Interesting Results
Putting Pricing Into Context
It’s long been known that consumers base their perceptions about the price of products (too expensive, good value, etc.) on “reference prices”. The reference price serves as a standard to which the price of a newly encountered product can be compared. But where do these reference prices come from?
An article published in a recent issue of the Journal of Consumer Research sheds some light on this question. Through a series of five experiments, the authors showed that:
- Reference prices are formed based on previous experiences. This means that consumers who have mainly been exposed to high prices will have higher reference prices than those who have mainly been exposed to low prices and consequently evaluate the price given for a new product as less expensive.
- This process is automatic. In other words the consumer needn’t be consciously aware of it for it to influence judgments.
- The reference prices persist over time and may be applied to evaluations for which they are not appropriate (e.g., evaluations of other types of products or of attributes other than price).