Journal of Product & Brand Management

National culture and inter-tier price competition

K. Sivakumar
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K. Sivakumar , (2014),"National culture and inter-tier price competition", Journal of Product & Brand Management, Vol. 23 Iss 2 pp. 131 - 138
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 Pricing strategy & practice paper

National culture and inter-tier price

competition
K. Sivakumar
Department of Marketing, Lehigh University, Bethlehem, Pennsylvania, USA

Abstract
Purpose – This research aims to examine the role of national culture dimensions in the nature of tier competition between high-tier brands and low-
tier brands.
Design/methodology/approach – It starts with a conceptual framework based on prospect theory to explain the asymmetric inter-tier competition. It
then describes how the national culture dimensions influence the implications of prospect theory and as a result, the nature of inter-tier competition.
The paper uses Hofstede’s framework to operationalize national culture and derives a number of research propositions that explicate the role of
national culture in inter-tier price competition.
Downloaded by University of Pittsburgh At 02:21 31 January 2016 (PT)

Findings – The study finds that the extent of asymmetry favouring high-tier brands over low-tier brands depends on the national culture dimensions.
Whereas high levels of individualism, power distance, uncertainty avoidance, and masculinity increase the asymmetry favouring high-tier brands, higher
long-term orientation decreases asymmetric price competition favouring high-tier brands.
Practical implications – The findings offer important guidelines for understanding the nature of inter-tier price competition as a function of national
culture.
Originality/value – This is the first study to extend inter-tier price competition in the global setting and also the first study that links national culture
with prospect theory to examine the boundary conditions of inter-tier price competition.

Keywords National culture, Prospect theory, Inter-tier competition, Price competition

Paper type Conceptual paper

An executive summary for managers and executive
readers can be found at the end of this issue.
Introduction
This research focuses on the role of national culture on inter-
tier price competition. Thus, our research makes a
contribution by examining the intersection of three
dominant research streams in the marketing literature:
1 price competition;
2 customer response to price changes by brands in different
tiers; and
3 the role of national culture in customer behavior.
This intersection has not been explored in the existing
literature. Figure 1 depicts the positioning of our paper. We
next briefly describe the background literature and delineate
why exploring the intersection is important for theory
development and managerial practice.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
There is a rich tradition of literature in marketing that
examines various aspects of price promotional strategies and
customer response to price promotions (e.g. Guadagni and
Little, 1983; Srinivasan et al., 2002). The key conclusion from
this research stream is that price promotions do influence
choice behavior and such price response has important
implications for brand market share and profitability.
Researchers have also found that the impact of price
promotions is contingent on customer-, product-, and
context-related factors (e.g. Krishnamurthi and Raj, 1991;
Tellis, 1988). As an important sub-domain in price promotion
literature, a number of scholars have examined the nature of
price competition between brands in different tiers
(e.g. Blattberg and Wisniewski, 1989; Lemon and Nowlis,
2002). One major thrust of this research stream is the nature of
price competition between high-tier and low-tier brands and
how the effect of price competition is different for different
brand tiers (e.g. Allenby and Rossi, 1991; Hardie et al., 1993;
Sethuraman et al., 1999; Sivakumar and Raj, 1997).
A review of the extant literature reveals that there is a lack of
research focusing on inter-tier competition in the global
context. Examination of the nature of inter-tier competition in
the global setting is crucial for three reasons. First, exploration

The author greatly appreciates the guidance of the Editor and the
Journal of Product & Brand Management
23/2 (2014) 131– 138 insightful comments from the anonymous reviewers. The author is
q Emerald Group Publishing Limited [ISSN 1061-0421] grateful to Jan-Benedict Steenkamp for constructive comments on an
[DOI 10.1108/JPBM-08-2013-0374] earlier draft of the manuscript.

131
 National culture and inter-tier price competition
K. Sivakumar
Figure 1 Positioning of the proposed research
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of the boundary conditions of asymmetric inter-tier
competition, a phenomenon that has primarily been tested in
US markets and, to a lesser extent, in European markets, is
necessary to broaden the utility of research findings and
implications of inter-tier price competition; such an exploration
will also help identify cases in which this phenomenon applies
to different extents and therefore define its boundary
conditions. Second, use of constructs such as national culture
to describe the global environment enables us to conduct a
theoretically relevant and more broad-ranging examination,
rather than simply using countries as borders and conducting
empirical analysis in different countries in isolation. Marketing
and behavioral literature at the cross-national level has
identified national culture as an important variable that can
explain and predict firm and consumer behavior (Clark, 1990;
Nakata and Sivakumar, 1996, 2001; Steenkamp, 2001). Using
national culture to study inter-tier competition can provide an
important contingency perspective of inter-tier competition.
Third, although some researchers argue that the “world is flat”
(Friedman, 2007), there is general consensus in business
research that “distance still matters” (Ghemawat, 2001),
including cultural distance. Surprisingly, however, national
culture has not been examined in the context of inter-tier price
competition. This is despite the fact that the role of national
culture in shaping aspects of price response behavior has been
alluded to in the literature (e.g. Bolton et al., 2010;
Chandrasekaran et al., 2013).
The objective of this research is to fill this important gap by
examining the role of national culture on inter-tier price
competition. To do so, we begin with the concept of price
framing to understand the role of price reductions. More
specifically, we use prospect theory (Kahneman and Tversky,
1979) as a theoretical framework to explain asymmetric inter-
tier price competition. We then describe how national culture
dimensions influence the elements of prospect theory and
explain how this influence in turn helps shape the nature of
inter-tier price competition. To date, explanations for inter-tier
competition have only indicated the existence of asymmetry
but have not adequately provided a conceptual examination on
the variables that influence the extent of asymmetry, especially
in the global context. Our work provides an important
extension by exploring the boundary conditions of inter-tier
price competition in the global context.
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Journal of Product & Brand Management
Volume 23 · Number 2 · 2014 · 131 –138
Background literature
Inter-tier price competition
A number of researchers have investigated price competition
between brands. During the past 20-25 years, increasing
attention has been paid to the nature of competition between
brands in different tiers. Research has used the term “tiers” to
examine competition between national brands and private
label brands, private label brands and generic brands, private
label brands and premium private label brands, brands with
different quality/price levels, and so on.
Furthermore, a large body of research has examined
whether high-tier brands benefit more from price promotions
than low-tier brands. This research stream has offered
significant insights into the presence and nature of inter-tier
competition. More specifically, Blattberg and Wisniewski
(1989), Allenby and Rossi (1991), Hardie et al. (1993), and
Sivakumar (2007) offer different explanations for the
phenomenon of asymmetric competition and demonstrate
that the asymmetry between tiers exists in several product
categories and this asymmetry favors high-tier brands. In
addition, Lemon and Nowlis (2002) explain how to develop
synergies between promotional strategies by different brand
tiers; Sethuraman and Srinivasan (2002) examine the extent
of asymmetry and measurement issues in inter-tier
competition.
Several conceptual frameworks that explain the asymmetric
nature of inter-tier competition are present in the literature.
These include the bi-modal distribution of reservation price
differentials across customers (Blattberg and Wisniewski,
1989), rotating indifference curves and income effect (Allenby
and Rossi, 1991), loss aversion and prospect theory developed
first by Kahneman and Tversky (1979) (Hardie et al., 1993),
and price-quality tradeoffs (Sivakumar, 2007). We use
prospect theory adopted by Hardie et al. (1993) rather than
other explanations as the basic mechanism to explain the role
of national culture on inter-tier competition for three reasons.
First, cultural dimensions influence prospect theory’s basic
elements (i.e. reference dependence and loss aversion) but the
connection of national culture with elements of other
explanations (e.g. bi-modal distribution of reservation price
differential, income effect, price-quality tradeoffs) is unclear.
Second, among the four different theoretical frameworks used
 National culture and inter-tier price competition
K. Sivakumar
in the explanations for inter-tier competition, prospect theory
has been one of the most applied theories in social sciences.
Third, an economic and quantitatively oriented theory such as
prospect theory seems a more natural fit to examine price
competition among brands than other explanations that are
less quantitatively oriented.
National culture
National culture has been a ubiquitous variable included in
much global research. A review of the literature indicates
several approaches to operationalizing national culture,
although Hofstede’s (1980) national culture dimensions are
among the most widely used measures (Søndergaard, 1994).
Hence, we adopt the framework developed by Hofstede and
his colleagues.
Hofstede (1980, p. 4) defines national culture as “the
collective programming of the mind distinguishing the
members of one group or category of people from another.”
Hofstede and colleagues (Hofstede, 1983; Hofstede and
Bond, 1984, 1988) identify five distinct cultural dimensions:
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individualism, power distance, uncertainty avoidance,
masculinity, and long-term orientation. Individualism
reflects the “relationship between the individual and the
collectivity which prevails in a given society” (Hofstede, 1980,
p. 213). Power distance refers to “the extent to which less
powerful members of organizations and institutions (like
family) accept and expect the power is distributed unequally”
(Hofstede and Bond, 1988, p. 10). Uncertainty avoidance
focuses on people’s aversion in dealing with unknown aspects
(Hofstede, 1980). Masculinity refers to the assertiveness
characteristic versus the nurturance characteristic, which
denotes femininity (Hofstede, 1980). Long-term orientation
(alternatively called Confucian dynamic) focuses on a range of
Confucian-like values (Hofstede and Bond, 1988).
Development of research propositions
Prospect theory as a framework to explain inter-tier
price competition
Researchers in economics, psychology, and other fields have
devoted considerable attention to anchoring and adjustment
mechanisms in consumer choice (e.g. Carlson, 1990;
Furnham and Boo, 2011). In the more specific context of
pricing, a number of studies have shown that the way price
information is presented, termed price framing, often
significantly influences perceptions of value from an
alternative which in turn influences customer choice
behavior (e.g. Heath et al., 1995). Price framing has been
studied in a number of contexts such as customer evaluation
of price with respect to some thresholds (Emery, 1969;
Monroe, 1971), temporal aspects of price framing (Gourville,
1998), price framing in the context of product bundling
(Stremersch and Tellis, 2002; Yadav, 1994), merchandize
organization and price perceptions (Suri et al., 2012), price
framing in the context of price endings (Anderson and
Simester, 2003), and other topics. Clearly, one of the most
salient ways in which price framing has been operationalized
is using the idea of reference dependence advocated by
prospect theory (Kahneman and Tversky, 1979; Tversky and
Kahneman, 1974, 1991) and subsequent research on mental
accounting (e.g. Thaler, 1985). Winer (1986) provides an
early application of reference price concept in consumer
choice of frequently purchased products and Mazumdar et al.
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Journal of Product & Brand Management
Volume 23 · Number 2 · 2014 · 131 –138
(2005) offer a recent integrative review of reference price
research. We use prospect theory as a starting point for
conceptualizing inter-tier competition.
To understand the role of inter-tier competition based on
prospect theory (Kahneman and Tversky, 1979), we use the
intuition from the work of Hardie et al. (1993) as a starting
point (also see Sivakumar, 1996). Key aspects of prospect
theory are reference dependence and loss aversion. Reference
dependence (Kahneman and Tversky, 1979; Tversky and
Kahneman, 1991) in the context of price competition means
that the impact of a given price level is evaluated not only in
an absolute sense but in comparison with some reference
point (price frame). If the price is less (i.e. more favorable)
than the reference price, it is coded as a gain; if the price is
more (i.e. less favorable) than the reference level, it is coded
as a loss. A manifestation of reference dependence in the
context of consumer choice is the concept of transaction
utility (beyond acquisition utility). Transaction utility comes
from the idea that, beyond the acquisition utility determined
by the absolute price of the brand, the gains/losses provide
another component of utility specific to the transaction.
Loss aversion in the context of price competition means
that the magnitude of the negative effect of a higher price
relative to the reference price (i.e. loss) is more than the
magnitude of the positive effect of a lower price relative to the
reference price (i.e. gain). The gain and loss functions also
typically incorporate the traditional economic assumption of
diminishing marginal utility.
Based on the above discussion, we can conceptualize the
utility derived from a given alternative as a function of price
and other variables. The importance weight given for the
price variable is denoted v and the importance weight given
to other variables is denoted by (1-v). Regarding the role of
price itself, as discussed previously, it can be decomposed into
two components: acquisition utility and transaction utility
(the latter refers to utility specific to the transaction). These
two components have the weights of (1-t) and t respectively.
Therefore, we can represent the utility from a brand as:
U i ¼ ð1 2 vÞQi
h i
þ v ð1 2 tÞf – bP i g þ ðtÞ{ðR – P i Þu – ðP i – RÞlu }
where Qi represents the impact of all variables other than
price, Pi represents price, and R denotes reference price. In
addition, 2 bPi represents the acquisition component of the
price-based utility, þ(R 2 Pi)u represents the transaction
utility component if the reference price is higher than the
actual price (gain), and 2 (P i 2 R) lu represents the
transaction utility component if the reference price is lower
than the actual price (loss). Loss aversion is manifested by
jlj . 1. Diminishing marginal utility, a standard assumption
in economic models of choice is incorporated by u , 1 and
lu , 1. The functional forms for gain and loss components in
the utility function are patterned after existing literature (e.g.,
Sivakumar et al., 2014).
When a market consists of two brands, one high-tier brand H
and one low-tier brand L, the reference price can be assumed
to be somewhere in between these two prices (Rajendran and
Tellis, 1994; Sivakumar, 1996). We discuss more complex
aspects of reference price formation subsequently, but for now,
only this weak assumption that reference price is between the
prices of H and L is enough to illustrate the basic explanation
 National culture and inter-tier price competition
K. Sivakumar
for asymmetric competition (e.g. even if the reference price is
assumed to be a weighted average of the two prices, all our
arguments would still be valid). The following discussion is
based on Figure 2 and uses Hardie et al.’s (1993) insights into
loss aversion as a mechanism to explain inter-tier competition.
When the price of H is reduced from PH to PH-X, this
represents a loss reduction for H; when the price of L is
reduced from PL to PL-X, this represents a gain increase for
L. Comparing their effects on utility change on the y-axis, we
see that a price reduction by H has a more beneficial effect on
H (because its price reduction represents a decrease in loss)
than a price reduction by L benefits L (because its price
reduction represents an increase in gain) due to the fact that
the loss curve is steeper than the gain curve. The changes in the
non-price component of utility as well as the acquisition
component of the price-based utility do not differ between the
two brands.
The above discussion can be described mathematically as
below. We start with utility functions and compute the first
derivatives to measure the effect of price changes.
Downloaded by University of Pittsburgh At 02:21 31 January 2016 (PT)
h i
U H ¼ ð1 2 vÞQH þ v ð1 2 tÞf – bP H g þ ðtÞ{ – ðP H – RÞlu }
h i
U L ¼ ð1 2 vÞQL þ v ð1 2 tÞf – bP L g þ ðtÞ{ðR – P L Þu }
›U H =›P H ¼ – vð1 2 tÞb – vtlu=ðP H – RÞ12lu
›U L =›P L ¼ – vð1 2 tÞb – vtu=ðR – P L Þ12u
›U H , 0 when ›P H . 0ðprice increaseÞ and ›U H
. 0 when ›P H , 0ðprice decreaseÞ:
›U L , 0 when ›P L . 0ðprice increaseÞ and ›U L
. 0 when ›P L , 0ðprice decreaseÞ:
Figure 2 Prospect theory-based explanation for asymmetric inter-tier competition
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Journal of Product & Brand Management
Volume 23 · Number 2 · 2014 · 131 –138
Since l . 1 due to loss aversion, j ›UH/›PHj-j ›UL/›PL j . 0.
That is, price reduction benefits H more than it benefits
L. This is the degree of asymmetry and is denoted a in
subsequent discussions. That is:



a ¼
vtlu=ðP H – RÞ12lu j – jvtu=ðR – P L Þ12u
. 0
This result is the starting point for our conceptual
examination in which a is the base case asymmetry favoring
high-tier brand in benefiting from price reductions. Our
dependent variable is this degree of asymmetric price
competition favoring the high-tier brand.
Next, we derive research propositions that link national
culture dimensions to asymmetric inter-tier competition. The
literature considers national culture from different
perspectives (e.g. Bearden et al., 2006). For example, it can
be considered as an aggregate index that provides the
characteristics of the group – a group of people can be more
individualistic than others; alternatively, these dimensions
could also be measured at the individual level – some people
can be more individualistic than others without regard to the
grouping they belong to. Our approach is applicable for both
these conceptualizations – for the former, our theorizing can
be considered as a summation of aggregate market behavior;
for the latter, our theorizing can be considered as a depiction
of individual customer behavior. As mentioned previously, the
degree of asymmetric competition favoring the high-tier
brand is the focus of this research. Modifications in the
parameters of prospect theory will result in corresponding
changes in price-response behavior and, therefore, in the
degree of asymmetry in inter-tier competition. In examining
the role of national culture dimensions on inter-tier price
competition, we discuss how each dimension of national
culture influences price framing, aspects of prospect theory,
and the overall role of price; then we discuss how they affect
inter-tier competition (see Figure 3). A summary of the
forthcoming discussion is presented in Table I.
 National culture and inter-tier price competition Journal of Product & Brand Management
K. Sivakumar Volume 23 · Number 2 · 2014 · 131 –138

Figure 3 A conceptual model of national culture and inter-tier price competition

Table I Aspects of price framing and national culture’s role in inter-tier competition
Aspects of price framing
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National culture Importance of Degree of loss Specificity of Stability of Effect on inter-tier

dimension price aversion reference price reference price competition asymmetry
Individualism £ Increase
Power distance £ Increase
Uncertainty avoidance £ Increase
Masculinity £ Increase
Long-term orientation £ Decrease

Individualism
We acknowledge that individualism has not been explored in
the context of price framing or prospect theory. However,
some aspects of individualism provide clues toward its role in
price framing. The individualized focus (as opposed to a
collectivist perspective) and the idea of con-conformity as
manifested in individualism (Hofstede, 1980) allow us to
extend the concept of individualism to people’s evaluation of
brands and how price framing is manifested for customers
with different individualism values. For example, low levels of
individualism are linked to the relational aspects of marketing
activities rather than viewing them in an isolated manner
(Nakata and Sivakumar, 2001). In addition, in the context of
stock price movements, broader and interlinked stock price
movements (stocks considered holistically) are associated with
low individualism while isolated stock price movements
(stocks being considered in a more granular manner) are
associated with high individualism (Eun et al., 2012; Zhan,
2013). Building on these inferences, we argue that customers
with high individualism use brand-specific reference prices
(they evaluate brands more as individual entities and thus
evaluating them more independent of each other) while those
with high collectivism use common reference prices
(individual brands being compared to some collective notion
of market place characteristic and brands being viewed less
independently). How this phenomenon specifically influences
the degree of asymmetry is discussed below.
Compared with brand-specific reference prices, common
reference price (the reference price being some weighted
mean of the two prices) will increase the reference price for
the low-tier brand (compared with the preference price being
tied to the price of the low-tier brand L) and decrease the
reference price for the high-tier brand H (compared with the
reference price being tied to the price of H). The former
(increase in reference price for L) makes the gain curve flatter
(i.e. PL and PL-X move to the right) and therefore, the impact
of a price reduction by L becomes less. The latter (decease in
the reference price for H) makes the loss curve flatter (i.e. PH
and PL-X move to the left) and therefore, the impact of a
price reduction by H becomes less. Together, these scenarios
result in decrease in asymmetry favoring H (because due to
loss aversion, the reduction of the impact of H’s price
reduction due to H’s reference price change is larger than the
impact of L’s price reduction due to L’s reference price
change). From the equations derived previously, this can be
seen mathematically as well. The magnitude of ›UH/›PH for a
price reduction decreases with R (per Equation 4 presented
previously) more than the magnitude of ›UL/›PL for a price
reduction decreases with R (per Equation 5 presented
previously) due to loss aversion. Thus, overall, such effect
will result in a decrease in asymmetry favoring the high-tier
brand when common reference prices are used compared to
the scenario when brand-specific reference prices are used:
P1. The higher the individualism (collectivism), the
stronger (weaker) is the asymmetric advantage of
high-tier brands.
Power distance
High power distance in a national culture context means that
people are willing to accept differences in terms of power,
hierarchy, and relationships in societies, families, and
organizations (Hofstede, 1980; Hofstede and Bond, 1988).
Power distance is also associated with differentiation and
market segmentation (Nakata and Sivakumar, 2001). An
extension of this idea can be interpreted to mean that when

135
 National culture and inter-tier price competition
K. Sivakumar
power distance is high, people readily accept the different
price and quality levels of brands in different tiers and are
willing to accept a marketplace consisting of a wide range of
alternatives, brand performances, and price levels. In turn,
such an acceptance leads to the formation of specific brand
attributes as reference levels for framing rather than using
common attributes across all brands or of the market place as
a whole as frames. In the context of price framing and
reference prices, high power distance results in the formation
of brand-specific reference prices instead of common
references prices (that is, each brand has its own reference
price rather than a common reference price being associated
with all brands). As discussed previously, the asymmetric
price advantage favoring high-tier brand increases with brand
specific reference prices compared to a common reference
price (as seen from Equation 4 and Equation 5 discussed
previously):
P2. As the power distance increases, the asymmetric
advantage of high-tier brands increases.
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Uncertainty avoidance
Uncertainty avoidance is a cultural trait that is related to price
framing more than the previous two cultural dimensions.
High uncertainty avoidance essentially refers to the reluctance
of people to take risks, their low ability to face new and
uncertain situations, and similar characteristics (Hofstede,
1980). People with high uncertainty avoidance exhibit greater
loss aversion because loss aversion is another form of
uncertainty avoidance or risk aversion (Kahneman and
Tversky, 1979). Indeed, prospect theory was developed as
an alternative economic theory to incorporate uncertainty and
risk. Therefore, the connection between uncertainty
avoidance and price framing is more direct. As explained in
our explanation for asymmetric competition, loss aversion is
the primary mechanism underlying the explanation for
asymmetric inter-tier competition. Indeed, if there is no loss
aversion, there is no asymmetric competition according to our
conceptual framework (Hardie et al., 1993; Kahneman and
Tversky, 1979). Greater loss aversion is represented by a
larger magnitude of slope differential between the gain curve
and the loss curve in Figure 2 (or the loss aversion parameter
l being high). As described previously, this difference in slope
directly results in asymmetry favoring high-tier brand.
Mathematically, a increases as l increases (as seen in
Equation 6). Therefore, the greater the loss aversion, the
stronger is the asymmetry favoring the high-tier brand:
P3. As uncertainty avoidance increases, the asymmetric
advantage of high-tier brands increases.
Masculinity
The effect of masculinity on asymmetric price competition is
rather indirect. Because masculinity focuses on goal
orientation and also focuses more on tangible aspects such
as money compared to intangible aspects (Hofstede, 1980;
Nakata and Sivakumar, 1996), we argue that when
masculinity is high, the focus to take advantage of the price
changes will be stronger, increasing the importance of price in
decision-making (the increase in parameters v, the relative
importance of price as a variable as shown in Equation 1
discussed previously). In addition, people with high
masculinity tend to focus on rational and tangible attributes
(e.g., price) (Nakata and Sivakumar, 2001). This is because
136
Journal of Product & Brand Management
Volume 23 · Number 2 · 2014 · 131 –138
all other factors in a product market are fixed, and therefore
prices becomes more salient aspect to which people pay
attention when masculinity is high. This increased attention
to price increases the asymmetric price advantage of the high-
tier brand. If a customer does not put much importance on
price as a variable in decision making (in low masculinity or
high femininity condition), the impact of price will be weaker,
and therefore based on our explanation of inter-tier
competition, the asymmetric competition favoring the high-
tier brand will be weaker. This is because the weight given to
price-based responses is lower than that given to other
variables (as seen in Equation 1). Mathematically this
discussion means that a increases as v increases (as can be
seen from Equation 6):
P4. As masculinity (femininity) increases, the asymmetric
advantage of high-tier brands increases (decreases).
Long-term orientation
Pricing research has acknowledged that reference prices can
be static or dynamic (see Sivakumar, 1995 for a discussion of
constant and dynamic reference prices) – that is, reference
price can stay constant or change between purchase occasions
in different contexts. With long-term orientation, people take
a long-term rather than short-term perspective (Hofstede and
Bond, 1984, 1988). The long-term orientation has important
implications for price framing in general and the formation of
reference prices in particular. In the context of reference
prices, long-term orientation means that people do not
change their reference prices often but keep a fixed reference
price (e.g., being stable at a level between the regular price
and a promoted price rather than alternating between the
regular price and promoted price according to their previous
purchase experience). An equivalent conceptualization is that
customers with long-term orientation incorporate more of a
price history in arriving at the reference price and therefore
the weight on any one extreme price is likely to be lower and
thus leading to less extreme reference prices.
Short-term adjustments (relatively dynamic) to the
reference price mean that the regular price will be the
reference price for most purchase occasions, whereas long-
term adjustments (relatively stable) mean that the reference
price will be less than the regular price (a weighted mean of
regular price and the promoted price). Therefore, a long-term
perspective will decrease reference prices of both H and L
prior to a price reduction. As discussed previously, decreasing
the reference price for the high-tier brand weakens the
asymmetric advantage for the high-tier brand (as seen from
Equation 4); also decreasing the reference price for the low-
tier brand also weakens the asymmetric advantage for high-
tier brand (as seen from Equation 5). Thus, the net effect is a
reduction in asymmetric advantage of the high-tier brand
when the reference prices are more stable. Mathematically,
under long-term orientation, a decreases for a decrease in
reference price for L and decreases for a decrease in reference
price for H (as seen in equation 6).
P5. As long-term (short-term) orientation increases, the
asymmetric advantage of high-tier brands decreases
(increases).
 National culture and inter-tier price competition
K. Sivakumar
Discussion
By providing a conceptual examination of inter-tier
competition in the global context, we explore the boundary
conditions of inter-tier competition. In addition, by linking
the explanation to the elements of prospect theory, we open
up a mechanism for exploring other price-response behaviors
by customers using economic theories and cultural
dimensions. Using the notion of price framing originating
from prospect theory to formally explore inter-tier
competition and price-response behavior and using the
national culture theory to conceptualize the boundary
conditions of price framing and inter-tier price competition
presents a new theoretical approach of integrating two major
theoretical frameworks to answer an important research
question. Our approach also answers the call for more
conceptual articles in the marketing discipline.
This research offers insights for managers of international
companies who are invariably faced with the opportunities
and challenges of marketing in different cultural contexts. Our
Downloaded by University of Pittsburgh At 02:21 31 January 2016 (PT)
theory-based propositions offer first insights into culturally
nuanced development of marketing strategies for brands in
different tiers. These predictions can be empirically verified in
field settings and important boundary conditions can be
practically identified.
In addition to enhancing managers’ ability to understand
customer behavior in a cross-cultural context, our
propositions offer important clues in terms of devising
appropriate communication strategies. For example, if a
particular cultural trait is more amenable to considering
reference prices, the communication strategies for such
cultures can focus on creating suitable reference price levels
or influencing the same. Similarly, if a particular trait
(e.g. uncertainty avoidance) triggers greater loss aversion,
such inferences can be used to devise appropriate pricing
strategies, such as everyday low pricing or promotional
pricing.
A managerial extension of our research would be to
superimpose cost and profitability characteristics and analyze
the effect of inter-tier competition on firm profitability.
Although individual firm/retailer profitability must be
considered in the context of unique cost structures, our
propositions can be combined with the easily available cost
information, and broader financial implications for the firms
can be computed.
Using our framework as a starting point, future research
could explore building mathematical models to identify which
cultural combinations provide the maximum outcome in
terms of variables of interest – for example, the extent of
asymmetric competition, the extent of brand switching,
profitability, and so on. Such extensions would clearly need to
wait until research in this area is growing and more empirical
generalizations are possible.
Another area for further research is to examine how the
national culture dimensions moderate other antecedents of
inter-tier competition. For example, much brand choice
research has examined how the roles of brand loyalty, price
sensitivity, and so on, are related to inter-tier price
competition. A useful research direction would be to
examine if and how national culture dimensions interact
with these variables to further inform our understanding of
brand competition.
137
Journal of Product & Brand Management
Volume 23 · Number 2 · 2014 · 131 –138
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Corresponding author
K. Sivakumar can be contacted at: k.sivakumar@lehigh.edu