Reference prices are standard against the chase price of a product.

The effect of reference

price. In marketing, the effect of reference pricing on consumer choice has been
acknowledged as an empirical generalization. Despite the abundance of accessible evidence
and the reference price concept's accepted theoretical and managerial value, there is no
coherent framework that has comprehensively studied its predecessors, the mechanism by
which it is formed and its use by consumers.

There are several different ways to think about reference price. A typical understanding of
reference pricing is that it is a price expectation that is affected by a consumer's prior
purchase experience and the current purchase environment. Prior experiences in which
customers are exposed to price and promotional information build a price memory, which can
be retrieved and has a variety of consequences. Several contextual factors, however, may
reduce this effect.

Reference Price Formation

Prior purchasing knowledge. Modeling-based reference price research has employed

consumer purchase history as the key predictor of IRP for FPPG (for an overview of
previously used IRP models), because panel data provides significant information on
consumers' prior purchases.

Context moderators can be purchased. Although Equation 1's reference price model has been
widely employed, it does not account for differences in buying circumstances. Thaler (1985)
shows that the differences in reference points for an identical product are due to changes in
purchase situations. The type of shopping trip consumers take for FPPG is one such purchase
environment (e.g., planned versus unplanned trip, regular versus fill-in trips).

Moderators of the store's surroundings. Because of the amount of service provided, the
assortment offered, or store kinds (e.g., factory outlet, specialty store, mass merchandiser), a
brand's IRP might vary each store (Berkowitz and Walton 1980; Biswas and Blair 1991). For
example, a bottle of wine sold in a specialised wine store may be judged more favourably
than one sold in a budget wine store for the same price.

Similarly, when purchasing products from online sellers who provide comparative price
(quality) information in order to reduce search costs, buyers may be more (less) price
sensitive, resulting in a lower (higher) IRP.
Integration of Antecedents

Perspectives from a theoretical standpoint. To investigate how consumers develop and update
IRP, researchers have used one of two theoretical views. One perspective draws on social
psychology theories (e.g., Parducci 1965; Sherif and Hovland 1964), while the other focuses
on economic theories of price expectation development (e.g., Muth 1961; Nerlove 1958). The
psychological perspective investigates how consumers incorporate external information into
their IRP using the assimilation–contrast hypothesis (Sherif and Hovland 1964). (e.g.,
Lichtenstein and Bearden 1989). According to the theory, a consumer has a price distribution
that is acceptable for a particular quality level.

Moderators for product categories. There is almost no research on how different bits of
information about durable products are integrated, except from the investigations of ARP
assimilation that merchants of durable products frequently present. We previously proposed
that differences in attribute are a key predictor of IRP for durables. As customers
progressively evaluate qualities of several models of a durable product, one crucial study
question is how consumers integrate attribute information in generating an IRP.

Retrieval and Use of IRP

Moderators of Accessibility and Diagnosticity

The availability of price in memory and the perceived appropriateness of the remembered
price versus the information accessible externally when making a pricing judgement
determine the extent to which customers use an IRP to make a purchasing choice.

Moderator of Purchase Tasks

We only discuss two purchasing tasks here: shop selection choice and consideration set
creation, despite the fact that retrieval and use of IRP is relevant in many buying settings.

4 The first task is completed outside of the store, while the second can be completed either
within or outside of the store.