Manoj Thomas and Geeta Menon
Executive Summary
A fundamental assumption in most models of price cognition is that consumers evaluate a price by comparing it with a memory-based analog standard, often referred to as the "internal reference price." The internal reference price refers to a point on the internal judgment scale that is used as the standard to judge offer prices. By definition, all offer prices above this reference point are perceived as high, and all offer prices below this standard are perceived as low. However, in practice, several different operationalizations have been used to study internal reference prices: consumers' self-reports of fair price, estimates of normal prices charged by the retailer, and recalled magnitude of the past prices. Econometricians have operationalized internal reference price as a weighted average of the past prices. Do these self-reported and econometric measures precisely capture the internal reference price that consumers actually use to judge offer prices? When do internal reference prices differ from articulated price expectations?
In this article, the authors propose that the internal reference price used for judgments could be distinct from the articulated price expectation. The internal reference price depends not only on the magnitude of the price expectation but also on the confidence associated with this expectation. Four experiments delineate the effects of price expectation and confidence on the internal reference price. In Experiments 1 and 2, the authors manipulate repetition and examine the effects of repetition-induced confidence on internal reference prices. The following example illustrates the role of repetition-induced confidence. Consider two consumers: a frequent buyer, Anna, who purchased a product three times during different store visits at $3.50, and an infrequent buyer, Leo, who purchased the product just once at $3.50. Both Anna and Leo would expect the future price of that product to be $3.50. Although both consumers have the same price expectation, Anna somehow feels much more confident than Leo while evaluating an offer price. Would this feeling of confidence in anyway affect the internal reference prices that Anna and Leo use for judging offer prices? The authors suggest that Leo's internal reference price would be higher than that of Anna, even though their articulated price expectations are identical. In Experiments 3 and 4, the authors manipulate confidence directly to investigate its effects on judgments. The results from all four experiments suggest that consumers with less confidence have higher internal reference prices than more confident consumers, even when they do not differ in their articulated price expectations.
There seems to be an implicit associative relationship between the phenomenological experience of uncertainty and the internal representations of reference prices. Uncertainty shifts the internal reference point upward. Because repetition is known to decrease uncertainty, frequent buyers are more likely than the infrequent buyers to judge high prices unfavorably. Thus, this research adds to the growing body of literature that suggests that the processes that underlie price judgments are not always be accessible to introspection. The dissociation between articulated price expectations and the internal reference prices underscores the need to develop a research methodology for measuring internal reference prices that does not rely on consumers' self-reports.
Executive Summary
Manoj Thomas is Assistant Professor of Marketing in the S.C. Johnson Graduate School of Management at Cornell University. He holds an MBA from the Indian Institute of Management Calcutta and a PhD in Marketing from the New York University. His doctoral thesis examines the role of metacognitive influences in price cognition. His current research interests include price cognition, numerical cognition, and the role of metacognition in human judgments. He has been involved with the discipline of Marketing for over ten years now. Before joining the academia, he worked for approximately seven years in sales management and product management functions with Marico, ICI Paints, and Bestfoods (Unilever).
Geeta Menon is Professor of Marketing and Harold MacDowell Faculty Fellow in the Stern School of Business at New York University. She is also the chair of the Marketing Department. She received her PhD in Business Administration from the University of Illinois at Urbana–Champaign. Professor Menon's research interests include the study of consumer memory and information processing in the contexts of survey methodology, advertising of health information, and risk perception. She serves on the editorial review boards of Journal of Consumer Psychology, Journal of Consumer Research, Journal of Marketing Research, and Journal of Public Policy & Marketing and also serves on the policy board of Journal of Consumer Research. She was the cochair of the 2004 Association for Consumer Research conference and is currently the treasurer of Association for Consumer Research.
Journal of Marketing Research, Vol. XLIV, No. 3, August 2007
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