the Same: How Magnitude, Source, and Fairness Shape Payment for Digital Goods

Music, movies, e-books, news: all industries that have been impacted by free distribution of their products. For many individuals, this wide availability of free substitutes drives users’ willingness-to-pay down. In this environment, how can platforms motivate consumers to pay for goods that they may be able to get for free? We demonstrate providing flexibility in payment through allowing users to “pay what you want,” along with providing external reference prices (ERPs) set by different sources, that is, other similar consumers or the platform itself, can influence payment. Importantly, a site-set ERP has more influence increasing payment than a socially-set ERP. An interesting nuance to this is that when the ERP is perceived to be high, the marginal effect of an increase in ERP on payment is smaller than when it is perceived to be fair; in other words, providing a fair ERP is more effective in increasing payment than providing an ERP that is too high. Altogether, platforms can leverage these findings in designing interfaces to provide information that can motivate consumers to pay for digital goods.

Consumers’ choice of private label considering reference price and moderating effect

Retailers frequently place private labels (PLs) next to the top-moving sales national brands (NBs) and utilize comparative pricing that is related to the national brands. There is thus always an external reference price between the private labels and the national brands. In this study, two categories of products were selected, and a hierarchical non-linear model used to study the impact of external reference prices on consumers’ choice of private labels. In addition, the effects of package size and average disposable income (ADI) were introduced into the analysis for the relationship between external reference price and consumers’ choice of private label. The findings show an inverted U-shaped curve between consumers’ choice of private labels and the external reference price discrepancy. Consumers in areas with high ADI are more likely to buy private labels. Package size and ADI have different direct and moderating effects on two categories of products. This study contributes to reference dependence theory and category management.

Price promotion considering the reference price effect and consumer loyalty: Competition between first-party and third-party retailers

This paper investigates price promotions by first-party and third-party retailers considering the influence of the external reference price effect and consumer loyalty. We show how they interactively shape the two retailers’ promotion decisions, along with equilibrium prices and promotional depths. We analyze a game-theoretical model and reach several interesting findings: first, only when consumer loyalty of the two retailers is more balanced and the reference price effect is sufficiently strong, will both retailers promote in equilibrium; otherwise, only one retailer promotes. Second, retailers’ profits are always harmed by promotion when both of them promote. In contrast, with only one retailer engaging in price promotion, both retailers may draw higher profits. Finally, consumer surplus is always enhanced when both retailers promote but harmed when only the first-party retailer promotes. While when only the third-party retailer promotes, consumer surplus may increase when consumer loyalty asymmetry is relatively low and the reference price effect is strong. Our research sheds light on retail competition and helps to improve price promotion efficiency.

Exploring the price anchoring effect in mobile commerce: An experimental study

AbstractThis study explores the influence of external reference price and store brand awareness on consumers' internal reference price, transaction utility, purchase intention, and search intention in mobile commerce. A 3 × 2 two‐factor experimental design for both utilitarian and hedonic products was adopted to collect the sample data. A total of 189 valid responses were analyzed using a MANOVA approach. The results indicate that for the utilitarian product context, external reference price affects consumers' internal reference price, transaction utility, and purchase intention but does not affect search intention and that store brand awareness affects consumers' internal reference price, transaction utility, purchase intention, and search intention. Further, store brand awareness has a moderating effect on the relationship between external reference price and internal reference price. For the hedonic product context, external reference price affects consumers' internal reference price and transaction utility but does not affect purchase intention or search intention, while store brand awareness affects consumers' internal reference price, transaction utility, purchase intention, and search intention. Also, store brand awareness has a moderating effect on the relationship between external reference price and search intention. These findings provide several important theoretical and practical implications for mobile commerce pricing decisions.

Comparison of US and EU Prices for Orphan Drugs in the Perspective of the Considered US Orphan Drugs Act Modifications and Discussed Price-Regulation Mechanisms Adjustments in US and European Union.

The 2019 worldwide sales of Orphan Drugs were estimated at $136 billion USD, which constituted 16% of the global pharmaceutical prescription market and is expected to grow by 12% in the next 5 years. A better understanding of Orphan Drug pricing may contribute to on-going discussions on Orphan Drug Act (ODA) corrections in US or modifications of price setting mechanisms in EU. The objective of the study was comparison and analysis of the prices of Orphan Drugs in US and EU. All drugs with Orphan Drug status were compared in the US and EU. For the US prices, the US Department of Veterans Affairs (VA) was sourced. The EU List Prices came from six EU countries: Denmark, France, Germany, Greece, Poland, Spain. We found US prices to be higher than the six selected EU countries. The average Price Ratio was 1.64. The prices across EU countries were more homogeneous, while the number of the reimbursed and therefore available to patient medicines varied and was correlated with GDP per capita r = 0.87. Considered implementation of the External Reference Price system in US may generate significant savings in the US but may result in upward pressure on pricing of Orphan Drugs in EU. Centralization of the Orphan Drugs pricing negotiations in EU may prevent such development and offer a win-win opportunity for all involved parties.

International Reference Pricing in the Context of US Drug Policy.

International reference prices (IRP), also called external reference prices, are widely used across developed nations. IRP uses the prices paid in other countries to either inform negotiations with the pharmaceutical industry or as a cap on market prices. The authors review the application of IRP to cap the prices of negotiated outcomes in the context of US proposals for changing the way prescription drug prices are established for the Medicare program. They examine the economic, political, and administrative issues associated with the use of IRP, and they summarize the evidence on the impacts of IRP.

Consumer reactions to pay‐what‐you‐want and name‐your‐own‐price mechanisms

AbstractPay‐what‐you‐want (PWYW) and name‐your‐own‐price (NYOP) participative pricing mechanisms are becoming more popular among firms. In response, researchers have examined separate outcomes for each mechanism. However, questions remain, especially regarding which mechanism is most beneficial for consumers and companies. Therefore, our main objective is to investigate the role of these participative pricing mechanisms on consumers' pricing satisfaction, pain of payment, and amount of money they intend to pay. We also explore perceived control as mediating the effect of pricing mechanism on pricing satisfaction and pain of payment. Results from two experimental studies indicate that consumers are more satisfied with the pricing mechanism and feel less pain of payment under PWYW offers rather than under NYOP offers, but they intend to pay less than they would have paid for NYOP. External reference prices (ERPs) act as a boundary condition. That is, in both PWYW and NYOP pricing conditions, when retailers use ERPs, consumers intend to pay more but they are less satisfied with pricing and feel more pain of payment. The article concludes with implications for retailers using participative pricing.

Examining the impact of external reference prices on seller price image dimensions and purchase intentions in pay what you want (PWYW)

PurposePay what you want (PWYW) is a participative pricing mechanism that permits customers complete freedom to choose prices. PWYW literature reports the influence of external reference price (ERP) on customers' price decisions and payments. The current research examines the influence of ERP presence, salience and understanding at the seller level by analysing customers' perceptions of seller price image dimensions and purchase intentions.Design/methodology/approachStudy 1 tests the impact of ERP presence and salience in controlled lab settings while Study 2 takes this investigation further by including the moderating effect of ERP understanding on seller price image dimensions and purchase intentions in online settings.FindingsResults illustrate the positive impact of ERP presence on all seller price image dimensions excluding the perceived price level. Perceived price fairness mediates the impact of ERP presence on perceived value. ERP salience positively impacts price processability. ERP presence and salience attached to it positively impact customers' purchase intentions through seller price image dimensions.Originality/valueThis is possibly the first paper to investigate the ERP effect on seller price image dimensions in a PWYW context that lacks fixed posted prices.

Exploring the role of spotlight effect in pay‐what‐you‐want (PWYW) pricing—An anchoring and adjustment perspective

AbstractThis paper investigates social influences on Pay‐What‐You‐Want (PWYW) pricing decisions by combining a socio‐psychological phenomenon, called “spotlight effect” (defined as an egocentric bias while estimating the salience of one's own behavior and external appearance), with the well‐established “anchoring and adjustment” perspective. We test our hypotheses with one field study and two lab experiments. Findings show that when making a payment in PWYW setting, customers perceive greater attention on self (vs. others) and in the presence of distant (vs. close) others, which makes them initially anchor the price they are willing to pay on their internal reference price. However, this anchoring effect is adjusted downwards (i.e., reduced) in the presence of external reference prices. Our findings would help managers understand the factors influencing customers' PWYW pricing decisions, based on their internal and external reference prices. Managers can further use this knowledge to develop more effective strategies to drive higher PWYW prices.

Trends in the pricing and reimbursement of new anticancer drugs in South Korea: an analysis of listed anticancer drugs during the past three years

ABSTRACT Objective: This study aimed to examine patient accessibility to new anticancer drugs including reimbursement coverage, time to listing, and listing price during the recent 3 years after the introduction of alternative pricing and reimbursement pathways in South Korea. Methods: Anticancer drugs were selected for analysis from the new drugs reviewed from January 2017 to March 2020. Descriptive statistics were used to present the levels of the listing prices. Pearson’s correlation analysis was used to analyze the relationship between the list price in comparison to the External Reference Price(ERP) and the time to listing. Results: Thirty-two anticancer drugs were included in analysis. The average time to listing for these drugs was 36.7 months. The ratio of the listing price in comparison with Average Adjusted Price from seven reference countries was from 12.6% to 90.2%. Pearson’s correlation coefficient for the correlation between the ratio of the listing price to the ERP and the time to listing was −0.37 and was statistically significant (p = 0.035). Conclusions: Policies that relate to the scope of reimbursement, time to reimbursement, and list price should be able to equally reflect patient accessibility and national health insurance finances, as well as the impact on industry as a whole.

The influence of external reference price strategies in a nonprofit arts organization's “pay‐what‐you‐want” setting

Nonprofit arts organizations face conflicting objectives to balance—or more specifically, to create—artistic and educational value and to generate financial income from various sources. Pay‐what‐you‐want (PWYW), a participative pricing mechanism where services have no fixed price and customers actively decide what to pay, is a novel pricing mechanism and is of high interest for organizations and researchers alike. Based on the concepts of loss aversion and gain, this study presents a field experiment to test the effects of different PWYW pricing strategies on the amount of money paid by visitors of a German photo biennial. Explicitly, the provisions of minimum, maximum, and suggested external reference prices are compared to a setting with no external reference prices. We test the derived hypotheses, discuss the results, and provide implications for future research, as well as for the management of nonprofit arts organizations.

PNS71 EXTERNAL REFERENCE PRICING IN UKRAINE: THE BEGINNING OF PRICE REGULATION OF THE ESSENTIAL MEDICINES PROCURED BY HOSPITALS

External reference pricing (ERP) is a widely accepted policy used by many countries. It is used for price negotiations and setting the ceiling prices by referencing to the price in other country or basket of countries. This study is an example of a real-life ERP implementation for the high consumption medicines included in the National Essential Medicines List (NEML) of Ukraine in 2019. A price comparison and a budget impact model were developed in MS Excel to estimate the effect of ERP introduction in hospital procurement sector. External reference prices were calculated as the median of the three lowest prices in the Ukraine basket of reference countries (Poland, Hungary, Slovakia, Czech Republic, Latvia). A factor of 0.8 was applied to a final reference price to partially adjust for the difference in the level of income per capita between Ukraine and the basket of reference countries. The prices were set per unit of specific formulation (per tablet/ampule) at the level of international nonproprietary name (INN). In Ukraine all medicines included in NEML were subject to ERP starting from July 2019 based on the Cabinet of Ministers Decree No.426 dated 03.04.2019. The ERP policy is estimated to save approximately $9.2 m USD annually, these savings originate from 24 essential medicines, which were overpriced in Ukraine in 2018. The highest proportion of savings (>60%) were originating from opioid analgesics. New ERP policy for NEML will provide cost savings and amplify use of international price regulation tools in Ukraine. An internal reference pricing should be considered as an important complementary policy, that must be rolled out together with a set of bioequivalence requirements.

Does MSRP impact women differently? Exploring gender-based differences in the effectiveness of retailer-provided reference prices

Despite the widespread use of gender-based segmentation strategies by marketers, researchers have paid little attention to examining gender-based differences in the processing of pricing information. Utilizing the selectivity hypothesis, we posit that men and women process external reference price (ERP) information differently. We report evidence from four different studies that confirm the proposed gender-based differences for ERP processing. Compared to men, women pay more attention to ERPs, expend greater effort processing ERPs, display a better recall of ERPs, and evaluate deals more favorably when deals include ERP information. Implications for managerial practice as well as future research on pricing are discussed.

A dynamic perspective on consumers’ price fairness perception: Empirical evidence from the airline industry

This paper investigates the concept of perceived price fairness and its dynamic alteration along the customer buying cycle. Today, variable pricing is widespread in many service industries. Besides the current sales price, customers are extensively exposed to varying external reference prices (for example, advertised prices). Thus, this pricing practice risks being perceived as unfair at some stage along the purchasing process, and negative consumer reactions cannot be ruled out. However, previous research has adopted a quite static approach, which only offered an incomplete picture of fairness perceptions with a specific service offer. To better capture the dynamics, this study conducted a scenario-based experiment with 459 airline customers encompassing repeated measures. The results provide evidence that the perception of distributive and procedural fairness significantly varies with the exposure to changing external reference prices along the buying cycle. Therefore, marketers should be cautious regarding price variations and advertised prices.

Towards a new price discrimination strategy

PurposeThe purpose of this paper is to explore the applicability of Pay-What-You-Want (PWYW) pricing multi-channel retailing. Specifically, the impact of PWYW endogenous price discrimination on consumers’ price fairness perception of and reactions to PWYW is investigated.Design/methodology/approachThree empirical studies with different product categories were conducted through lab experiments with student sample using scenario-based experimental approach.FindingsResults indicate the viability of PWYW with lower suggested external reference price. The impact of PWYW endogenous price discrimination is dependent upon the magnitude of price deviation from regular market price and product category. Consumers’ negative perceptions of price differentiation interacted with their underlying beliefs about the retailer’s cost of products across different channels. PWYW acceptance can be fostered in multi-channel by communication of additional-value generated in offline selling.Originality/valueThe current research is possibly the first to explore PWYW viability in the multi-channel context by exploring the consumer’s price perception process and critical consumer reactions through a well-structured research framework.

A Bitter Pill to Swallow: India’s sugar sector under siege at the WTO

Indian agriculture is fraught with policies that are presently facing the gavel at the WTO. Sugarcane related policies, in particular, are being alleged to constitute domestic support beyond the permissible limit and for this reason, have been challenged by Australia, Brazil and Guatemala. The ground reality, however, contrasts this narrative. With rising cane arrears and prevailing farm distress, the sugarcane sector faces an uphill battle on domestic and international fronts. The skewed provisions of the Agreement on Agriculture and the commitments under them have added to the grievance of this sensitive sector, along with the application of outdated and biased rules pertaining to external reference prices and aggregate measurement of support entitlements. Through this study, the authors have attempted to address this purported issue of excessive support, by utilizing the alternative provisions under the Agreement on Agriculture to notify domestic support to the sugarcane sector. In contrast to the counter-notification, the results clearly show that domestic support to sugarcane sector is within the permissible limit established by the WTO.

How consumers form product quality perceptions in absence of fixed posted prices: Interaction of product cues with seller reputation and third-party reviews

The uncertainty about product quality has increased in online settings, and consumers' often use multiple product cues to assess product quality. The authors have tested the simultaneous effects of multiple product cues in Pay-what-you-want (PWYW) online settings. PWYW lacks posted prices and allows buyers to decide the prices. This paper investigates how consumers process multiple cues of varying diagnostic nature simultaneously and form product quality perceptions. Specifically, study 1 examines the interactions among seller reputation, online product presentation, and external reference price and study 2 examines the interaction effect of third-party reviews and online product presentation and the external reference price. The results add to the theoretical domain by suggesting that consumers' online cue processing behaviour is much more complicated than previously presented in the literature.