the more attractive the offer. In other words, consumers' perceptions and evaluations are positively related to their. s
THE REDUNDANCY OF COMPARISON PRICES: WHEN DO THEY INFLUENCE EVALUATIONS? Rajesh Chandrashekaran, Fairleigh Dickinson University ABSTRACT This paper investigates when comparison prices influence consumers' evaluations. Results suggest that consumers it-ho are not involved with the product are influenced positively by the presence of comparison prices. However, for those who are involved with the product, the provision of comparison prices can hurt their evaluations of the offer. INTRODUCTION The main goal of this paper is to compare consumers' evaluations of retail price advertisements with and without comparison prices to assess whether the mere presence of an advertised comparison price can influence evaluations. A typical retail price advertisement contains information about the amount of savings (in either dollar-off or percentage-off format) and a comparison price that is usually the item's regular price. It is intriguing that consumers are affected by the presence of comparison prices even though such comparison prices do offer consumers any additional diagnostic information. Clearly, given any two of the three pieces of information, consumers who are motivated to do so can calculate the third. For example, knowing that the sale price is $29.99 and that the offered saving is $10 one can logically deduce that the item regularly sells for $39.99. Therefore, it can be argued that, from a purely logical standpoint, comparison prices do not contain any additional diagnostic information. Despite the apparent redundancy, it is interesting to note that research on advertised comparison prices has consistently shown that they affect evaluations positively (Della Bitta, Monroe and McGinnis 1981; Blair and Landon 1981; Mobley, Bearden and Teel 1988; Urbany, Beaden and Weilbaker 1988). Therefore, this study asks and attempts to answer two important questions. Given the redundancy of comparison prices, (i) Does the mere presence of a comparison price in a retail advertisement influence consumers' perceptions of the offer," and, if so, (ii) Are some consumers more prone than others to such influences? The answers to these questions will shed new light on the process by which consumers react to retail price advertisements, and may present marketers with opportunities for market segmentation. CONSUMER PERCEPTIONS OF RETAIL PRICE ADVERTISEMENTS Figure I shows a conceptual model that traces the process by which consumers evaluate retail price advertisements. The model addresses three main issues. The first deals with how consumers evaluate the sale price against their internal reference prices. The second addresses the role of consumers' perceptions of the savings offered in the evaluation process. Finally, the third section addresses the influence of comparison prices on consumers' evaluations along with the moderating role of product involvement.
Internal Reference Price and Sale Price Evaluation Internal reference price, or simply IRP, is defined as a psychological standard of comparison that is based on consumers' price expectations (Winer 1986; Jacobson and Obermiller 1990), perceptions of fairness (Thaler 1985), and beliefs about existing market prices (Winer 1986; Jacobson and Obermiller 1990; Thaler 1985). It is assume that consumers evaluate prices by comparing them to some internal standards. Vast amount of empirical evidence (Winer 1986; Jacobson and Obermiller 1990; Mayhew and Winer 1992; Rajendran and Tellis 1994; Briesch et al. 1997) strongly supports the theory that such internal reference prices are crucial in explaining how consumers evaluate and respond to sale prices. In addition, these empirical studies have generally confirmed the predictions of Prospect Theory (Kahneman and Tversky 1979) that consumers are more sensitive to losses than to gains, confirming that consumers' responses on either side of their reference points are not symmetric.
The Role of Price Promotions Retailers offer consumers temporary price reductions in the hope that consumers will evaluate these lowered prices against previously held (high) reference prices. These short-term savings are intended to spur consumers into immediate action. From a psychophysical standpoint (see Monroe 1973), a consumer will perceive and respond to such savings only if the discount is above a subjective threshold, called "just noticeable difference," or simply JND. Since each consumer interprets the claimed saving based on his or her individual JND, different consumers may interpret the same objective amount of saving differently. In general, however, the larger the discount, i.e., the lower the posted sale price, the greater the perceived savings (despite some discounting of advertisers' claims), and the more attractive the offer. In other words, consumers' perceptions and evaluations are positively related to their subjective perceptions of discount offered. Therefore, Hl: Evaluations are positively related to consumers' perceptions of the savings contained in a retail price advertisement.
Advertised Comparison Price and Offer Evaluation Another way in which marketers attempt to influence consumers' perceptions of the overall value of an offer is by including one of several types of comparison prices in retail advertisements. In addition to the sale price and any contextual cues, a price advertisement usually emphasizes the savings (in either a dollar-off or a percentage-off format) and a comparison price (most often the advertised brand's regular, non-sale price). The advertised comparison price is intended to provide consumers with an external anchor and to make the sale price appear more attractive. However, in light of sale price and savings information, the comparison price itself does not contain any additional information. Despite the apparent redundancy, it is interesting to note that extensive research offers positive proof that such advertised reference prices have important influences on consumers' cognitions and evaluations. Extant research suggests that although consumers are not misled and discount some of the claimed savings (Liefeld and Heslop 1985), they exhibit positive responses to comparative advertisements even when the claimed savings are exaggerated (Urbany et al. 1988) or somewhat ambiguous (Mobley et al. 1988). Therefore: H2: Consumers respond positively to the presence of a comparison price The Moderating Role of Involvement Involvement is generally defined in terms of consumers' interest and perceived importance/relevance of the advertised product (see Celsi and Olson 1988, Petty, Cacioppo and Schumann 1983). Generally speaking, highly involved consumers process information more extensively and diligently than those who are not involved. In contrast, low involvement consumers process available information at a much more shallow level. However, in addition to influencing the depth at which the information is processed, involvement plays a crucial role in determining the types of information that consumers elaborate on. As Petty et al. articulate in the Elaboration Likelihood Model (ELM), involved consumers concentrate on Cues that are most relevant to the decision at hand. However, consumers who lack involvement are more susceptible to the influences of contextual cues that are present in the purchase environment/communication, but are not particularly relevant to the decision task. Here, the advertised sale price and amount of actual savings are the objects of evaluation and are most relevant to the purchase decision. As discussed earlier, in the presence of these two pieces of information, advertised comparison prices are redundant and, therefore, peripheral to the decision task. Consequently, one can expect that such comparison prices are more influential under low involvement. In other words, the presence of comparison prices is less effective at higher levels of involvement. Therefore, H3: High involvement consumers are less likely than low involvement consumers to be affected by the presence of an advertised comparison price. STUDY Subjects and Product A convenient sample of one hundred and fifty business student subjects was enrolled to participate in this study during regular class hours. The study involved evaluating a retail price advertisement for a pair of Levi's jeans that normally retails for $41.99. This category was chosen because the student subjects were familiar with the product/brand, and had adequate personal experience in the category.
Procedure First, subjects saw a picture of the product, and provided information about their involvement with the advertised product. In addition, they indicated their reference prices. Involvement was measured as the average of 3 scale items, each ranging from a minimum of 1 to a maximum of 5, to assess subjects' overall interest in and the perceived importance of the product. Consistent with previous research, subjects' reference prices were operationalized as the mean of (i) perceptions of normal market price, (ii) price expected on the next purchase occasion, (iii) maximum price willing to pay and (iv) recall of the price paid on the last purchase occasion. In cases where subjects failed to provide information on one or more of the measures, the mean was computed using the information provided.
