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Koschate-Fischer-Wüllner2017 - Article - New Developments in Behavioral Pricing Research
Koschate-Fischer-Wüllner2017 - Article - New Developments in Behavioral Pricing Research
DOI 10.1007/s11573-016-0839-z
ORIGINAL PAPER
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810 N. Koschate-Fischer, K. Wüllner
1 Introduction
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New developments in behavioral pricing research 811
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812 N. Koschate-Fischer, K. Wüllner
To acquire the literature basis for this review, we systematically searched all issues
between 2005 and 2015 of the leading international marketing journals according to
VHB JOURQUAL (2015) (Journal of Marketing, Journal of Marketing Research,
Journal of Consumer Research, Marketing Science, Journal of the Academy of
Marketing Science, International Journal of Research in Marketing, Journal of
Retailing, Journal of Service Research, and Journal of Consumer Psychology) for
behavioral pricing articles. We also included the leading German journals on
business administration and marketing (Journal of Business Economics, Schmalen-
bachs Business Review, Journal für Betriebswirtschaft/Management Review Quar-
terly, and Marketing ZFP). Finally, we conducted a keyword search in the relevant
databases (EBSCO, JSTOR, Science Direct) and enhanced the literature base by
including well-crafted articles from additional journals (e.g., Psychology and
Marketing, Marketing Letters, Operations Research, Information Systems Research,
Management Information Systems Quarterly, European Journal of Operational
Research, OR Spectrum). Consistent with Homburg and Koschate’s (2005a, b)
earlier review on behavioral pricing research, we focus on articles in academic
journals (rather than books or research monographs) because these are relatively
comparable to one another from a qualitative (e.g., double-blind review process)
and quantitative (e.g., length and scope) standpoint (Eulerich et al. 2014).
The review of the literature shows that the majority of publications in the field of
behavioral pricing are published in US-based marketing journals. In the German-
speaking area, behavioral pricing research was represented in the early phases
particularly by publications by Diller (e.g., Diller 1982, 1988, 1998, 2000; Diller
and Brielmaier 1996). In the recent past, a larger number of publications on
behavioral pricing topics have emerged in the leading German journals on business
administration and marketing (e.g., Fassnacht and Mahadevan 2010; Heidenreich
and Talke 2012; Huber et al. 2011; Kim et al. 2010; Polak et al. 2010; Roth and
Bösener 2015; Rudolph et al. 2010; Steiner et al. 2014; Völckner 2006b).
With our first objective to provide a framework of the advances made in
behavioral pricing research in the past decade, we systematically analyzed the
research field in terms of key conceptual and theoretical advances and new
relationships and pricing phenomena. Table 1 presents the structural framework of
the evolution of the research field. The framework consists of two dimensions: (1)
the stages of consumers’ price information processing and their spending and
consumption behavior and (2) the classes of developments in the research field.
Regarding the stages of price information processing, we follow Homburg and
Koschate (2005a) and distinguish among price acquisition, price evaluation, and
price storage. This process of price information processing influences consumers’
spending and consumption behavior (Homburg and Koschate 2005a, b). Regarding
the second dimension, we provide an overview of major price-related concepts and
their research intensity and structure the literature, as outlined previously, in terms
of major conceptual developments, the adoption of new theories, and selected
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Table 1 Structural framework of the developments in behavioral pricing research
Major concepts Major conceptual developments Adoption of new theories Selected examples of new relationships and
(research pricing phenomena
intensity)
Perceived deal
valuec Price affect as a new concept Construal-level theory adds to the thresholds
capturing the emotional reactions to understanding of various price- Boundary conditions of the effectiveness of nine-
Price-quality price information related effects
inferencea ending prices and price framing
Extension of the cognitive concept of Appraisal theory is transferred from Cognitive processes of reference price
Price imaged price image by an emotional emotion psychology to price
a comparisons (relative and referent thinking
Price fairness dimension affect styles)
Price affectb Greater sensitivity to gains than to losses
Evaluation of price partitioning and bundling
Determinants of price-quality relationship;
placebo effect of price promotions
Determinants and quantifiable outcomes of price
fairness perceptions (impact on revenue)
Emotional impact of price information and its
behavioral outcomes
813
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Table 1 continued
814
Major concepts Major conceptual developments Adoption of new theories Selected examples of new relationships and
(research pricing phenomena
123
intensity)
Price storage Price knowledged Separate consideration of implicit and No major theoretical advances Role of customer satisfaction in price knowledge
explicit price knowledge Divergent findings on implicit and explicit price
knowledge
Spending and Willingness to pay Consideration of experience value in Construal-level theory adds to Determinants of WTP
consumption (WTP)c the concept of WTP understanding of the endowment Effectiveness of participative pricing
behavior Participative Participative pricing mechanisms: effect mechanisms
pricing PWYW, NYOP Credit card effect
mechanismsc
Denomination effect as a cognitive bias with
Budget allocationd regard to spending bills
Payment methodsd Flat-rate bias in the context of tariff choice
a
Very high research intensity (more than 40 articles)
b
High research intensity (about 25 to 40 articles)
c
Medium research intensity (about ten to 25 articles)
d
Low research intensity (less than ten articles)
N. Koschate-Fischer, K. Wüllner
New developments in behavioral pricing research 815
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816 N. Koschate-Fischer, K. Wüllner
refers to efforts to negotiate prices within their set of currently contracted suppliers
without considering other suppliers in the market. External price search encom-
passes search efforts among suppliers outside the current set of suppliers, thus
paralleling consumers’ price search between stores (Homburg et al. 2014a).
New relationships and pricing phenomena Two major topics have substantially
advanced the state of knowledge on the factors influencing price search intensity.
The first stream of empirical research pertains to the economic aspects of price
search, in particular the relationship between costs and price search intensity (e.g.,
Talukdar et al. 2010); the second topic deals with the influence of pricing tactics on
price search (e.g., Kukar-Kinney et al. 2007). Research has also quantified the
effects of an extensive price search in terms of cherry-picking on retailer profits
using panel data (e.g., Gauri et al. 2008).
Regarding the relationship between costs and price search intensity, Talukdar
et al. (2010) find an inverted U-shaped function in a between-store search context
resulting from an incentive-compatible ratio of costs to benefits. When search costs
are low, expected benefits from search are high, which leads to intensive price
search and habitual basket splitting between stores (buying both discounted and
non-discounted items in each store). Another customer segment experiences
moderate search costs and therefore actively searches for savings that significantly
outweigh the costs. These customers tend to split their baskets asymmetrically
across stores in such a way that they buy most items in the first store (both
discounted and non-discounted items) and only visit the second store to buy deeply
discounted items, thus harming the profits of the second store. A third segment may
have a low propensity to search due to high search costs. This implies that those
customers who actively search for price information across stores in order to benefit
from special offers with great savings—they might be called ‘‘bargain hunters’’ or
‘‘cherry-pickers’’—do not necessarily have the lowest search costs. The finding of
an inverted U-shaped function is supported by Maity et al. (2014) in a meta-analysis
on general information search. These findings suggest that retailers need to
reconsider their segmentation of customers in terms of search behavior and profit
contributions because it has been shown that potentially negative profits are not
contributed by the customers who have the lowest costs but by those with an equal
opportunity costs-expected benefits ratio. Thus, retailers may develop promotions to
reduce the costs–benefits ratio and thereby discourage basket splitting between
stores or at least convert their stores into the first store where profit contributions are
more balanced. For example, they could develop targeted promotions granting
greater discounts as the basket size of non-discounted items increases (Talukdar
et al. 2010). These promotions could be created either on the basis of the last
purchase by issuing a coupon for the next purchase together with the bill or in
combination with a loyalty program (e.g., Payback Card in Germany). In the latter
case, the promotions could reward for a specific purchase history.
Counterintuitively, research has also found that price search in online settings, in
which search costs are purportedly lower, is less extensive than that in offline
settings, which is assumed to be due largely to the perceptions of higher transaction
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New developments in behavioral pricing research 817
risks and lower credibility of cheap online sellers (Chu et al. 2008; Grewal and
Lindsey-Mullikin 2006). These new findings challenge the traditional assumption of
a negative linear relationship between search costs and price search intensity based
on economic utility theory (e.g., Fox and Hoch 2005; Kamakura and Moon 2009;
Ratchford et al. 2007; Zettelmeyer et al. 2006). They have implications for the
modeling of price search in future studies. Because the nature of the influence of
search costs on search intensity varies depending on the level of search costs, the
types of costs (Monga and Saini 2009), and the channel of search, these different
levels of costs should explicitly be modeled. Maity et al. (2014) also suggest that
consumer search should more appropriately be modeled with the benefits instead of
the costs of search.
Regarding pricing tactics, recent studies have investigated the effects of low-
price guarantees (LPGs) and everyday low pricing (EDLP) on price search intensity
in a more differentiated way. An LPG is a retailer’s offer to refund the difference (or
sometimes even a larger amount) if the consumer finds the product with a lower
price elsewhere in the market in a given time frame (Dutta and Biswas 2005). EDLP
is a pricing strategy that is characterized by stable low prices on a wide assortment
of products and thus is absent from temporary price discounts on some products or
categories (as is the case in Hi-Lo pricing strategy) (Fassnacht and El Husseini
2013).
Results show that these price formats are only effective in reducing the extent of
price search under certain conditions (Dutta and Biswas 2005; Kukar-Kinney et al.
2007; Yuan and Krishna 2011). For example, LPGs only reduce price search before
purchase but can increase price search after purchase because consumers try to
maximize the value of the transaction by finding lower prices elsewhere and
claiming refunds (Dutta and Biswas 2005). Another determinant of the effectiveness
of LPGs is the price dispersion—that is, the variation of prices for the same product
across different sellers (Biswas et al. 2006). In the case of high price dispersion,
consumers rely less on price signals such as LPGs and engage in more extensive
price search than in the case of low price dispersion (Biswas et al. 2006). The
theoretical rationale behind this effect is based on the economies of search and risk
theory. Consumers might expect higher financial risks when responding to an LPG
under conditions of high market price variations because they might miss a possible
bargain by not searching for lower prices (Biswas et al. 2006). This negative
influence of price dispersion can partly be overcome and the effectiveness of the
price signal restored by the design of the LPG—for example, by increasing the
refund level (Biswas et al. 2006; Kukar-Kinney et al. 2007). Finally, under
conditions of low search costs, EDLP seems more effective than LPGs (Ho et al.
2011). These new findings substantially refine the previously assumed (somewhat
general) notion that exposure to LPGs reduces consumers’ search intentions (e.g.,
Srivastava and Lurie 2001). This new insight on the relationship between LPGs and
price search intensity is highly important for sellers because it underscores that they
need to be aware that offering LPGs can turn out to be quite costly when buyers
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818 N. Koschate-Fischer, K. Wüllner
Price search
Homburg Price importance Internal A high degree of price importance increases
et al. Customer satisfaction price external price search (i.e., prices of
(2014a) search suppliers that currently are not under
External contract) but not internal price search
price among current suppliers (due to existing
search buyer–seller relationships)
The effect on external price search is
attenuated when satisfaction with current
suppliers is high
Kukar- Level of price Extent of Regardless of the price-matching
Kinney consciousness (high/ price characteristics, highly price-conscious
et al. low) search consumers show higher efforts in price
(2007) Price-matching search than others
characteristics (refund
depth/length/scope)
Monga and Currency of search costs Willingness The ‘‘currency’’ of search costs (i.e., time vs.
Saini (time/money) to search money) moderates the relationship between
(2009) Magnitude of search costs magnitude of search costs and willingness
(high/low) to search, such that consumers are less
sensitive to changes in search costs when
they spend time rather than money
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New developments in behavioral pricing research 819
The term ‘‘price threshold’’ designates a price point at which the consumer’s price
response changes disproportionally (Monroe 1990). Here, we can distinguish
absolute from relative price thresholds (e.g., Diller 2008). Absolute price thresholds
delimit the area of price acceptance (Ofir 2004). Usually, when the upper price
threshold is overrun or the lower price threshold is undercut, purchase intention
drops toward zero (Diller 2008; Monroe 1990). Within the area of price acceptance,
relative thresholds may exist (e.g., between odd and even prices) in which price
evaluation strongly differs and sales jumps occur (Diller and Brielmaier 1996;
Gedenk and Sattler 1999).
New relationships and pricing phenomena With regard to absolute price
thresholds, it is commonly accepted that the demand for products with a strong
price-quality relationship tends to drop dramatically when a certain price level is
undercut because of doubts about quality (e.g., Monroe 1990). However, researchers
have also shown that this effect does not occur for products with weak price-quality
relationships, such as fast-moving consumer goods (e.g., Ofir 2004; van Heerde
et al. 2001). Moreover, these findings emerge for both percentage deals (van Heerde
et al. 2001) and absolute prices (Brezger and Steiner 2008; Lang et al. 2015). The
findings of the latter articles are valuable for behavioral pricing research because the
authors use non-parametric techniques to model price or price deal response, which
have the advantage (among others) of being based on fewer assumptions—for
example, they do not implicitly assume a monotonic relationship between price and
behavioral outcomes as commonly applied parametric techniques do. As a result, a
lower price threshold for products with a weak price-quality relationship likely
would have been identified if one existed.
A recent neuroscientific study adds to the understanding of the non-existence of
lower absolute price thresholds. This implies that there is not an inverted U-shaped
function between price level and price acceptability, as behavioral pricing usually
promotes, but rather a function monotonically decreasing from left to right; that is,
the lower the price, the more acceptable the price is (Ofir 2004). In an effort to
explain why the existence of lower price thresholds was not demonstrated in a prior
study (Ofir 2004), Linzmajer et al. (2011) applied functional magnetic resonance
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820 N. Koschate-Fischer, K. Wüllner
imaging (fMRI) to track neural activity during the evaluation of different price
levels. Their results show that a higher activity in some brain regions can explain
that lower prices are always more rewarding than higher prices. Thus, the results of
this fMRI-based study provide valuable new insights into the neural processes of
judging low prices. Yet only products with weak price-quality relationships for
which a low price is not necessarily associated with low quality have been
investigated so far. Linzmajer et al. (2011) admit that the monotonically decreasing
price acceptance function might not hold for higher-priced products for which the
price-quality relationship is stronger (e.g., Völckner and Hofmann 2007). The
contributions of Steiner et al. (2007) and Weber and Steiner (2012) provide
additional evidence (despite different model specifications) for the lack of a lower
price threshold for most brands in a frequently purchased consumer goods context.
With regard to relative price thresholds, empirical results mostly reflect
determinants of the effectiveness of ‘‘just below prices’’—that is, nine-ending
prices that are one cent below a round price (Thomas and Morwitz 2009a). Overall,
research confirms positive effects of nine-ending prices on perceived price
expensiveness and sales due to the learned heuristic that these price endings are
associated with a low price level (‘‘price-image effect’’; e.g., Carver and Padgett
2012; Choi et al. 2014; Macé 2012; Schindler 2006; Thomas and Morwitz 2005).
These heuristic processes are in line with the ease-of-computation effect, which
posits that consumers are eager to simplify complex numeric judgments, for
example, by ignoring the right-most digits (right-digit-drop-off mechanism;
Manning and Sprott 2009; Thomas and Morwitz 2005, 2009b). Still, the right-
digit-drop-off mechanism is considered the dominating explanatory effect for
underestimation of prices at relative price thresholds.
Regarding the boundary conditions of the effectiveness of nine-ending prices,
research has found that nine-ending prices are only effective when the left digit
changes (e.g., from $2.99 to $3.00; Thomas and Morwitz 2005). In the same vein,
consumers tend to perceive price differences between products as higher when the
left digit differs. For example, consumers perceive the price difference between
$1.99 and $3.00 as significantly higher than that between $2.00 and $2.99, leading
to a higher choice share of the cheaper alternative (Manning and Sprott 2009).
Moreover, the heuristic processing is more pronounced for less familiar products or
product categories (Carver and Padgett 2012; Macé 2012). The intended use of the
product (e.g., a gift for a friend) can also limit the effectiveness of nine-ending
prices (Manning and Sprott 2009). Furthermore, many consumers exhibit a general
preference for round prices (Baumgartner and Steiner 2007; Lynn et al. 2013),
which makes them more susceptible to simplifying processes and the underestima-
tion of odd prices (see Table 3 for additional findings).
Another new effect is presented by Thomas et al. (2010) who investigate the
evaluation of precise prices (a precise price has fewer ending zeroes than a round price)
(Thomas et al. 2010). Thomas et al. (2010) show in five laboratory and field
experiments that people who were presented with precise prices (e.g., $395,425)
judged the price magnitude to be lower than people who were presented with round
prices of a similar magnitude (e.g., $395,000). Although the price precision effect does
not explicitly refer to nine-ending prices, it can also be considered in terms of relative
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Table 3 Additional findings on price evaluation
Authors Key independent variables Key dependent variables Key findings
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Table 3 continued
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Popescu and Wu (2007) Past prices Internal reference price Consumers steadily consider current and past prices,
Current prices Price perception which results in the formation of an internal reference
price
Loss aversion (high/low) Purchase decision
The reference price acts as an anchor for comparing
current prices, which influences price perception and
purchase decision
In case of loss averse consumers, constant prices are
advantageous
In other respects, the optimal price alternates
Perceived deal value and savings
Barone et al. (2015) Presentation of price Perceived deal value Vertical presentation of regular and sale prices
information (horizontal/ Purchase intention facilitates calculation of savings, is processed more
vertical) fluently, and thus leads to a higher perceived deal
Handedness in manual tasks value and higher purchase intention when deal depth
(consistent/inconsistent) is high
Deal depth (high/low) This effect is moderated by consumers’ handedness in
manual tasks: When consumers are inconsistent-
handed in performing manual tasks, the presentation
of price information does not significantly influence
their purchase intentions
Biswas et al. (2013) Display location of smaller Perceived deal value When the smaller number of a discount is presented to
number (right/left) Purchase intention the right (vs. left), it is easier to set up the subtraction
Discount size (moderate/low) task
Thus, it is easier to determine the discount depth, which
increases deal value perceptions and purchase
intention for higher discounts
N. Koschate-Fischer, K. Wüllner
Table 3 continued
Cai et al. (2012) Location of product Numerical estimates of The location of product presentation has an effect on the
presentation (right/left) product attributes (e.g., numerical estimates of product attributes, such as
price) price
Estimations of prices are higher (lower) when a product
is presented on the right (left). This effect is driven by
learned number-location and number-order
associations
Choi and Coulter (2012) Price difference (relative/ Perceived deal value Using a regular (competitor’s) price as reference and
absolute) setting comparative prices horizontally (vertically)
Presentation of price promote absolute (relative) discount assessments
information (horizontal/
vertical)
Reference Price (competitor/
New developments in behavioral pricing research
regular)
Coulter and Norberg (2009) Local separation of Price discount perceptions Greater horizontal separation of prices results in greater
comparative prices (high/ Perceived deal value price-discount perceptions, while no such effect
low) occurs when prices are displayed vertically
Purchase likelihood
Presentation of price Perceptions of a higher price discount are related to a
information (horizontal/ higher perceived deal value and an increase in
vertical) purchase likelihood
Coulter and Roggeveen (2014) Pieces of numerical Deal processing fluency When the pieces of numerical information in a deal
information (approximation Perceived deal value offer (e.g., regular/sale price, absolute/relative
sequence/number multiple/ discount) constitute an approximation sequence or are
best economic value) Purchase intention multiples of one another, deals are processed more
Motivation (high/low) fluently, which increases perceived deal value and
purchase intention
Uninvolved or unmotivated consumers may base their
choice on how fluently deals can be processed rather
than considering the economic value of the deal
(heuristic processes)
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Table 3 continued
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DelVecchio et al. (2009) Discount framing (cents-off/ Value of price estimates The location of a discount interacts with discount
percentage-off/revised Perceived deal value framing as cents or percent.
price) Discount location can either be proximal (discount next
Discount location (proximal/ to regular price on the price tag) or distal (physically
distal) separated from the regular price, e.g., through a
coupon)
Smaller spatial distance between the regular price and
the discount information (e.g., on the price tag)
facilitates calculation of the true price difference and
may induce lower price estimates and a higher
perceived deal value when deal depth is high
Howard and Kerin (2006) Price advertisement (no deal/ Price perception When consumers are shopping for a product, a limited-
limited-time availability/ Perceived deal value time availability semantic cue paired with an external
reference price/reference reference price (e.g., the base price) leads to more
price ? limited-time cue) Purchase intention favorable price perceptions and perceived deal value,
Percentage off framing (yes/ which results in higher purchase intentions
no) When consumers are browsing (i.e., exhibit low
Sale announcement (yes/no) involvement), the limited-time cue itself enhances
their deal evaluations compared with an offer with a
Involvement (high/low) reference price. In addition to the limited-time cue, a
sale announcement independently contributes to
favorable price perceptions and shopping intentions
Price-quality inference
Cai et al. (2009) Price level (high/regular) Perceived quality Consumers are more likely to interpret a high price as a
Mood (positive/negative) Purchase intention quality cue when they are in a negative (vs. positive)
mood (mood regulation)
Thus, when products are priced above average,
consumers in a negative mood have higher purchase
intentions than consumers in a positive mood, while
the opposite is true when prices are moderate
N. Koschate-Fischer, K. Wüllner
Table 3 continued
Cho (2014) Home page presentation (one Price perception Internet retailers with multiple vertical menu bars in
vertical menu bar/multiple Order-fulfillment quality their home pages achieve significantly higher
vertical menu bars) perception customer price perception (satisfaction with prices)
Order-procurement quality Price perception and service quality perception
perception influence each other in the multiple stages of Internet
retail service interaction
Cronley et al. (2005) Need for cognitive closure Perceived quality Price-quality inferences are more pronounced when
(high/low) consumers have a high (vs. low) need for cognitive
Amount of information (high/ closure (i.e., desire to reach a judgment or decision
low) quickly), when the information load is high (vs. low),
and when the information is rank ordered on the basis
Information presentation of quality rather than presented randomly
(rank ordered by quality/
random)
New developments in behavioral pricing research
Martı́n-Herrán et al. (2012) Behavior of the retailer Perceived quality A myopic retailer that ignores the possibility that its
(myopic/farsighted) Profit pricing strategy influences consumers’ quality
perception of the product and their internal reference
price generates lower profits for itself and the
manufacturer (channel perspective)
Suri et al. (2007) Product scarcity (high/low) Perceived quality Under conditions of high product scarcity and a high
Relative price level (high/ Perceived value price level, the informational role of price (i.e., the
low) price-quality relationship) exerts a greater influence
Perceived sacrifice on product value and perceived quality than the
Consumers’ motivation to allocative role (i.e., the price interpreted as a
process information (high/ monetary sacrifice)
low)
Suri et al. (2012) Sorting of alternatives (brand/ Perceived quality In a higher price setting, the perception of product
price) Perceived value quality and value is increased by sorting the
Motivation to process assortment by brand names rather than prices.
information (high/low) Consumers’ motivation to process information
moderates this effect
Relative price level (high/
low)
825
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Table 3 continued
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Völckner (2008) Consumer characteristics Price-quality beliefs A general simulation procedure to quantify the impact
(e.g., quality consciousness, Product evaluations of the dual role of price (i.e., price as monetary
price consciousness, deal sacrifice vs. informational cue) on choice shares for
proneness) Consumers’ price response product alternatives is presented
Choice shares of product One factor influencing the reliance on price as an
alternatives informational cue is consumers’ price consciousness
Yan et al. (2014) Package size (large/small) Product quality When judging the product quality of different package
Unit price ($1/oz./$0.5/oz.) sizes, smaller packages are evaluated more favorable
because a higher unit price is assumed. Thus, unit
price information is more diagnostic than the absolute
price when forming judgments of quality
Price fairness
Cakır and Balagtas (2014) Price Price fairness Consumers are more sensitive to price increases than to
Package size Consumers’ purchases content reduction
Hardesty et al. (2007) Level of pricing tactic Price fairness Pricing tactic persuasion knowledge captures what
persuasion knowledge Purchase interest consumers know about how and why marketers use
(high/low) pricing tactics
Pricing tactics that appear complex (e.g., quantity
surcharge, tensile claim offers) can lead to the
impression of a firm’s manipulative intent and to
unfairness perceptions, which results in reduced
purchase interest
Kachersky (2011) Level of pricing tactic Price fairness Total price increases enhance perceived price unfairness
persuasion knowledge Attitude toward product and less favorable attitudes toward retailers, when
(high/low) brand pricing tactic persuasion knowledge is relatively low,
Profit margin increase while content reductions support less favorable
Attitude toward retailer attitude toward product brands when pricing tactic
(content reduction/total
price increase) persuasion knowledge is high
N. Koschate-Fischer, K. Wüllner
Table 3 continued
Linzmajer et al. (2015) Glucose intake (yes/no) Price fairness Glucose is a biological driver of price fairness
perceptions, such that consumers perceived price
fairness as greater after they consume glucose
Pillai and Kumar (2012) Coupon proneness Accuracy of pricing tactics Calibration of PTPK refers to the accordance of
Value consciousness persuasion knowledge accuracy of PTPK and the consumer’s confidence in
(PTPK) this knowledge
Education
Confidence in PTPK Coupon proneness is negatively correlated with
Calibration of PTPK accuracy, confidence, and calibration of PTPK, while
value consciousness and education are positively
correlated with them
Ratchford (2014) Marketing channel actors Price fairness Price fairness perceptions differ across marketing
(retailer/manufacturer) channel actors (retailer vs. manufacturer)
Market condition (demand When a price increase is due to demand increase or
New developments in behavioral pricing research
increase/supply decrease/ when no specific reason is given for the price increase,
channel cost the retailer is considered more unfair than the
increase/control) manufacturer
In case of a manufacturer (retailer) cost increase, both
actors are considered equally fair (retailer is
considered more unfair)
Price affect
Coulter and Grewal (2014) Price contains consumer’s Price liking ‘‘Implicit egotism effect’’: Price liking and purchase
birthday-numbers (yes/no) Purchase intention intentions can be enhanced when the price contains
Price contains consumer’s numbers that are meaningful to the consumer (e.g.,
name-letters (yes/no) birthday numbers represented in cents digits) or shares
name letters (e.g., ‘‘fifty-five dollars’’ is liked more
when the consumer’s name begins with an ‘‘F’’)
This is due to implicit processes: As personal names and
dates define a person’s self-concept, they are assumed
to carry positive affect, which is transferred to the
assessment of the price
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Table 3 continued
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de Pechpeyrou (2013) Price condition (regular/50%- Price affect A comparison of the emotional impact of monetary
discount/physical bundle/ Perceived unit price discounts with bonus packs and EDLP strategy shows
virtual bundle) that monetary discounts elicited stronger positive
Level of consumption emotions than the other tactics, especially when bonus
packs were conditioned on a minimum purchase
requirement (e.g., buy two, get one free)
Peine et al. (2012) Monthly installments Price affect Decreasing monthly installments induce more positive
(descending/constant/ Price evaluation emotions and are assessed more favorably than
ascending) constant or ascending sequences
Suwelack et al. (2011) Money-back guarantee Price affect MBGs increase liking for the offer and elicit a positive
(MBG) duration Anticipates regret emotional response, which results in higher purchase
MBG return conditions intentions and a higher WTP. Consumers’ anticipated
Perceived risk regret and perceived risk mediate this effect
Type of product (search Purchase intention
good/experience good)
WTP
Zielke (2009) Perceived store price level Price affect Price-conscious consumers experience stronger
Price consciousness enjoyment, distress, and anger with regard to
differences in price level than less price-conscious
consumers
No moderating but a direct effect of price consciousness
is found on fear and interest
N. Koschate-Fischer, K. Wüllner
New developments in behavioral pricing research 829
price thresholds because the consumer’s price evaluation changes strongly between
round and precise prices. The price precision effect is based on the assumption that
precise prices are more difficult to process than round prices and thus might evoke a
feeling of uncertainty in the consumer. To cope with the uncertainty, consumers use a
shortcut to evaluate the price by referring to the learned heuristic that exact numbers
are used more often for smaller magnitudes while large magnitudes are frequently
rounded up to hundreds or thousands (Thomas et al. 2010). Relating this heuristic to
the prices presented in the experiment, consumers would unconsciously assume that
the precise price of $395,425 is lower than it actually is just because it is stated in exact
numbers. Conversely, the price of $395,000 is assumed to be rounded and, thus, of
higher magnitude (Thomas et al. 2010). Hence, the effect is in line with the price-
image effect (e.g., Stiving and Winer 1997). Furthermore, processing difficulty and the
need to increase the ease of computation (Thomas and Morwitz 2009b) might also
contribute to the underestimation of the precise price (for further information on
numeric processing see for example: Alter et al. 2007; Coulter and Coulter 2007; King
and Janiszewski 2011).
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830 N. Koschate-Fischer, K. Wüllner
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New developments in behavioral pricing research 831
relation to the base price. Specifically, when a discount of $10 is offered on a price
of $20, the offer is deemed more attractive than a discount of $10 on $60 because
the relative price advantage compared with the base price is higher. However,
consumers are in a referent thinking mindset when they both relate a discounted
price to the base price and compare the base price with an internal reference price
(Saini et al. 2010). Assuming a corresponding internal reference price of $40, the
discount of $10 on $20—according to prospect theory—increases a consumer’s
gain, while the discount of $10 on $60 reduces a consumer’s loss. In line with
prospect theory, the reduction of a loss contributes more value to the consumer than
an increase in a gain. Thus, if a consumer adopts a referent thinking style, he or she
perceives a discount on $60 as more attractive (Saini et al. 2010). As this example
illustrates, knowing which style of thinking consumers employ is of managerial
relevance because judgments of price attractiveness may differ. Relative thinking
dominates when the selling price is perceived to be the same as the reference price
(which is also the case when the selling price slightly deviates from the reference
price but is assimilated by the consumer; Saini et al. 2010) because the comparison
with the reference price does not provide useful information for judging the
attractiveness of the price. Referent thinking dominates in cases of moderate
deviations from a reference price because the slope of the value curve strongly
influences the price attractiveness judgment (Nicolau 2012; Saini et al. 2010). In the
case of extreme deviations from the reference price, however, the difference
between the base and reference prices is too large to be relevant for price evaluation
(Nicolau 2012; Saini et al. 2010).
Furthermore, Monga and Zhu (2005) pay particular attention to the price-related
mindset of sellers as compared to buyers by investigating how they differ in their
perceptions of gains and losses. From a buyer’s perspective, the money paid for an
item constitutes a loss while paying less than a reference point constitutes a gain
(e.g., due to a discount). By contrast, from a seller’s perspective, the money received
for the offered item constitutes a gain and any kind of reductions to this amount
constitutes a loss. When the possibility of a gain or loss has been raised but the gain
or loss does not realize, it is called a non-gain or a non-loss, respectively. Consider
the following example from Monga and Zhu (2005) to further illustrate this case: A
buyer in a bookstore can choose between two payment options, either $60 in cash or
$65 by credit card. Depending on how the outcome is framed, the buyer may
consider the price difference of $5 a discount for cash payment or a penalty for
credit card payment. Thus, he may view paying $60 in cash as getting a discount of
$5 (gain) but paying by credit card as a non-gain. By contrast, in the case of a loss
frame, he may view paying $65 by credit card as a loss of $5 while paying by cash
as avoiding a loss of $5 (non-loss). Now assume that a seller of a used book receives
$60 for the first edition and $65 for the second edition. This can be framed either as
a bonus of $5 for the second edition or as a loss of $5 for the first edition. The seller
may perceive it as getting a bonus (gain) or not realizing a loss (non-loss) if he
possesses the second edition or, if he has the first edition, as not getting a bonus
(non-gain) or as realizing a loss compared with the second edition. Relying on this
mindset, Monga and Zhu investigate whether framing equivalent positive or
negative outcomes as gains or losses evokes the same reactions in buyers and
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sellers. Following Thaler (1980), they posit that buyers are prevention focused—
that is, they focus on avoiding losses—and feel better about the $5 when the amount
is framed as a non-loss (e.g., avoiding a penalty for credit card payment) than as a
gain (e.g., receiving a discount for cash payment). Conversely, sellers attach more
value to the money they receive and thus are promotion focused—that is, they focus
on acquiring gains—and feel better about gains (e.g., receiving a bonus for a later
edition) than about non-losses (e.g., avoiding a loss for an earlier edition). This
implies that buyers are more sensitive to loss-related frames in price evaluations
while sellers are more sensitive to gain-related frames.
Regarding the retrieval of reference prices for judgments, research has assessed
the influence of consumers’ involvement and price sensitivity on the relative
weights of internal and external reference prices (Krishnan et al. 2013; Mazumdar
et al. 2005; Moon et al. 2006; Murthi and Rao 2012). For example, price-sensitive
consumers tend to observe the price environment extensively and rely more on
external reference prices (Moon et al. 2006).
A topic closely related to price sensitivity is the sensitivity to gains and losses
according to prospect theory. While traditional models based on prospect theory
assume that even small deviations from a reference price induce sales effects
(Kahneman and Tversky 1979), another theoretical account based on range theory
proposes a zone of indifference, with price thresholds at the upper and lower end of
this zone. Boztuğ et al. (2014) show that both theoretical assumptions may hold true
depending on consumer segments. That is, loyal consumers exhibit an indifference
zone that is asymmetric (i.e., they react more strongly to price increases than to
price decreases). This finding implies that small promotions will have a negligible
effect. By contrast, non-loyal consumers do not show price thresholds and react
even to small promotions. Further empirical evidence suggests that the commonly
assumed asymmetry of loss aversion does not hold true unconditionally (Casado and
Ferrer 2013; Kopalle et al. 2012; Pauwels et al. 2007). Casado and Ferrer (2013)
show that consumers react more strongly to gains acquired through discounts than to
losses from price increases. A possible explanation is that loss aversion depends on
the use of internal versus external reference prices, in that consumers using internal
reference prices show less loss aversion than those using external reference prices
(van Oest 2013). A recent meta-analysis, however, reveals ambiguity in the
direction of the moderating effect (Neumann and Böckenholt 2014).
Whether consumers rely more on internal or external reference prices also
depends on their self-construal, or the degree to which they view themselves as
separate from (independent self-construal) or connected with (interdependent self-
construal) others (Chen 2009). Internal reference prices have a greater impact on
price evaluations when consumers perceive themselves as independent of others,
whereas external reference prices dominate price evaluations in the case of
interdependent self-construal. This finding is due to independent consumers’
adoption of a context-independent cognitive style, in which they consider the
internal reference price for a product more diagnostic than contextual external
prices. Conversely, interdependent consumers pay more attention to contextual
price information (Chen 2009). Table 3 outlines additional findings.
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New developments in behavioral pricing research 833
In the following subsections, we focus on the impact of price promotions and other
pricing tactics on perceived deal value or savings. The restriction to price decreases is
largely due to studies’ examination of the impact of price increases mostly in terms of
other outcome variables, such as price fairness (e.g., Campbell 2007) or customer
loyalty (e.g., Dawes 2009). In line with Chandon et al. (2000), we consider both
monetary price promotions (i.e., price discounts, coupons, and bonus packs) and non-
monetary price promotions (i.e., free promotions). An interesting psychological
phenomenon described in the context of free promotions is the zero-price effect which
explains consumers’ reactions to free products (Shampanier et al. 2007).
Adoption of new theories A new theoretic concept, the base value neglect, is
proposed to explain differences in the assessment of the value of economically
equivalent price promotion types (price discounts and bonus packs). Compared with
price discounts, bonus packs represent an implicit price decrease because they offer
more quantity of the identical product for the same price (e.g., ‘‘?20%,’’ ‘‘buy two,
get one free’’) (Chen et al. 2012; Klapper and Oetzel 2011; Mishra and Mishra 2011).
The central idea of the base value neglect is similar to the numerosity heuristic (e.g.,
Pelham et al. 1994): It posits that consumers focus solely on the absolute size of the
percentage without relating it to the base price. Doing so may lead to the conclusion
that a 50% quantity increase is more advantageous than an equivalent 35% price
decrease, because 50 is larger than 35. So far, the preference for bonus packs has been
explained by the elicitation of positive affective reactions due to getting something for
free. Therefore, the evaluation is separated from the price as a loss component, which
leads to more favorable evaluations than monetary discounts (e.g., Mishra and Mishra
2011). However, this argumentation does not explain the mixed empirical evidence on
the relative preferences for bonus packs over price discounts. Thus, base value neglect
seems to be a fruitful theoretical development.
New relationships and pricing phenomena Research has particularly generated
new empirical findings on the effectiveness of price promotions subject to specific
framing options (e.g., Darke and Chung 2005; DelVecchio et al. 2007). Another
important aspect is the relative effectiveness of different types of price promotions
(e.g., Chen et al. 2012). Finally, research has investigated the impact of prevalent
pricing tactics, such as price partitioning and price bundling, on value perceptions
(e.g., Hamilton and Srivastava 2008; Harris and Blair 2006).
Regarding the effectiveness of various framing options, Rudolph et al. (2010)
present a comprehensive literature review from which they conclude that the use of
advertised selling prices enhances deal evaluation. The magnitude of this effect can
be influenced through semantic and numerical framing options. Semantic framing
options include the store frame (within-store vs. between-store comparison), the
type of advertised selling price (e.g., the regular price, a competitor’s price, the
manufacturer’s suggested retail price), and the degree of concreteness (e.g.,
‘‘Somewhere else for $29.99’’ vs. ‘‘At competitor XY for $29.99’’). For example,
Grewal et al. (2014) show that within-store frames are more effective than between-
store frames when consumers are shopping for utilitarian products, are shopping
alone, or possess low processing motivation. An innovative form of price
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834 N. Koschate-Fischer, K. Wüllner
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New developments in behavioral pricing research 835
In this sense, red induces more positive affective states than other colors (e.g.,
green, yellow), which in turn positively influence evaluations. As with most
heuristics, the heuristic of red color appears strongest in low-involvement situations
(Puccinelli et al. 2013). Regarding the moderating effect of gender, psychological
research has documented in several settings that men are more susceptible to the
heuristics of red (e.g., Elliot and Niesta 2008).
A temporal price reduction can also be offered to customers through the emission
of coupons (Kumar and Rajan 2012; Musalem et al. 2008; Venkatesan and Farris
2012). Consistent with findings on the positive impact of discount size on price
evaluation, coupon value is the most important driver of coupon redemption,
correlating positively with price attractiveness and perceived deal value (Chiou-Wei
and Inman 2008; Kumar and Swaminathan 2005; Luo et al. 2014). However, feelings
of shame or cheapness arising from social comparison processes and the temporal
distance between receiving and redeeming the coupon may reduce redemption rates
(e.g., Argo and Main 2008; Ashworth et al. 2005; Lu and Moorthy 2007).
An analysis of the relative effectiveness of price discounts and bonus packs in
terms of value perception reveals that consumers perceive a lower deal value for
bonus packs (Chen et al. 2012). Nevertheless, consumers show inconsistent
preferences for bonus packs and discounts depending on the setting (e.g., Chen et al.
2012; Mishra and Mishra 2011). For example, consumers prefer bonus packs to a
price discount for frequently purchased and virtue products (Li et al. 2007; Mishra
and Mishra 2011). In addition to product type, information processing of the size of
the percentage change, in line with the theory of base value neglect, further explains
why consumers are biased toward bonus packs in some cases, even though they
would receive the same value with the equivalent price discounts (Chen et al. 2012).
Similar to bonus packs, the intention of free promotions is to generate added
value for the customer by giving a product or service for free (e.g., a free lipstick
with the purchase of cosmetics), a strategy also known as ‘‘premium promotions’’
(d’Astous and Jacob 2002). Thus, free promotions differ from bonus packs in that
the gift is a different product (Chandran and Morwitz 2006). Research has found
ambiguous effects of free promotions. On the one hand, perceived deal value is
typically lower than that of price discounts. On the other hand, perceived acquisition
value can be higher because the free gift triggers an affective reaction that
emphasizes the value component and detracts attention from the price component
(Chandran and Morwitz 2006; Darke and Chung 2005; Shampanier et al. 2007). The
latter psychological mechanism is closely linked to research on the zero-price effect
(Shampanier et al. 2007; Nicolau 2012). The zero-price effect implies an
overreaction to free products, which means that consumers preferably choose a
product offered for free over a priced alternative although the priced alternative
actually is considered more attractive in terms of quality. According to Shampanier
et al. (2007), affective processes are most likely to account for this effect. That is, a
product with no cost (zero-price) triggers higher positive emotions, thereby
implicitly adding extra value to the product. This affect is used to guide purchase
decisions. However, there may be situations in which other causes come into play
and thus lead to the zero-price effect, such as social norms, because the absence of a
price in an exchange tends to emphasize social norms, which may increase the
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valuation of the free product (Shampanier et al. 2007). Understanding the causes of
the zero-price effect is also important for current business models in the online
world, where many companies count on free usage of services or products. In this
context, social norms may even be more important than the affect caused by a zero
price. Nicolau (2012) confirms the zero-price effect in two-component offers where
the positive affect generated by the free component spills over to the whole bundle
resulting in a more positive evaluation of the bundle. However, inferences about the
quality of the gift can occur, in terms of why the gift is being given away for free.
These inferences can spill over to the base product or the product category (Kamins
et al. 2009; Palmeira and Srivastava 2013).
In addition to price reductions, firms commonly use price partitioning (i.e.,
dividing the total price into two or more mandatory components; Hamilton and
Srivastava 2008) and price bundling (i.e., combining two or more products into a
single offering with a total price; Harris and Blair 2006) to enhance price evaluation.
Prominent examples of price bundling are three-course meals and vacation
packages, while a common example of price partitioning is advertising the product
price plus shipping fees. Other examples of price partitioning include the pennies-a-
day strategy (Gourville 1998) and combined-currency prices (Huber et al. 2010).
The pennies-a-day strategy consists of presenting the total price in a different way
by reframing the total price (e.g., $360/year) to a shorter period (e.g., $1/day).
Although consumers pay the same total amount at once, the temporal reframing
makes the price appear smaller (e.g., Bambauer-Sachse and Grewal 2011; Gourville
1998). Combined-currency prices can often be found in loyalty programs, in which
prices are expressed in multiple currencies, for example, in dollars and points (e.g.,
$50 ? 10,000 points) (Huber et al. 2010). Both pricing tactics capitalize on
imperfect price information processing, with varying degrees of sensitivity
dedicated to the price components, and thus induce favorable price perceptions
(e.g., Burman and Biswas 2007; Hamilton and Srivastava 2008; Harris and Blair
2006; Khan and Dhar 2010; Srivastava and Chakravarti 2011). However, the
perception of partitioned prices differs among consumers. According to Lee et al.
(2014), consumers who focus on achieving positive outcomes evaluate partitioned
prices more favorably than combined prices. Consumers who focus on avoiding
negative outcomes show no difference between pricing formats (Lee et al. 2014).
Furthermore, negative consequences regarding value perception can occur. In the
context of price partitioning, the segregation of prices can lead to the perception of
multiple losses (i.e., mental accounting theory; Thaler 1985), which in turn can lead
to a more negative price evaluation (Bertini and Wathieu 2008; Völckner et al.
2012). In the case of price bundling, adding a product from another price tier (i.e.,
combining expensive and inexpensive items) might activate subtractive processing
mechanisms so that the value of the bundle is perceived as lower than the value of
separate products (Brough and Chernev 2012). Regarding post-promotional
responses to a bundled versus a free gift offer, price perceptions are more favorable
(lower perceived price increase after the end of the promotion) when two identical
products are bundled (e.g., ‘‘buy two, get 50% off’’) rather than when one product is
offered for free (e.g., ‘‘buy one, get one free’’). The effect reverses when the two
products are different from each other (Liu and Chou 2015). The results are due to
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New developments in behavioral pricing research 837
consumers assigning different values to the two components of the offer (Liu and
Chou 2015). In the case of customizable bundle offers (that is, when consumers
create a bundle on their own by deciding how many products of a kind are
purchased), retailers can manage take rates of the bundle and the size of the bundle
by designing effective pricing schemes (Goh and Bockstedt 2013). The authors
show that a pricing scheme of a higher base price ($3.99 for the first purchased song,
$0.99 for each additional song) leads to larger bundle sizes than a pricing
scheme with a lower base price ($4.99 for the first two songs, $0.99 for each
additional song), but the higher probability of purchase with the second pricing
scheme outweighs the profit impact of larger bundle sizes (Goh and Bockstedt
2013). Table 3 presents additional findings.
Adoption of new theories Several recent studies have drawn on construal-level theory
(Trope and Liberman 2010) to investigate the relationship between price and
perceived quality (e.g., Bornemann and Homburg 2011; Yan and Sengupta 2011). At
the heart of construal-level theory is the concept of psychological distance, with its
subdimensions of temporal distance (distant vs. near future), social distance (other
people vs. oneself), and spatial distance (far vs. close location). The theory explains
how people make predictions about objects, events, and situations that cannot be
experienced at the moment of judgment because of psychological distance. When
psychological distance is high, people evaluate objects and situations on the basis of
high-level construals (abstract representations). When psychological distance is low,
construals are formed on the basis of lower levels (concrete representations) (Trope
and Liberman 2010). In the context of the price-quality relationship, construals
determine whether consumers interpret the price of a product as a monetary sacrifice
or as a quality cue. As such, construal-level theory contributes to the identification of
conditions under which the price-quality relationship is more pronounced.
New relationships and pricing phenomena Consumers tend to infer quality from
extrinsic cues (e.g., price), which are more diagnostic when consumers lack intrinsic
product attributes to assess quality (Hernandez et al. 2014). The price-quality
heuristic has been investigated extensively. Prior literature reviews and meta-
analyses (Miyazaki et al. 2005; Völckner and Hofmann 2007) show that research
mainly deals with product- and consumer-related factors to enrich knowledge about
why the strength of the price-quality relationship differs. We focus especially on the
placebo effect of price promotions, which is a newer phenomenon based on price-
quality associations (Shiv et al. 2005a), and the implications of construal-level
theory for price-quality associations (e.g., Bornemann and Homburg 2011).
With regard to product-related factors, the predictability of quality in a product
category moderates the price-quality relationship. De Langhe et al. (2014) show that
the price-quality relationship is often heteroskedastic, which means that consumers
overestimate the quality of high-priced products when low-priced products are
consistently of low quality, while they underestimate the quality of low-priced
products when high-priced products are consistently of high quality. Furthermore,
new insights stress the positive impact of price level on price-quality associations
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838 N. Koschate-Fischer, K. Wüllner
(Gierl and Stiegelmayr 2010; Gneezy et al. 2014). For example, high-end and
stable prices strengthen the perception of high quality in the case of luxury brands
(Fassnacht et al. 2013; Hornig et al. 2013). In a neuroscientific fMRI study,
Plassmann et al. (2008) investigate the neural mechanisms of why consumers
associate higher prices with higher quality in the specific product category of wine.
By varying the prices of identical wines and analyzing the activation in the medial
orbitofrontal cortex, which encodes the degree of experienced pleasantness during
consumption, they show that experienced pleasantness (i.e., taste of the wine) is
greater for higher price levels. Gneezy et al. (2014) further find that high price levels
induce high expectations of quality. As long as the actual performance meets this
expectation level, the positive price-quality relationship persists. However, if
expectations are not met, high price levels lead to an inverse price-quality
relationship because of the experienced deception.
In the context of price levels, it is commonly known that discounts can raise
doubts about quality (Darke and Chung 2005; Erdem et al. 2008). A counter-
intuitive finding is that discounts can also affect the actually experienced quality of
a product (Shiv et al. 2005a). In their study, Shiv et al. (2005a) initially confirm the
common finding that a discounted price leads to expectations of lower quality (e.g.,
Völckner and Hofmann 2007). Thus, it is not surprising that a discounted energy
drink meets consumers’ subjective expectations of quality (in this case, quality is
represented by the efficacy of the energy drink in terms of mental acuity) to a lesser
extent than a full-price energy drink. However, the authors assume that the
activation of expectations of the efficacy of the product ultimately influences the
actual performance of the product. After consuming the energy drink, participants
worked on a puzzle-solving task in which they re-arranged jumbled letters into
meaningful words. Shiv et al. (2005a) found that those who drank the discounted
energy drink performed significantly worse (i.e., solved fewer words) than those
who drank the full-price drink. They call this a placebo effect of price promotions
(for further discussions of this effect, see Rao 2005; Shiv et al. 2005b). A clinical
study on discounted pain relievers validates this effect, as patients who took the
discounted pain relievers reported lower pain alleviation than patients who took the
full-price pain relievers (Waber et al. 2008).
Regarding the impact of consumer-related factors, in line with construal-level
theory recent studies have consistently shown that consumers more strongly infer
quality from price when social and temporal distances are high (Bornemann and
Homburg 2011; Völckner 2006b; Yan and Sengupta 2011). High social distance
occurs when consumers need to adopt the perspectives of others during product
evaluation (Bornemann and Homburg 2011; Yan and Sengupta 2011)—for
example, when buying a product for a friend rather than for oneself (Völckner
2006b). With regard to temporal distance, the sacrifice role of the price receives a
greater weight when product judgments are made for immediate use rather than for
a future purchase. By contrast, for future purchases consumers focus more on
quality and therefore interpret price as a quality cue (Bornemann and Homburg
2011; Yan and Sengupta 2011). Finally, the extent to which quality is inferred from
price also depends on the cultural background of the consumer. In particular,
consumers from cultures with a more interdependent self-construal tend to associate
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New developments in behavioral pricing research 839
price with quality because they adopt a more holistic thinking style than people with
an independent self-construal (Lalwani and Shavitt 2013). Table 3 provides a
summary of additional findings.
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negative feelings of shame, contempt, and guilt if the consumer believes that
shopping in a cheap store is socially stigmatized or assumes that low prices result
from unethical behavior (emotional dimension). Zielke (2011) further outlines how
discount stores or supermarkets can align their price image with consumer goals
(e.g., saving money, social prestige) to decrease the extent of negative emotions
resulting from a low price image.
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New developments in behavioral pricing research 841
transaction. For example, when using different pricing tactics (e.g., monetary
discount vs. free promotion), the price difference in the reference transaction
becomes less obvious (Weisstein et al. 2013; Woisetschläger et al. 2008). With
respect to consumer-related factors, the consumer’s power state determines his or
her sensitivity to different kinds of price differences (other-comparisons refer to
prices other consumers paid; self-comparisons refer to prices the consumer paid in
the past). Research on social power distinguishes two power states: high-power
individuals tend to be self-important, feel more entitled, and exhibit a greater
sensitivity to interpersonal comparisons because other-comparisons are more
strongly related to feelings of entitlement than self-comparisons (e.g., Major and
Testa 1989). For example, when other consumers perform better (e.g., pay a lower
price in a comparable transaction), high-power individuals feel a significant threat to
their sense of self-importance. By contrast, low-power individuals are more
dependent on others than on the self because they do not have the power to influence
them. Thus, they accept a communal orientation and avoid other-comparisons
because they could turn out undesirably and threaten the stability of their
psychological state. Instead, a low-power consumer rather relies upon self-
comparisons. Relating this theory to price fairness, high-power consumers associate
a price disadvantage over another customer with stronger price unfairness than low-
power consumers, who experience stronger price unfairness in the presence of a
price disadvantage compared to a previous purchase than compared to another
customer (Jin et al. 2014). Furthermore, the negative influence of price differences
on price fairness is less pronounced when consumers are in a good mood (Heussler
et al. 2009; Huber et al. 2011). Moods, however, can only compensate for small to
moderate price differences (Huber et al. 2011).
Price complexity in terms of the number of price elements, calculation effort, and
evaluation effort against the benefits of the offer—for example, in the case of
partitioned prices or combined-currency prices—leads to negative price fairness
perceptions and reduces product choice. This effect can arise from consumers
negatively evaluating the transparency of the pricing practice and inferring higher
total prices (Homburg et al. 2014b; Huber et al. 2010). Because complex price
structures are more difficult to process, consumers may irrationally choose offerings
with simpler price structures, even though offerings with more complex prices may
be less expensive (Homburg et al. 2014b).
With regard to the consequences of price fairness, the effects of price fairness on
purchase intention, customer satisfaction, and word of mouth are consistently
positive across studies (Fassnacht and Mahadevan 2010). Moreover, fairness has
been linked to quantifiable outcomes such as sales and revenue (Anderson and
Simester 2008). In a field study, Anderson and Simester (2008) show that price
unfairness due to individual price differentiation significantly reduces sales and
company revenues. Because price fairness is also a facet of price satisfaction, which
is a special type of customer satisfaction resulting from the subjective evaluation of
price (Diller 2000; Steiner et al. 2014), price fairness is correlated with customer
retention, with the nature of this relationship being non-linear. Neuroimaging
evidence can help explain why consumers reject an unfair offer. In incentive-
compatible ultimatum games, research has found that the rejection of unfair offers is
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correlated with the activation of the right anterior insula, a brain region associated
with negative emotions, such as disgust or anger (Sanfey et al. 2003; Tabibnia et al.
2008; Takagishi et al. 2009). When an offer is financially desirable but, for some
reason, unfair (e.g., because another person is discriminated against by receiving a
less favorable offer), consumers’ negative emotional reaction to the unfairness
conflicts with the cognitive consideration of forgoing material utility should they
reject the offer. In these cases, the neurological pattern of brain activity indicates
that consumers actively down-regulate negative emotions at the moment of
accepting an unfair offer (Tabibnia et al. 2008). However, not all consumers accept
a firm’s unfair behavior. As Wang and Krishna (2012) show in the context of
targeted pricing, consumers may stop purchasing from firms that treat consumers
unequally by, for example, charging new customers lower prices than existing
customers (see Table 3 for additional findings).
Conceptual development The concept of price affect is quite new in the behavioral
pricing literature. In general, the term ‘‘price affect’’ describes a valenced feeling
state comprising price-related emotions, feelings, and moods (Cohen and Areni
1991). Price-related emotions can be broadly defined as mental states of readiness
arising from cognitive appraisals of pricing stimuli (Peine et al. 2009; Zielke 2011).
To date, two types of conceptual approaches have been adopted with regard to
price emotions: a dimensional and a differential approach. The dimensional
approach is based on the assumption that different kinds of emotions cannot be
separated accurately (e.g., Havlena and Holbrook 1986). Thus, emotions are
described by means of a few dimensions. The most prominent two-dimensional
model structures emotions by valence (positive affect/negative affect; Watson and
Tellegen 1985). Because many scholars assume that positive and negative emotions
do not represent a bipolar continuum (e.g., Ekman 1992; Westbrook 1987), two-
dimensional approaches are usually based on two independent dimensions capturing
positive and negative affect (Peine et al. 2009; Watson and Tellegen 1985). A
widely used three-dimensional conceptualization is the pleasure-arousal-dominance
model (Russell and Mehrabian 1977). The dimension of pleasure refers to the
valence of the emotions (pleasure/displeasure), arousal refers to the degree of
physiological activity, and dominance refers to the degree of control (domi-
nance/submissiveness) (Russell and Mehrabian 1977). The differential approach
accounts for emotion specificities without aggregating them to a positive/negative
level by using basic emotions (also referred to as discrete emotions). Pricing studies
that follow the differential approach often adopt a selection from Izard’s (1977)
catalogue of ten basic emotions: interest, enjoyment, surprise, distress, anger,
disgust, fear, contempt, shame, and guilt. According to his theory, all other emotions
can be created by combining two or more of these basic emotions. Both approaches
are common in the marketing literature, though they are applied to different research
questions. While two-dimensional models prevail in research on mood effects, the
pleasure-arousal-dominance model dominates in advertising and sensory marketing
research.
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Similarly, charging higher prices than a competitor elicits stronger negative and
weaker positive emotions (Peine et al. 2009). Furthermore, Peine et al. (2009) test
various models on the role of price cognitions, price affect, and consumer behavior.
Price cognitions are represented by the concept of price fairness because, as the
authors argue, fairness-related judgments require effortful information processing
(explicit process) whereas price-related emotions are triggered spontaneously
(implicit process). They find that both price fairness and price affect act as
mediators between price increases and consumer behavior—that is, in line with
appraisal theory, the cognitive processing of price information triggers a sponta-
neous emotional response, which in turn influences consumer behavior. This finding
seems to contradict other authors who conceptualize price fairness as an outcome of
price affect (e.g., Campbell 2007). However, these findings may be reconciled by
psychological dual-process models (e.g., Strack and Deutsch 2004), which show
that cognitions and affect are mutually dependent. According to dual-process
models, emotions caused by cognitions can also cause new or modify existent
cognitions (feedback loop principle). Strack and Deutsch (2004) distinguish
between the reflective system where explicit processes take place (i.e., based on
knowledge, mostly cognitive) and the impulsive system where implicit processing
takes place (i.e., automatic and spontaneous, mostly emotional). These two systems
act in parallel rather than in sequence to form emotions, judgments, and attitudes.
For price differences across two points in time, the literature documents a
negative effect of price increases and a positive effect of price decreases on
emotions (Campbell 2007; Janakiraman et al. 2006; Naylor et al. 2006). In terms of
basic emotions, price discounts generally lead to gratitude and pride (Janakiraman
et al. 2006). However, Lee and Tsai (2014) illustrate that price discounts can have
ambivalent effects on enjoyment. They distinguish an affective processing
mechanism (through positive price-related emotions), which increases consumption
enjoyment, from a cognitive mechanism (through attention to the product), which
can decrease consumption enjoyment. Regarding the cognitive mechanism, they
argue that consumers pay less attention to discounted products because sunk-cost
considerations are reduced and they feel less need to justify the expenditure (e.g.,
Gourville and Soman 1998). To illustrate these effects, Lee and Tsai (2014) present
the example of a consumer who books a vacation trip at the full price and who gets
more involved, is more motivated to make most of the trip by visiting more places
etc. than a consumer who gets a high discount of 40% for the trip. Finally, the lower
level of attention results in less intense affective reactions to the product. In
particular, when consumption is delayed after purchase, emotional reactions
diminish (Lee and Tsai 2014; Pocheptsova and Novemsky 2010).
Regarding the consequences of price affect on judgments and behaviors, findings
are also surprisingly mixed. Dimensional approaches to emotions show that positive
emotions have positive effects on price fairness (particularly when cognitive
resources are constrained; Campbell 2007), product value (e.g., Lee and Tsai 2014),
purchase intention (e.g., Janakiraman et al. 2006), and word-of-mouth intention
(e.g., Peine et al. 2009). However, when differential approaches with basic emotions
are employed, many effects turn out non-significant (Gelbrich 2011; Tang and Jia
2010). Table 3 outlines additional findings.
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New developments in behavioral pricing research 845
Conceptual development The focal concept in this stage is the consumer’s price
knowledge, which represents the basis on which to assess the attractiveness of a
price in future price evaluation tasks (Vanhuele et al. 2006). Surprisingly, the
concept of price knowledge has hardly evolved in the past decade. Monroe and Lee
(1999) argue that explicit price knowledge needs to be distinguished from implicit
price knowledge. Explicit price knowledge encompasses the conscious recall of the
prices paid or encountered in a purchase situation, whereas implicit price knowledge
entails the recognition of unconsciously stored information without explicit recall of
the information (Monroe and Lee 1999). Thus, it is possible that consumers cannot
recall exact prices paid but can tell whether a given price is good or bad. Referring
once more to psychological dual-process models, this finding illustrates the
differential impact of explicit and implicit processes on price judgments and
therefore the importance of investigating the implicit processing of price
information in the impulsive system. Although many researchers consider the
distinction between explicit and implicit price knowledge legitimate (Monroe and
Lee 1999), the majority of the studies focus on the conscious recall of prices while
neglecting the important facet of implicit price recognition. Only a few studies
consider explicit and implicit price knowledge simultaneously, including those of
Gaston-Breton and Raghubir (2013), Homburg et al. (2012), Jensen and Grunert
(2014), and Vanhuele and Drèze (2002). The results from these studies significantly
contribute to the understanding of the extent of consumers’ price knowledge;
specifically, these studies indicate that consumers know more about prices than prior
studies suggest when adopting a multi-measure approach that also includes
measures of price recognition and deal spotting (Jensen and Grunert 2014).
Furthermore, they provide more differentiated insights into the determinants of
price knowledge accuracy, with some determinants exerting influence on explicit
but not implicit price knowledge (Homburg et al. 2012). De Houwer et al. (2009)
and Strack and Deutsch (2004) offer detailed discussions on research insights
garnered from investigating implicit processes and adopting implicit measures.
New relationships and pricing phenomena Price knowledge research mainly
deals with the determinants of the accuracy of price knowledge, which depends on
various price-related (e.g., Vanhuele et al. 2006) and consumer-related (e.g., Kukar-
Kinney et al. 2012) factors. As discussed in the section on nine-ending prices,
certain price structures and endings inhibit price information processing and storage,
leading to less accurate recall. Accuracy further declines with increasing price levels
(Vanhuele et al. 2006). Regarding consumer characteristics, price knowledge
increases with increasing purchase frequency and active price search but also with
accidental exposure to prices in the purchase environment (Jensen and Grunert
2014). Moreover, price-conscious consumers tend to process price information more
thoroughly, which results in more accurate recall afterward (Kukar-Kinney et al.
2012). Finally, Homburg et al. (2012) examine the influence of customer
satisfaction on explicit and implicit price knowledge and find that dissatisfied
customers have a better recall of prices paid than satisfied consumers. However, this
leverage is limited to explicit price knowledge because the authors do not find
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846 N. Koschate-Fischer, K. Wüllner
Conceptual development The price that consumers are willing to pay for a product
or service is commonly associated with the perceived benefits of the offer (Chan
et al. 2007; Hamilton et al. 2011). However, Amir et al. (2008) argue that the
concepts of WTP and value are formed differently. Although WTP predominantly
focuses on the transaction of buying a product, the concept fails to account for the
expected pleasure of owning or consuming the product. To illustrate the dissociation
between WTP and experienced value, consider the following example: You want to
go to a concert of your favorite singer. How much you are willing to pay for a ticket
might depend on contextual information, such as the mentioned costs for the
production of the concert. However, expected pleasure is not affected by this
information. Conversely, having a sore muscle would probably affect your pleasure
but not WTP for the ticket. These differences can only be explained by the
dissociation of the concepts of WTP and value (Amir et al. 2008).
Furthermore, similar to the conceptualization of the internal reference price,
some researchers agree with the idea to conceptualize WTP as a range estimate. For
example, Schlereth et al. (2012) conceptualize WTP not as a point estimate (i.e., the
price that makes the consumer indifferent between buying and not buying the
product) but as an interval around this point that also takes into account the
consumer’s purchase probability. By calculating an interval, the stated WTP is
weighted by choice uncertainty—that is, it is determined depending on how
consumers react to deviations from their stated WTP. When they are very certain
about their WTP, the consequence of exceeding their stated WTP is that they will
not buy the product. However, when they are uncertain about their WTP, exceeding
their stated WTP is assumed to have a lesser impact on choice. Schlereth et al.
(2012) call this new approach the ‘‘attractiveness index’’ because it allows for the
identification of the most attractive consumers, who do not necessarily have the
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Table 4 Additional findings on price storage
Authors Key independent variables Key dependent variables Key findings
Price knowledge
Luna and Syllabic length of the prices (i.e., the number Accuracy of total price The accuracy of the estimation of the total basket price is influenced by
Kim of syllables needed to pronounce a price) estimation the length (in syllables) of the prices in the basket, such that estimation
(2009) (high/low) Price knowledge accuracy is lower when syllabic length of the prices is higher. This is
Consumer attention (high/low) due to the limited time span of the working memory. When words are
long, individuals can hold less information in their working memory
Furthermore, the more attention consumers pay to the single prices, the
New developments in behavioral pricing research
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Table 5 Additional findings on spending and consumption behavior
848
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WTP
Bezawada and Changes in assortment Long-term own- and cross- Changes in assortment and price have a higher elasticity for organic than
Pauwels (2013) Changes in price elasticity conventional products
Changes in promotions WTP Raising the organic assortment and promotion breadth (that is, the
percentage of products that are promoted in a given week for a given
Product category (organic/conventional) store) enhances WTP and profits for the total category
Franke et al. Consumer’s insight into own preferences Attitude toward the Product customization based on individual preferences can increase WTP,
(2009) Ability to express preferences product purchase intention, and the attitude toward a product
Product involvement WTP A better preference insight (i.e., the more the consumer is aware of his or
Purchase intention her own preferences), a better ability to express his preferences, and
greater product involvement lead to higher benefits in terms of WTP,
purchase intention, and attitude
In the context of personalized newspapers, the value added by
customization overcompensates for the perceived quality uncertainty and
generates higher WTP
Gleim et al. (2013) Type of information (verbal/numerical) WTP Detailed verbal information and a higher quantity of information about
Information Quantity (high/low) Purchase intention green products help consumers overcome purchase inhibition, which
results in an increase in purchase intention and WTP
Information detail (high/low)
Gregg and Business’s e-image (positive/negative) Willingness to transact/pay A positive business’s e-image increases consumers’ willingness to transact
Walczak (2008) Product type (new/used) Price premiums with the business, obtained prices at auction and price premiums
Product type moderates the effect of Business’s e-image on price
premiums. Particularly used products attain price premiums, when
business’s e-image is positive
Haumann et al. Customer satisfaction WTP High customer satisfaction and high customer-company identification have
(2014) Customer-company identification Customer’s loyalty positive effects on WTP and customer satisfaction
Customer satisfaction has a stronger short-term effect than customer-
company identification on WTP, but in the long run, the positive effect of
customer-company identification is more persistent
N. Koschate-Fischer, K. Wüllner
Table 5 continued
Homburg et al. Level of customer satisfaction WTP Customer satisfaction is an important driver of WTP (for a review of the
(2005b) Subsequent trial relationship between customer satisfaction and consumers’ price
behavior, see Roth and Bösener 2015).
Cumulative satisfaction through subsequent positive experiences has a
stronger positive impact on WTP than satisfaction resulting from a single
transaction
Hu and Wang Seller origin WTP Country-of-origin equity has a significant effect on WTP: Products from
(2010) Buyer origin countries with a positive image attain significantly higher prices
Koschate-Fischer Country of origin (favorable/unfavorable) WTP A favorable country of origin has a positive effect on WTP
et al. (2012a) Brand familiarity (high/low) In high-involvement settings, brand familiarity negatively moderates this
Involvement setting (high/low) effect. Especially unknown brands that offer high-involvement products
can benefit from the country of origin effect
New developments in behavioral pricing research
Maier and Wilken Stress level (stress/relaxation) Product evaluation Stress negatively affects WTP because product evaluation is less favorable
(2014) WTP under stress
Ngobo (2011) Income WTP Income, level of education, average age of family, and level of occupation
Education Purchases are positively correlated with WTP and purchases of organic products,
while price has an inverted U-shaped effect on purchases
Age of family
Level of occupation
Price
Plassmann et al. Trial type (WTP/forced price) Brain activity through By recording the brain activities of hungry people placing bids for different
(2007) fMRI meals, they show that the medial orbitofrontal cortex and the dorsolateral
prefrontal cortex encode WTP
Roth et al. (2006) Pricing strategy (posted-price/bargaining) WTP Consumers’ higher WTP for customized services can be levied from the
Level of customization consumer by adopting a bargaining strategy as compared with a fixed-
price strategy
Schneider and Mood (positive/negative) WTP Consistent with mood congruence theory, consumers in a positive mood at
Wilken (2011) the point of sale have a higher WTP than consumers in a negative mood
849
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Table 5 continued
850
123
Sichtmann (2011) Corporate social responsibility (positive/ WTP Positive corporate social responsibility increases WTP, while there is no
negative) Identification with diminishing effect for a negative corporate social responsibility on WTP.
company Identification with and attitude toward a company fully mediate this
effect
Attitude toward company
Corporate social responsibility toward suppliers is also positively linked to
WTP
Steenkamp et al. Brand type (national brands/private labels) WTP WTP is positively linked to brand type: National brands are still assumed to
(2010) Perceived quality be of higher quality than private labels, though in countries with mature
private labels, the differences in quality and WTP are diminishing
Tully and Winer Beneficiary of social responsibility program WTP Consumers are willing to pay a price premium for socially responsible
(2014) (humans/animals/environment) products, especially when the beneficiaries are humans rather than
animals or the environment
van Doorn and Organic claim (yes/no) WTP In the case of organic products in vice food categories, many consumers are
Verhoef (2011) Product category (vice/virtue) Perceived quality not willing to pay the specified selling prices because of an assumed
lower quality than conventional products. The higher prosocial benefits of
Prosocial benefits organic products can only partly diminish this effect
Wang and Xie Installed-user base WTP The more users and sellers of a new technology, the higher is the WTP for
(2011) Supporting-firm base Risk perception this technology, due to a reduced risk perception
Budget allocation
Cheema and Surplus account (food/entertainment) Spending likelihood An expense that can be flexibly assigned to more than one mental account
Soman (2006) Expense type (food delivery/movie/restaurant (i.e., an ambiguous expense) is more easily justified and thus more likely
dinner) to be incurred than an unambiguous expense
Du and Kamakura Budget constraints Household Household budget allocation changes over time because budget constraints,
(2008) Preferences budget allocation the preferences for the product categories, life stages, or income levels
decision alter
Life stages
Income levels
N. Koschate-Fischer, K. Wüllner
Table 5 continued
Homburg et al. Occurrence of price increase (yes/no) Likelihood of future In the context of clothing and entertainment, exceeding the budget
(2010) Customer income (high/low) purchase constraint in one category due to a price increase can lead to reduced
spending in another category, particularly for low-income consumers. No
Framing of the price increase (no frame/ spillover effect is observed for high-income consumers
absolute/relative)
Consumers are more likely to purchase in the future when the price increase
is framed in absolute terms than when it is framed in relative terms (i.e.,
as a percentage)
Larson and Price restraint (salient/no) Choice share of items Salient price restraints can result in the choice of more expensive products
Hamilton (2012) because consumers’ attention shifts from price to quality
Loureiro and Haws Affective state (positive/negative) Expense categorization When consumers are in a good mood and processing resources are
(2015) Processing resources (constrained/ Anticipated feelings from unconstrained (constrained), they are less (more) likely to categorize a
unconstrained) spending potential expense flexibly into mental accounts and thus justify spending.
The effect is driven by anticipated negative change of the affective state
New developments in behavioral pricing research
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Table 5 continued
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Sussman and Alter Expense category (ordinary/exceptional) Percent premium paid Exceeding budget constraints can occur especially in the case of
(2012) extraordinary expenses, such as high-price durables with low-purchase
frequency
Ülkümen et al. Ease of budget estimation (Easy/difficult) Confidence in budget Adjustment of budget constraints occurs from time to time when budget
(2008) Lay belief (Estimates are accurate/estimates are estimate constraints are systematically overrun or undercut
not accurate) Adjustment of initial If estimation of budgets is perceived as difficult, the confidence in budget
Cognitive resources (available/not available) budget estimate estimate is low, which leads to upward adjustment
Adjustment of budgets decreases, when confidence is high, when beliefs
about the relationship between cognitive resources and estimates
accuracy are reversed, or when cognitive resources are not available
van Ittersum et al. Budget constraint (yes/no) Total spending Smart shopping carts: The opportunity to monitor the value of the
(2013) Number of products merchandise in the cart and, thus, the remaining budget capacities incite
consumers to spend more in the end
Store versus national
brands When consumers realize that there is still room in the budget, they buy
more than they planned or substitute cheaper brands with more expensive
brands
Budget-constrained shoppers spend more and buy more national brands
when using smart shopping carts, while non-constrained shoppers spend
less and replace national brands with store brands
Payment methods
Schlereth et al. Pricing plan WTP Two-part tariffs (e.g., consisting of a fixed monthly fee and an additional
(2011) Service purchase per usage fee) can yield higher profits and a higher WTP than flat rates or
pay-per-usage pricing plans
The attractiveness of these pricing plans depends on the consumers’ usage
patterns
N. Koschate-Fischer, K. Wüllner
New developments in behavioral pricing research 853
largest WTP point estimates but have the best combination of WTP and purchase
probability.
Adoption of new theories Construal-level theory has been transferred to research
on WTP in the context of the endowment effect. The endowment effect posits that
the price a seller is willing to accept for the product often exceeds the price a
potential buyer is willing to pay for it (e.g., Frederick 2012). The basic principle of
construal-level theory is that buyers and sellers evaluate products at different
construal levels. Therefore, this theory adds to the understanding of the psycho-
logical underpinnings of the endowment effect.
New relationships and pricing phenomena Owing to the multitude of singular
effects regarding WTP, we focus on the price-related drivers of WTP as well as the
findings on product usage, which pertain to the endowment effect and its
psychological underpinnings. Table 5 lists additional findings on product-related,
consumer-related, and situational antecedents of consumers’ WTP.
Regarding the influence of price instruments on consumers’ WTP, the previous
sections in this review document a strong relationship between consumers’ price
perceptions and WTP. For example, high reference prices increase WTP, whereas
discounts or free gifts reduce WTP (e.g., Adaval and Wyer 2011; Koçaş and
Dogerlioglu-Demir 2014; Palmeira and Srivastava 2013; Park et al. 2011).
Moreover, firms can positively act on WTP by launching cause-related marketing
campaigns, such as when a firm donates a certain amount of earnings per product
sold to a social cause. Consumers are willing to pay more the higher the donation
amount is (Koschate-Fischer et al. 2012b). According to Andrews et al. (2014), a
recent industry trend is to combine cause-related marketing and price discounts. The
results imply an inverted U-shaped relationship between cause-related marketing
and sales: It is strongest when price discounts are moderate than deep or absent. The
underlying mechanism is that consumers derive positive feelings from participating
in a cause; however, when discounts are deep, the extrinsic monetary motivation to
participate in the cause may overlay the consumers’ intrinsic motivation and thus
reduce the effectiveness of cause-related marketing.
Moreover, consumers condition their WTP on their pre-purchase expectations of
usage frequency of the product because such expectations frequently increase the
product’s perceived value (Etkin and Ratner 2013; Hamilton et al. 2011; Tanner and
Carlson 2009). Hamilton et al. (2011) advance another rationale behind this
relationship; they show that a lower usage frequency than that of other people
reduces interest in the product and thereby lowers WTP. In a broader sense, usage
frequency determines the attachment to the product, which in turn plays a major role
in the endowment effect. As mentioned previously, in the endowment effect, the
price a seller is willing to accept for the product often exceeds the price a potential
buyer is willing to pay for it. This discrepancy is commonly attributed to an over-
estimation of product value because sellers often grow emotionally attached to their
possessions. Consequently, selling an item to which a seller is emotionally attached
represents an unpleasant loss. Sellers try to compensate for the psychological
discomfort created through selling an emotionally valued item by demanding higher
selling prices to increase monetary gains (Ariely et al. 2005; Brough and Isaac 2012;
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854 N. Koschate-Fischer, K. Wüllner
Chatterjee et al. 2013; Dommer and Swaminathan 2013; Frederick 2012; Kurt and
Inman 2013).
Although the existence of the endowment effect is undisputed, clarity is still
lacking on the psychological underpinnings of the effect. In a neuroscientific study,
Weber et al. (2007) asked participants to buy and sell MP3 songs in auctions. They
observe increased activity of the left amygdala, which can be interpreted as a
stronger aversion to losing personal products that individuals feel attached to (e.g., a
favourite song) than to losing money which is rather impersonal. Weber et al. (2007,
p. 444) also report some statements from the participants to illustrate their
interpretation of the findings as a loss aversion for possessions, such as ‘‘giving up a
song [in selling] felt harder than not getting one [in buying].’’ The loss aversion
increases under high involvement because high involvement leads to a high level of
arousal and a strong negativity in thoughts (Saqib et al. 2010). Zhang and Fishbach
(2005) investigate whether the anticipated negative emotions linked to loss aversion
can be attenuated to reduce the difference between selling and buying prices. For
example, they show that positive mood states reduce the endowment bias because
transactions are perceived as involving lower risks (Zhang and Fishbach 2005). By
contrast, other authors argue that it is not the aversion to losing the product but the
aversion to bad deals that drives the effect (Weaver and Frederick 2012; Yang et al.
2013). In line with construal-level theory, the discrepancy between buyer and seller
prices is due to different construal levels (Irmak et al. 2013). Irmak et al. (2013)
show that sellers evaluate products at higher construal levels than buyers, such that
they primarily consider the desirability of the product (e.g., experienced pleasure)
rather than its feasibility aspects (e.g., additional costs of acquiring the product).
Thus, the seller not only overestimates the value of the product but also commits
errors in estimating the buyer’s WTP because the seller overlooks the time and
financial resources the buyer needs to spend to acquire or use the product.
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New developments in behavioral pricing research 855
Therefore, firms can at least ensure that the costs associated with the offer are
covered.
New relationships and pricing phenomena Empirical studies document different
levels of profitability of dynamic pricing mechanisms, which we critically analyze
in the following section. We first outline determinants of buyers’ bidding behavior
in Internet auctions and its effects on the magnitude of the final bids (Cheema et al.
2005). We then assess the profitability of the PWYW and NYOP strategies (e.g.,
Hinz et al. 2011; Kim et al. 2009).
Research on Internet auctions indicates that two elements can influence bidding
behavior: the starting bid and the option to buy now at a fixed price. In summary,
starting bids and final bids are positively correlated, whereas the length of the
auction does not significantly improve bids (Hardesty and Suter 2013; Reynolds
et al. 2009; Suter and Hardesty 2005). In line with reference price theory, offering
buy-it-now prices mostly increases bids (Hardesty and Suter 2013; Popkowski
Leszczyc et al. 2009). Moreover, bids are lower when more similar items are
concurrently listed with the focal item and potential buyers engage in more
extensive search (Chan et al. 2007). Consumer goals during auctions also play a
major role in bidding behavior. Consumers who bid for the thrill of winning the
auctions without paying much attention to the price tend to bid higher than
consumers who focus on the value of the item (Cheema et al. 2012). Furthermore,
the social environment of the bidder can influence its bidding behavior, for example
shared information from person-to-person or via online communities (Hinz and
Spann 2008).
In accordance with prospect theory, the emotional reactions to losing an auction
are stronger than the joy of winning an auction (Astor et al. 2013). With respect to
colors, research has shown in field experiments with eBay auctions that red
backgrounds lead to more aggressive bidding behavior, such as higher bid jumps
and higher final bids (Bagchi and Cheema 2013). In the special case of
interorganizational online reverse auctions, in which sellers bid prices down instead
of buyers bidding prices up, the relationship between buyer and seller plays a major
role in determining bidding behavior. Sellers bid less aggressively—that is, they
submit bids at lower rates and make more price concessions—when they intend to
make specific investments to establish a long-term relationship (Jap and Haruvy
2008). Another special case is represented by sequential auctions—an auction
format which companies use to sell large inventories in smaller-lot sized auctions
(e.g., Goes et al. 2010). Research has shown that consumers learn in the course of
bidding in sequential auctions and update their WTP. They increase their WTP over
the auction sessions until they win the first item and decrease their WTP afterwards
(Goes et al. 2010).
Regarding the profitability of PWYW pricing, analyses in field studies reveal that,
on average, consumers pay prices that are significantly above zero but below regular
selling prices (Jang and Chu 2012; Kim et al. 2009). For example, the mean price
paid for a lunch buffet at a restaurant (regularly priced at €7.99) was €6.44, a decline
of 19.37%. However, because of higher sales figures, the PWYW pricing strategy
led to an increase in revenues of 32.35% and thus was profitable. Yet, in other
product contexts (e.g., cinema tickets, hot beverages), the sales figures could not
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compensate for the lower prices paid and thus, below the line, the PWYW pricing
strategy incurred a loss (Kim et al. 2009). Consumers’ spending behavior tends to be
motivated under two aspects of PWYW pricing. On the one hand, consumers follow
economic exchange theory and try to maximize their utility by paying low prices; on
the other hand, PWYW pricing involves a social component, which is reflected in
fairness, reciprocity, and feelings of guilt. Therefore, buyers tend to respect social
norms toward the seller but, at the same time, include assumptions about how much
other consumers paid (Jang and Chu 2012; Kim et al. 2009; Schons et al. 2014).
This implies that sellers should try to reduce social distance to their customers to
increase their WTP (Jang and Chu 2012; Kim et al. 2014a). Furthermore,
communicating a reference price (e.g., the costs of the offer or a suggested price)
might increase prices paid as long as the reference price is not perceived as a
restriction of the consumer’s pricing power (Jang and Chu 2012; Johnson and Cui
2013; Kim et al. 2014a). Overall, PWYW pricing is associated with high risks to
firms’ profitability and not suited for every product category. Nonetheless, Kim
et al. (2014b) suggest that it should be used in some contexts—for example, when
introducing new products to the market—because this pricing strategy triggers
higher trials and repurchases than discounts and free gifts.
With regard to NYOP pricing, research has mostly examined the benefit of
NYOP pricing for firms as compared with fixed prices and the optimal design of this
mechanism while paying scant attention to the consumer perspective of NYOP
pricing (Gönsch et al. 2013; Joo et al. 2012; Spann and Tellis 2006). A major
advantage of NYOP pricing pertains to price fairness. The NYOP mechanism
allows firms to differentiate prices across consumers without impairing their
perceptions of price fairness or their satisfaction (Hinz et al. 2011; Spann and Tellis
2006; Wang et al. 2009). Regarding the optimal design of NYOP strategies, it is
important to set a fee for repeat bidding to give consumers an incentive to bid
according to their true WTP (Spann et al. 2010). A similar effect can be achieved by
defining wait times between two bids (e.g., 24 h) (Hinz et al. 2011; Joo et al. 2012).
In addition, the minimum price should at best be adaptive, which increases the
profitability of the NYOP mechanism by 20% compared with a fixed minimum
price (Hinz et al. 2011; Spann et al. 2010). This occurs because consumers adjust
their bids according to their assumptions about the minimum price (Spann et al.
2012). Finally, it might be profitable to offer risk-averse buyers whose bids are
below the minimum price an alternative option with fixed prices (Shapiro 2011).
New relationships and pricing phenomena In addition to the well-known credit card
effect, research in the past decade has investigated new phenomena or biases related
to payment methods, including the denomination effect (e.g., Raghubir and
Srivastava 2009) and the flat-rate bias (Lambrecht and Skiera 2006a).
The credit card effect, in which consumers spend more money when they pay
with a credit card than cash, has received further support in recent literature (e.g.,
Chatterjee and Rose 2012). An exploration of the psychological underpinnings of
the effect reveals that paying cash directs the consumer’s attention to the price while
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New developments in behavioral pricing research 857
paying with a credit card focuses the consumer on the product (Chatterjee and Rose
2012). However, Kamleitner and Erki (2013) argue that consumers are less attached
to products paid with a credit card. Counterintuitively, consumers increase spending
when the available credit is low but limit spending when the credit card has not been
charged. This result can be explained by consumers’ level of self-control.
Consumers with high self-control have a strong prevention focus, which diminishes
as soon as they violate this goal (Wilcox et al. 2011).
With regard to cash payments, some studies have explored the denomination
effect and its boundary conditions. The denomination effect posits that money bills
with high denominations (e.g., $20) are valued more than bills with low
denominations, even though the sum is equal (e.g., 20 9 $1) (Raghubir and
Srivastava 2009). Mishra et al. (2006) provide first insights into the psychological
underpinnings of this effect. They observe that consumers are less likely to spend an
amount in large denomination bills than an equivalent amount in smaller
denominations, which they posit to be due to a ‘‘bias of the whole.’’ This bias
occurs because consumers experience a greater fluency in processing high
denominations, which in turn elicits positive emotions toward the money. Increased
emotional value leads to an over-evaluation of large denominations. Because
consumers want to keep large bills, the denomination effect generally results in
reduced spending behavior (Mishra et al. 2006; Raghubir and Srivastava 2009).
Raghubir and Srivastava (2009) propose a different explanation based on mental
accounting and self-control. They posit that large denominations are less fungible
than smaller denominations and thus may be assigned to a mental account of ‘‘real
money’’ while smaller denominations may be assigned to a ‘‘petty cash’’ account.
Assuming more tight spending rules on the real money account, it is plausible to
conclude that larger denominations are less likely to be spent (Heath and Soll 1996).
Linked to self-control, consumers may strategically choose money with larger
denominations because they can monitor their spending behavior more easily than
with small denomination bills. However, the physical appearance of the bills
represents a boundary condition to the denomination effect. In general, small
denomination bills circulate with higher frequency and tend to suffer greater wear
than large denominations. Bills are regularly destroyed by the Federal Reserve Bank
when they are old and worn-out (Di Muro and Noseworthy 2013). If large bills look
used (i.e., they appear worn, dirty, and unsanitary), the denomination effect
reverses, and larger bills are spent with priority to get rid of them (Di Muro and
Noseworthy 2013).
The flat-rate bias refers to an anomaly in tariff choice leading to higher spending
(Lambrecht and Skiera 2006a, b; Lambrecht and Tucker 2012). Contrary to the
microeconomic assumption that consumers choose the tariff that maximizes the
difference between the invoice and their WTP, the majority of customers choose
flat-rate over pay-per-use contracts, even though they would be better off with the
latter tariff (Heidenreich and Talke 2012; Uhrich et al. 2013). Common examples
are telecommunication or Internet contracts and car-leasing contracts (Dasgupta
et al. 2007). The flat-rate bias might be driven by the following effects:
overestimation, insurance, taxi meter, convenience, and self-discipline. In line with
the overestimation effect, consumers assume that they will use more of the good or
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858 N. Koschate-Fischer, K. Wüllner
service than they actually do. The insurance effect refers to the desire to avoid
variation in the monthly invoice. The taxi meter effect is linked to a decoupling of
payment and consumption. If consumers do not need to think about costs, they can
enjoy the consumption of the product or service more. The convenience effect
results from simplified information processing. By choosing a flat rate, consumers
avoid the cognitively exhausting comparison of alternative tariffs. Finally, a flat-rate
may be chosen for self-disciplinatory reasons. Consumers might try to motivate or
force themselves to use the product or service more frequently due to the self-
imposed pressure of recovering the price of the flat-rate. This effect might, for
example, be relevant in the case of fitness studio memberships or newspaper
subscriptions (Heidenreich and Talke 2012; Lambrecht et al. 2007; Lambrecht and
Skiera 2006b; Schulze and Gedenk 2005). Of these effects, the convenience and
self-discipline effects yield mixed results, while the other effects have largely
received support (Heidenreich and Talke 2012; Lambrecht and Skiera 2006a;
Schulze and Gedenk 2005). Another influential factor of the flat-rate bias is
consumers’ consumption goals. Uhrich et al. (2013) show that consumers following
the goal of hedonic gratification, geared to pleasure and fun, choose flat rates
significantly more often than consumers following utilitarian (i.e., functional) goals.
This effect is fully mediated by the flat-rate effects, which implies, for example, that
consumers in a hedonic decision mode rely more on feelings, do not spend effort on
calculating their usage, and choose the flat rate to be on the safe side (Uhrich et al.
2013).
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New developments in behavioral pricing research 859
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860 N. Koschate-Fischer, K. Wüllner
123
New developments in behavioral pricing research 861
consumers’ goal pursuits by positing that consumers differ in how they approach
positive situations and avoid negative situations. Thus, transferring this theory to the
pricing context might help explain consumers’ behavioral reactions to prices. In a
similar vein, the theory of emotion regulation (Gross and Thompson 2007) might be
relevant to the pricing context. This theory originates from psychological stress and
coping as well as from emotion psychology. It refers to the processes (conscious and
unconscious) by which emotions are dampened, intensified, or maintained. In this
sense, it may help to explain why price emotions do not necessarily result in a
corresponding behavior.
Regarding the third major development, new relationships and pricing phenom-
ena need to be explored in more detail. Possible research questions include both
understanding the causes of the effect and identifying boundary conditions. In the
case of the placebo effect of price promotions, for example, an important research
question would be determining the underlying cause of the lower performance in the
puzzle task after having consumed an energy drink on promotion. Shiv et al. (2005a)
propose the self-fulfilling nature of consumer expectations as the underlying reason
but do not test this assumption.
Furthermore, behavioral pricing research should incorporate new pricing
structures that can be observed in shopping situations and investigate their
effectiveness. For example, retailers have begun combining price discounts with
quantity increases, such as ‘‘10% more content, 30% discount.’’ Current findings are
not able to predict the evaluation of such price claims. More important from pricing
managers’ viewpoint is the question of the effectiveness of such claims compared
with single price cues. In general, a systematic and simultaneous comparison of
different price instruments regarding their relative impact on focal price concepts
would provide firms evidence for taking more precise pricing decisions. For
example, in their literature review on the determinants of retailers’ choice of a
pricing strategy (EDLP vs. Hi-Lo strategy) and the effects on sales and store traffic,
Fassnacht and El Husseini (2013) find no empirical studies with behavioral pricing
concepts as the dependent variables. Similarly, in our review we identified only a
few studies that compared price discounts with other forms of price promotions. The
neglect of comparative studies is surprising because the insights gleaned from such
considerations could have a direct influence on retailer profits.
Finally, some conclusions with regard to research methods in behavioral pricing
are worth mentioning. Throughout the article, we have noted that the adoption of
neuroscientific research methods, such as fMRI, generated new insights into
psychological processes. We encourage researchers to continue exploring psycho-
logical underpinnings, such as the occurrence and dominance of implicit processes,
and to validate existing findings by applying neuroscientific methods. It might also
be fruitful to systematically review the contribution of neuroscientific studies to
pricing and marketing literature. Hubert (2010) and Hubert and Kenning (2008)
provide initial overviews of the achievements of neuroeconomics for consumer
research and marketing, highlighting the contribution of neuroeconomic methods to
price policy as well as to product, communication, and distribution policy and brand
research.
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