Cognitive Mechanisms That Underlie Reference Price Effects

SESSION OVERVIEW tt is widely accepted that price evaluations involve some form of comparisons. That is, when faced with a stimulus price, the consumer evaluates that price by comparing it with some form of comparison standard. This comparison standard is often referred to "reference price." Two basic forms of comparison standards have been proposed in the pricing literature: Internal reference price (IRP) and External reference price (ERP). When consumers evaluate a stimulus price by comparing it with an internal, memory based price standard, they are said to use an internal reference price. But when the comparison standard is a price observed in the shopping environment (e.g., advertised price or the regular price), then consumers are said to use an external reference price. Though scanner panel data based choice models and experiments have established beyond doubt that price evaluation often, if not always, entail a reference price, the underlying cognitive process is far from clear. The three papers presented in this session seek to delineate the cognitive processes that underlie reference price effects.