What are Reference Prices in Marketing?
In this detailed article, internal and external reference prices are discussed and their implications for marketers.
A Model of Reference Prices
This article discusses a model that demonstrates the role of reference prices and how consumers use this information to inform and guide their purchase decisions.
Relationship Between Internal and External Reference Prices
There is a direct relationship between these concepts, as internal reference prices are formed through continual exposure to external reference prices.
Why are Reference Prices Important?
Reference prices are an important concept in marketing. Reference prices are the expected and acceptable price range that a consumer will pay for a particular product and/or brand. If a product is priced well above or well below the expected price range, then the consumer is unlikely to see value in the product and is unlikely to purchase
Internal versus External Reference Prices
Internal reference prices are a handy heuristics tool for consumers to allow them to make fast decisions, whereas external reference prices are more important in high involvement purchases.
The Two Types of Reference Prices
A reference price is the expected and acceptable price range that a consumer is willing to pay for a particular product and/or brand. There are two types of reference prices that marketers need to be aware of. These are: internal reference prices and external reference prices.
The Lexicographic Decision Rule
The lexicographic decision rule is the simplest decision approach, as consumers are focused upon the most important individual product attribute to them and choose the product offering that best meets that one single attribute.
The Elimination-by-Aspects Decision Rule
The elimination-by-aspects decision rule is a non-compensatory approach to decision-making for consumers. This decision rule works much like a knock-out competition. A consumer will work through the product attributes being considered one by one – starting with the most important product attribute to them.
What is the Disjunctive Decision Rule?
The disjunctive decision rule is a non-compensatory approach that considers selected product attributes that are important to the consumer. It differs to other decision rules because, with this rule, the consumer is willing to trade-off attributes.
The Affect Referral Rule
The affect referral decision rule is considered a non-compensatory approach to decision-making for consumers. However, it is quite unique from the other non-compensatory decision rules in that it does NOT rely upon the evaluation of individual product attributes
