Dual Role Price Customer

J. of the Acad. Mark. Sei. (2008) 36:359-377 DOI 10.
1007/s 11747-007-0076-7
The dual role of price: decomposing consumers' reactions to price

Franziska Vlckner
Received: 5 February 2007/Accepted: 22 August 2007/Published online: 25 September 2007 Academy of Marketing Science 2007
Abstract Price plays two distinct roles in consumers' evaluations of product alternatives: as a measure of sacrifice and as ati informational cue. This article merges two streams of empirical research into the effects of price on consumers' product evaluations by combining stated preferences, obtained from conjoint measurement., with data on self-reported measures in the form of beliefs or attitudes. It thus offers new, substantive insights into the dual role of price. Specifically., it differentiates between the informational and sacrifice effects of price using a choice-based conjoint approach and differentiates further among different subcomponents of these two main effects by combining choice-based measures with self-reported measures that pertain to potential sources of the dual role of price (price response drivers) and underlying consumer characteristics. Thus, this article presents a general procedure to quantify the impact of the dual role of price on choice shares for product alternatives within a market simulation. This procedure enables managers to simulate the choice share effects of changes in price response drivers, as well as modifications in segmentation and targeting strategies that involve changes in the levels of the price response drivers and thus the levels of the informational and sacrifice components of the price response of demand. Keywords Dual role of price Informational effect Sacrifice effect
Introduction Setting prices for products represents one of the most critical decisions for managers (e.g., Gijsbrechts 1993; Monroe 2003). Developing and monitoring appropriate pricing strategies requires information about consumers' reactions to price and, specifically, quantification of the price response of demand, which is driven byamong otherstwo opposing effects: the sacrifice and the informational effects of price (Rao and Sattler 2003). The sacrifice effect of price, which stems from classic economic theory, represents the consumer's evaluation of the amount of money he or she must sacrifice to satisfy his or her consumption needs. In this respect, price generates disutility and negatively affects purchase probabilities (Erickson and Johansson 1985). However, consumers do not always choose the lowest priced product in a category., even when the products are otherwise similar. One explanation for this behavior, supported by empirical evidence (Brucks et al. 2000; Dodds et al. 1991; Kardes et al. 2004; Rao and Monroe 1989), argues that consumers infer quality information fi-om price, such that higher prices indicate higher quality and thus increase perceived utility (and vice versa), which results in a positive price response of demand. The informational effect of price also may extend to favorable price perceptions, because higher prices can convey the prominence and status of the purchaser to other people. Understanding the dual role that price plays in consumers' evaluations of product alternatives is fundamental to managerial decisions, because varying levels of the sacrifice and informational effects provide the rationale for different pricing strategies.
F. Vlckner ( X ) Department of Marketing and Brand Management, University of Cologne, Albertus-Magnus-Platz, 50923 Cologne, Germany e-mail: franziska.voelckner@uni-koeln.de
^ Springer
360
J. of the Acad. Mark. Sei. (2008) 36:359-377
Empirical research into the effects of price on consumers' product evaluations consists of two streams. First, some studies consider quantitative, demand-based price effects, such as analyses of econotiietric data (e.g., price elasticities of demand), transactions data (e.g., scanner panel data. Vickrey auctions, BDM-type procedures), or stated preferences obtained from conjoint measurement. These studies offer valuable insights into consumers' price reactions on a quantitative level. For example, metaanalyses of price elasticities quantify the total effect of price on demand (Bijmolt et al. 2005; Tellis 1988), and scanner panel data (e.g., Erdem et al. 2005; Stiving and Winer 1997) reveal that the informational effect of price influences sales. However, these studies either fail to decompose the total effect of price into its negative and positive components (e.g., studies using stated preferences) orif they do disentangle the two effectsdo not differentiate ftirther among subcomponents such as prestige sensitivity, hedonistic effects, or transaction utility effects (e.g., studies using scanner panel data). However, it is crucial to differentiate explicitly among these subcotnponents to understand the reasons consumers respond positively or negatively to price cues. Second, other studies analyze self-reported measures in the form of beliefs or attitudes to offer insights into potential sources of the dual role of price by investigating price-related constructs (e.g., perceived allocative effects, price-quality schema, prestige sensitivity), consistent with a negative or positive perception of price, as well as by exploring consumer characteristics related to these negative or positive perceptions (e.g., Ailawadi et al. 2001; Lichtenstein et al. 1993; Teas and Agarwal 2000). However, these studies also suffer a limitation; they fail to analyze the impact of price-related constructs on quantitative, demand-based estimates, such as product choice and market share. Instead, they analyze the dual role of price and its potential sources by relying exclusively on beliefs or attitudes that result from respondents' price perceptions. However, quantifying the dual role of price and its underlying sources in terms of the effects on demand (e.g., product choice, choice/market share) is crucial, because varying levels of these estimates coincide with varying levels of consumers' willingness to pay and thus varying choice/market shares. Beliefs and attitudes simply cannot capture such effects. Therefore, this article analyzes the effects of the dual role of price and its sources on demand to extend existing literature in two important ways. First, I merge the two empirical research streams regarding the effects of price on consumers' product evaluations by combining stated preferences obtained from conjoint measurement with data on self-reported measures in the form of beliefs or attitudes.
Using a choice-based conjoint approach, I differentiate between the informational and sacrifice effects of price in a lab setting; then, using self-reported measures, I differentiate ftirther among different sources/subcomponents of these two main effects. I test the reliability and validity of this procedure and apply the proposed combination of stated preferences with self-reported measures in an empirical setting to gain new, substantive insights into the dual role of price and demonstrate the advantages of this proposed approach^particularly with regard to managerial insightscompared with previous methods. The derived conjoint utilities for the product attributes (including price) reflect their impact on consumers' product evaluations and choices, respectively, which enables calculations of cboice shares for specific product alternatives within a market simulation; in other words, they are much closer to an economic measure of price effects than reported beliefs or attitudes and are directly comparable, unlike selfreported measures. 1 combine the proposed choice-based measures of the sacrifice and informational effects with self-reported measures that indicate potential sources of the dual role of price (i.e., price response drivers). Thus, I quantify the sources of the dual role of price and provide insights into their relative importance for consumers' product choice decisions. In comparison with previous approaches that consider either quantitative, demand-based price effects or selfreported measures, but not a combination of both, the proposed combination of stated preferences obtained from conjoint measurement with self-reported measures provides new insights into the dual role of price. Specifically, 1 can offer a general procedure to quantify the impact of price response drivers on choice shares for different product alternatives in a market setting. This procedure enables managers to simulate the choice share effects of changes in the price response drivers and consequently conduct "whatif ' analyses. I demonstrate an exemplary what-if analyiis by simulating choice share effects in the specific market setting of hotel offerings. Previous studies simply are not able to provide such infonnation to managers, because they do not combine the aforementioned research streams. Second, I examine associations between the identified price response drivers and particular consumer characteristics, which gives marketers a means to design appropriate communication and pricing programs that account for the divergent roles price plays in different consumers' product choices. Although prior research addresses consumer characteristics (as predictors of consumers' price perceptions), this study offers a new and managerially relevant perspective on these characteristics. Specifically, the proposed procedure enables managers to simulate choice share effects when they modify segmentation and targeting
Springer
361
Strategies and thus alter the levels of the identified price response drivers and the informational and sacrifice components of the price response of demand. Previous studies cannot provide these insights because they do not combine quantitative, demand-based price effects with selfreported measures pertaining to price response drivers and underlying consumer characteristics. The remainder of this article is organized as follows: The following section presents the conceptual framework. Next. 1 describe the empirical study design, followed by the study's results. I conclude with a discussion of the findings in terms of their managerial implications and present an outline for nirther research.
response drivers, and (3) their underlying consumer characteristics on choice shares for different product alternatives in a market setting. Informational and sacrifice components of price response of demand The sacrifice effect of price refers to price as a monetary constraint in purchase decisions. That is, price is the "give" component or sacrifice a person must make to obtain the benefits generated by the bundle of attributes that constitutes the product; it limits how much the person has available for spending on other products. The magnitude of the sacrifice effect therefore should relate inversely to the amount of budget the consumer retains after purchasing the product (Rao and Sattler 2003; Urbany et al. 1996) and disappear if the product is free (e.g., sweepstakes prize, free sample in a sales promotion). But the informational effect of price remains the same, regardless of whether a person receives the product for free (e.g., Mitgrom and Roberts 1986), assuming that the consumer knows the market price of the free product (which equals the price of the non-free product). According to this reasoning, Gautschi and Rao (1990) present a methodology to estimate the opposing effects of price separately in a conjoint analysis setting by collecting data from two different scenarios. In the first scenario (budget constraints, full price to pay), respondents must complete a conventional evaluation of product alternatives in regular purchase conditions ("Assume you have to pay the full price shown"). This scenario measures the total
Conceptual model Figure 1 represents an overview of the conceptual model, which I analyze in two stages. First, I decompose consumers' price responses into informational and sacrifice effects within a choice-based utility-formation framework. Second, I combine these demand-based measures with data about the potential sources of the dual role of price (price response drivers) and provide insight into the associations between price response drivers and consumer characteristics. I ftirthermore test the reliability and validity of the choice-based conjoint methodology by addressing the testretest reliability and predictive, face, and nomological validity. Finally, I present a general procedure that quantifies the impact of (1) the sacrifice and informational components of consumers' price responses, (2) price
Figure I Conceptual model.
Consumer characteristics
Sources of the dual role of price (price response drivers)
Consumers* price response (with ICPR > 0 and SCPR < 0)
Informational component of the price response of demand (ICPR) [pricespecific conjoint utilities]
Sacrifice component of the price response of demand (SCPR) [price-specific conjoint utilities]
Springer
362
J. ofthe Acad. Mark. Sei. (2008) 36:359-377
Prestige effect.^ The purchase, use, display, and consumption of goods and services that bear high prices provide a hj>ricejnfo equals the sacrifice effect {h,price_sacrifice), and means to gain social status (Mason 1981). Therefore, h,PHccjnfo reflects the informational effect of price. consumers also may perceive price as a surrogate indicator Studies by Gautschi and Rao (1990), Rao and Sattler of prestige (e.g.. Lichtenstein et al. 1993), which again (2003), and Vlckner and Sattler (2005) provide empirical results in a positive impact of price on purchase probability. evidence that a conjoint-based approach can decompose the For example, some consumers purchase an expensive car price response of demand {i.e., price-specific conjoint not because of their quality perceptions per se but because utility that measures the total effect of price on product of their perception that the purchase will signal a latent choices) into its positive and negative components, but variable, such as status or wealth, that others cannot none ofthese studies investigates relationships between the observe directly (Amaldoss and Jain 2005). sources of the dual role of price and the demand-based estimates of the two opposing price effects. Nor do these Hedonistic effects A positive impact of price on purchase studies offer a comprehensive test of the reliability and probability also may derive from the feelings of pleasure validity of the methodology. and excitement associated with consuming higher priced I adopt this basic methodology and apply it to a choicebased conjoint setting that reveals preferences by examining discrete choice behavior (Haaijer and Wedel 2003). The estimated conjoint utilities for the product attributes (including price) reflect their impact on consumers' product choice. Therefore, this methodology enables us to determine quantitative, demand-based estimates of the two opposing price effects. Sources of infonnational and sacrifice components of price response of demand (price response drivers) According to cue utilization theory, consumers infer infonnation from product-related attributes, and price represents one of the most important marketplace cues (Gijsbrechts 1993; Rao and Monroe 1989; Richardson et al. 1994). Research evidence in this context suggests three potential sources of the informational component of consumers' price responses (e.g., Rao and Monroe 1989; Amaldoss and Jain 2005; Dubois and Laurent 1994): pricequality beliefs, prestige effects, and hedonistic effects. In addition, classic economic theory and Thaler's (1985) products (Dubois and Laurent 1994), as theorized by literature on hedonistic consumption. Hedonistic consumption designates those facets of consumer behavior that relate to pursuing emotional responses associated with using a product, such as pleasure, excitement, arousal, good feelings, and fun (Hirschman and Hoibrook 1982). In tills case, favorable perceptions of higher prices are based on what the price cue signals to the purchasers in terms of their own thoughts and feelings associated with using the product. They prefer higher prices as a means of selfaffirmation and to satisfy their egocentric desires to treat themselves. Allocative effects The classical model derived from the economic theory of consumer behavior postulates that a consumer maximizes his or her utility by allocating a limited budget across alternative products (Nagle 1984). The higher the price for a particular product, the less money becomes available for spending on other products (Erickson and Johansson 1985). The allocative effect thus becomes a fiinction ofthe purchase price when the utility derived from the product remains constant. Consumers who are sensitive
effect of price, because it does not distinguish between sacrifice and informational effects. In the second scenario (without budget constraints, sweepstakes), the same respondents view the same stimuli but are instructed that a third party will pay the shown price ("Assume you don't have to pay for the product. You won the product in a sweepstakes. Selling the prize or giving it away is not possible"). Getting the product for free should eliminate the sacrifice effect of price, so if price still exhibits a role, that role consists of informational effects that indicate quality or prestige. Gautschi and Rao (1990) show that the sacrifice effect of price can be calculated at the individual level as the difference between the total and infonnational effects of price. ^^ h,Pricejotat denotes the individual price coefficient (i.e., price-specific utility) obtained in the first scenario (budget constraints) and h.Prk-ejnf is the price coefficient obtained in the second scenario (no budget constraints), h.pncejotat~
transaction utility theory suggest that allocative effects and transaction utility may provide two potential sources of the sacrifice component. , Price-quality beliefs The relationship between price and perceived quality has received significant attention in pricing research. Using price as a surrogate for product quality usually occurs when the quality evaluation is uncertain, which makes the purchase risky. The use of a price cue to infer product quality varies across situations and products (Erdem 1998; Urbany et ai. 1997), and some consumers are more likely than others to use price as a general indicator of quality across situations and products (Lichtenstein et al. 1993). Because high price is perceived to indicate higher quality, it positively affects purchase probability.
^ Springer
363
to the allocative role of price likely prefer low prices; higher prices are associated with strong allocative effects and thus negatively affect purchase prohability among these consumers. Tran.saction utility in addition to the allocative effect. Thaler's (1985) transaction utility theory suggests that the sacrifice component may be driven by the transaction utility of the purchase. The concept of transaction utility captures consumers' reactions to the actual price relative to their price expectations and thus represents the incremental utility associated with a "good deal," which can create a sense of being a smart shopper who pays a low price for a particular item and thus makes the consumer feel proud or competent (Schindler 1989). Thaler's transaction utility effect suggests that a notably low or high price (relative to the expected price) affects willingness to buy beyond the influence of the allocative role of price (Lichtenstein et al. 1990; Urbany et al. 1997). Empirical support for this effect indicates, for example, that a price discrepancy tenn that captures the difference between the expected and actual price contributes signiftcantly to brand choice predictions (Katyanaram and Winer 1995). Interaction effects Brucks et al. (2000) note that the meaning of quality is multidimensional and that prestige, or how well the product communicates superiority to the purchaser and his or her relevant social groups, represents an important quality dimension. Consumers use price and brand name much more frequently when evaluating prestige than when evaluating other quality dimensions (e.g., ease of use, durability). I therefore follow Brucks et al. (2000), consider prestige a quality dimension, and postulate a positive interaction between price-quality beliefs and prestige effects. Analogously, hedonic product performance might represent an important quality dimension for some consumers, which suggests a positive interaction between price-quality beliefs and hedonistic effects. Finally, the perceived emotional (hedonic) value associated with using a product might result from not only purchasers' egocentric desires to treat themselves but also the arousal associated with displaying wealth and status, which suggests a positive interaction between hedonistic and prestige effects. On the basis of this reasoning, 1 offer the following hypotheses: Hi: Price-quality beliefs relate positively to the informational component of the price response of detnand. H2: Prestige effects relate positively to the informational component of the price response of demand. H3: Hedonistic effects relate positively to the informational component of the price response of demand.
H4: Allocative effects relate negatively to the sacrifice component of the price response of demand, such that the stronger the perceived allocative role of price, the more negative the sacrifice component of consumers' price response becomes. H5; Transaction utility effects relate negatively to the sacrifice component of the price response of demand, such that consumers who attach greater value to the transaction utility of a purchase exhibit a stronger (i.e., more negative) sacrifice component in their price response. Hfii The positive effect of price-quality beliefs on the informational component of the price response of demand increases as the level of prestige sensitivity increases. H7: The positive effect of price-quality beliefs on the informational component of the price response of demand increases as the level of hedonism increases. Hg: The positive effect of prestige sensitivity on the informational component of the price response of demand increases as the level of hedonism increases. The tests of the derived hypotheses regarding the relationships between the two price response components and the sources of this dual role offer particularly interesting results with regard to the nomological validity of the proposed choice-based conjoint methodology. Specifically, a method has nomological validity if it behaves as expected with respect to some other construct to which it is theoretically related (Churchill 1995). The role of consumer characteristics To gain insight into whether the five sources of informational and sacrifice price components lead to distinct behavior patterns, and thereby infonn segmentation and targeting efforts, I examine the associations between the price response drivers and consumer characteristics. The costbenefits framework, derived from the concept of perceived value, provides a theoretical framework for generating particular consumer characteristics for the empirical study, because consumers' perceptions of value represent fiindamental determinants of product choice (Agarwal and Teas 2001). Perceived value refers to consumers' overall assessments of product utility, based on their perceptions of what they received and what they sacrificed, so value represents a trade-otT between the salient benefit and cost components associated with purchasing a product. The benefit components include product quality and other prominent, high-level abstractions, such as prestige/ image enhancement and convenience. Cost components include monetary price and nonmonetary costs, such as search, switching, and perceived enor costs (Gijsbrechts
364
1993; Zeithaml 1988). I expect these benefits and costs to create associations between consumer characteristics and the price response drivers. Because most of these relationships have been theoretically derived in prior literature (e.g.. Lichtenstein et al. 1993; Suri and Monroe 2003; Urbany et al. 1996; Teas and Agarwal 2000), I abstain from an explicit, a priori discussion of the potential relationships; rather, a detailed discussion of the statistically significant relationships appears in "Results." By defmition, product quality is important for consumers who are quality conscious, and overall, it represents the most salient "get" component of a purchase transaction, because it reflects the consumer's judgment about a product's cumulative excellence. I conceptualize quality consciousness as the degree to which a consumer focuses on buying high-quality products (Ailawadi et al. 2001) Prestige/image enhancement is relevant to consumers who embody a high motivation to conform to peer expectations. Theoretical and empirical results support its inclusion in this study; for example. Vigneron and Johnson ( 1999) discuss the role of social approval and image enhancement in consumers' price perceptions, and Amaldoss and Jain (2005) highlight the effect of social needs, such as a desire for uniqueness and confonriity, on demand pattems for conspicuous consumption goods. Convenience relates to consumers' need for simplification of cognitive tasks, which allows for less extensive information processing and greater reliance on easily available diagnostic cues to simplify the buying process (Chatterjee and Suman 1998). Relying on the price cue provides convenience and saves time by facilitating shopping across several categories. The monetary price, which represents the amount of economic outlay required by a given purchase transaction, is particularly relevant to consumers who are price conscious and deal prone and who perceive themselves as subject to fmancial constraints or as price mavens. Price conscious consumers generally want to pay low prices, are sensitive to price differences, and set internal limits on what they are willing to pay (O'Neill and Lambert 2001). Deal proneness refers to an increased propensity to respond to a purchase offer predominantly because it is in deal form (Lichtenstein et al. 1990). Deal-prone consumers seek to pay reduced prices, and finding a lower price for a particular item causes them to feel proud, smart, and competent. Financially constrained consumers focus on paying prices within their budget, and empirical and theoretical evidence indicates that perceived budget constraints play important roies in motivating consumers' search for low prices (Urbany et al. 1996). Finally,/;/7ce mavenism, an adaptation of the tenn "market mavenism" (Feick and Price 1987), reflects the desire to be informed about marketplace prices
and transmit that information to other people (Lichtenstein et al. 1993). Price mavens gather price infonnation, initiate shopping-related discussions, and respond to requests for infonnation about marketplace prices and places to shop for the lowest price. With regard to costs, switching costs in particular are high for brand loyal consumers. Strong theoretical and empirical evidence supports the inclusion of brand loyalty in this study; for example, Kirmani and Rao (2000) discuss the use of signals, such as brand name and price, to cope with imperfect product quality infonnation. Brucks et al. (2000) empirically find that consumers search for brand name and price infonnation much more fi^quently when evaluating the prestige rather than the quality of the physical attributes of products. A major component of search costs refers to consumers' perceptions of the value of their time per unit of search efbrt (Srinivasan and Ratchford 1991 ). Search costs thus relate to time pressure, such that consumers facing time constraints tend to use easily recognizable cues, including price, to facilitate their shopping efforts (Suri and Monroe 2003). Finally, risk is the consumer's subjective assessment of the financial, psychological, physical, functional, and/or social consequences of making an incorrect purchase (Murphy and Enis 1986). Evidence suggests that greater risk or consequences of product failure enhance price reliance (Peterson and Wilson 1985; Zeithaml 1988). I therefore include consumers' propensity to rely on the price cue to cope with imperfect information (i.e., risk). Previous research addresses these consumer characteristics. However, this research investigates these characteristics in a new and managerially relevant way. Specifically, I present a genera! procedure that can enable managers to simulate choice share effects of modifications in segmentation and targeting strategies that involve changes in the levels of the price response drivers and thus the levels of the informational and sacrifice components of the price response of demand.
Data and research design Sample I collected data in a large Western European country using a consumer survey of an online access panel that mirrors the overall population. Respondents received an e-mail invitation to fill out an Internet questionnaire. In addition, all panel participants are heads of households, are at least 18 years of age, and have some experience in the product category investigated in this study. A total of 461 adults participated in the survey.
^ Springer
365
Choice-based conjoint tasks and multi-item measures The questionnaire required respondents to participate in several discrete-choice tasks and answer rating-scaled questions. Respondents completed ten choice tasks in the first scenario (budget constraint) and ten choice tasks in the second scenario (no budget constraint), including two reliability tasks, one in each scenario, that I use to test the reliability of respondents' answers. The cover story indicated that respondents planned a weekend trip to a major European city, whose details had already been arranged, except that the respondents had to book a hotel room from a selection of different hotels. Each choice set contained three hotels (i.e., conjoint stimuli), as well as a no-purchase option. The hotels were middle-class hotels and differed in price (60.00, 90.00, and 120.00), room size (regular, spacious), location (town center, near town center), and availability of health/fitness area (yes, no). All rooms had an en suite bathroom. A pretest with 20 non-student subjects and a comprehensive review of hotel offerings on www.hrs.com (an online hotel reservation service) indicated the chosen attributes and attribute levels are the most important items for product evaluation, as well
as distinguishing factors among products (Alpert 1971). To determine the levels of the attributes, I also draw on real market conditions. The creation of the stimuli (i.e., hotel altematives) and conjoint choice sets employs a computergenerated design that accounts for the design principles of orthogonality, minimal overlap, and level balance (Huber and Zwerina 1996). Specifically, I use the Sawtooth design module to generate a randomized design that applies the complete enumeration option (Orme 1999). This option considers all possible stimuli and chooses each to produce the most nearly orthogonal design for each respondent. The stimuli within each task are as different as possible, and each attribute level appears an approximately equal number of times. In addition to the choice-based conjoint task, the survey includes multi-item scales for each price response driver and psychographic correlate, measured on seven-point scales from "strongly disagree" to "strongly agree," such that higher scores indicate higher construct levels. Appendix 1 provides the items associated with all the constructs used in the study, many of which come directly or in modified form from prior studies (for details, see Table 1). 1 pretest all the scales with 25 respondents.
Table 1 Constructs and reliability statistics Construct Cronbach's alpha Construct reliability Number of items Factor loadings* Literature for scale items
Price response drivers'' Price-quahty beliefs Prestige effects Hedonistic effects Allocalive effects Transaction utility Consumer characteristics'^ Quality consciousness Motivation to conform Need for simplitlcation of cognitive tasks Price consciousness Deal proneness Financial constraints Price mavenism Brand loyalty Time pressure Price reliance
.759 0.811 0.916 0.878 0.719
0.629 0.682 0.778 0.710 0.719
3 3 4 3 3
0.688 0.713 0.927 0.956 0.739
0.778 0.689 0.924 0.742 0.663
0.685 0.936 0.673 0.823 0.662
0.919
Peterson and Wilson (1985) Lichtenstein el ai. (1993) Urbany et al. (1997), Grewal et al. (1998) Ailawadi et al. (200!) Bearden tal. (1989) Darden and PerTeault (1976). Slool et al. (2005) Lichlenstein et al. (1993) Urbany et al. (1996) Feick and Prie (1987), Lichtenstein et al. (1993) Ailawadi et al. (2001). Wood (2004) Hawes and Lumpkin (1984) -
0.804 0.855 0.700 0.846 0.782 0.887 0.898 0.914 0.780 0.921
0.717 0.695 0.676 0.741 0.637 0.721 0.831 0.764 0.532 0.803
3 4 3 2 3 3 3 3 2 3
0.824 0.788 0.624 0.824 0.685 0.74] 0.902 0.856 0.720 0.836
0.817 0.756 0.842 0.891 0.902 0.846 0.861 0.907 0.890 0.891
0.658 0.753 0.559
0.802
0.670 0.984 0.961 0.886
0.949
CFI Confinnatory fit index; TU Tucker-Lewis index, RMSEA root mean squared error of approximation " Chi-square/i//= 1.280, CFI-0.960, TLI-.95O. RMSEA (tesi of close m)=0.026 (p=1.000) ^Chi-square//=1.621. CFI=0.969. TLI=0.962, RMSEA (lest of close fit)=0.039 (;;-0.999) *All factor loadings significant at/)<O.OI
^ springer
366 Results From the collected choice data, I obtain individual-level estimates of the two components of consumers* price responses with a hierarchical Bayes model (Arora and
J. of the Acad. Mark. Sd. (2008) 36:359-377
Huber 2001) that contains two levels. At the higher level, a multivariate normal distribution describes respondents' partworths. At the lower (i.e., individual) level, given a respondent's partworth, I derive individual choice probabilities in standard logit form (AUenby and Lenk 1994):
NP.h XNP,i + (1 ~ XNP.i) ( E Plu =

\jJM
hj,
(1)
where hj.m'parameter (partworth) for the mth level of the yth attribute for consumer /i, parameter (partworth) for the effect of price level m for consumer A,' value of the mth level of the yth attribute of product , price level m of product i, choice probability of product for consumer A, parameter (panworth) for the no-purchase option for consumer /i, binary variable indicating if selected alternative / is the no-purchase option, 1, if i = no purchase option .0 else. index index index index index set set set set set of products in choice set a, of consumers, of products, of attributes without price, and of levels for theyth attribute. The derived partworth utilities retlect influences on consumers' product choices. Using the choice data of the budget constraint scenario in the estimation process generates estimates for the total effect of price on demand, whereas the choice data from the unconstrained budget scenario yield partworths that reveal the informational component of the price response of demand (ICPR). The differences between the individual price partworths obtained in each scenario provide the sacrifice component of the price response of demand (SCPR). Reliability and validity of the choice-based conjoint approach In this section, I elaborate on the test-retest reliability, predictive validity, and face validity of the applied choicebased conjoint methodology. However, because testing for nomological validity requires estimating a structural model that represents the hypothesized relationships, which is closely interwoven with the analysis of the price response drivers and consumer characteristics, I present the results regarding nomological validity in the subsequent section. Test-retest reliability To measure reliability, I consider the agreement between respondents' choices in the first and tenth choice tasks, because the latter is a replication of the first, and in the eleventh and twentieth choice task, because the latter is a replication of the eleventh task (Ghiselli et al. 1981). I exclude those subjects who responded differently to both reliability tests to minimize bias by random choice behavior within the parameter estimation. Therefore, I eliminate 44 from the sample of 461 respondents. The reliabilities for the remaining 417 respondents are 87.05% (priee-to-pay scenario) and 85.13% (sweepstakes scenario). Therefore, each scenario (i.e., with or without budget constraints) has available 3,753 choices (9 choice tasks x 417 respondents) for estimation.
h,i'-
I: Mj'.
The hierarchical Bayes estimation method proceeds in an iterative manner and recursively generates draws of the model parameters, I therefore must ensure that the procedure is stationary prior to retrieving estimates. Timeseries plots of the root-likelihood values show that the process converges after a few thousand iterations, but I use a total of 10,000 preliminary iterations and 5,000 subsequent iterations to generate parameter estimates.
Depending on whether the estimation process uses choice data of the budget constraint or unconstrained scenario, it reveals the total effect of price or the informational cotnponent of consumers' price responses, respectively.
Springer
367
Total effect of price on demand (partworths)

147 10
Informational component of consumers' price responses (partworths)
Sacrifice component of consumers' price responses (partworths)
-2
-61 -10
1-t.
60.00
90.00 Price (Euro)
120.00
60.00
90 00 Price (Euro)
120.00
60.00
90.00 Price (Euro)
120.00
Price 60 Euro 90 Euro
Partworths"' Standard (mean) deviation 5.31 1.49 -6.80 Slope -0,13 -0.28 -0.20 2.75 0.68 2.88 Standard deviation 0.09 0.11 0.09
Price 60 Euro 90 Euro
Partworths*" Standard (mean) deviation
Price 60 Euro
Partworths^* Standard (mean) deviation 6. 81 0. 96 -7 .77 Slope -0,20 -0.29 -0.24 2.96 0.74 3.08 Standard deviation 0.10 0.11 0.10
-1 .49 0.53
0 .96 Slope 0.07 0.02 0.04
1.62 0.47 1.49 Standard deviation 0.06 0.05 0.05
120 Euro Price range 60-90 Euro 90-120 Euro 60-120 Euro
120 Euro Price range 60-90 Euro 90-120 Euro 60-120 Euro
90 Euro 120 Euro Price range 60-90 Euro 90-120 Euro 60-120 Euro
a) Within each attribute, the partworths sum to zero because ofthe use of effects coding (Omiel999).
Figure 2 Box plots of the parameter estimates.
Predictive validity To measure predictive validity, I examine the extent to which a model based on the conjoint utilities estimated through specific subsamples of choice tasks correctly predicts observed choice behavior in a holdout task (i.e.. choice task not used for parameter estimation). I apply the first choice transformation rule to predict individual choices, fora total of 2x9 holdout choice tasks.^ The first choice rule assumes each respondent chooses the profile that exhibits the highest utility, independent ofthe relative strength of his or her preference
within the choice set. I draw on the hit rates to verify whether respondents' observed choices equal their predicted choices (Huber et al. 1993) and find that the mean hit rates are satisfactory: 85.47% for the full-price-to-pay scenario and 81.25% for the sweepstakes scenario. Face validity! For this measure, I examine the results ofthe manipulation check, which consists of respondents' selfreported perceptions ofthe sacrifice effect of price when they do not face a budget constraint (sweepstakes scenario): "Even if I win my hotel accommodation forthe weekend trip in a sweepstakes, I perceive price as a measure of economic outlay that must be sacrificed in order to utilize the accommodation" (seven-point scale, l=strongly disagree, 7^strongly agree). In total, 91.9% of respondents rated the item 3 or lower, and 95.2% rated it 4 or lower (mean rating: 1.31). The manipulation check thus indicates that the scenario successfully eliminates the sacrifice effect of price.
^Respondents completed nine choice tasks in the first scenario and anolher nine in the second scenario (excluding reliability tests). 1 omit one choice task from parameter estimation, calculate model parameters on the basis of the remaining eighl choice tasks, predict individual choices for the holdout task, and compule the resulting hit rate for each ofthe two scenarios. Thus, I obtain nine hit rates forthe ftill-price-to-pay scenario and anolher nine hit rates for the sweepstakes scenario.
Springer
368
Furthermore, I examine whether the signs of the estimated parameters for the informational and sacrifice components (i.e.. estimated conjoint utilities) are in the expected direction. Figure 2 summarizes the estimation results. Ail price-level partworths (i.e., price-specific conjoint utilities) show the expected direction, because respondents' pricelevel partworths decrease as the price increases in the iullprice-to-pay scenario and increase as the price increases in the sweepstakes scenario. In other words, the order of price preference changes from a preference for low prices in the first scenario (total effect of price) to a preference for high prices in the second, sweepstakes scenario (ICPR). The box plot to the far right in Fig. 2 shows the resulting SCPR. which also exhibits the expected direction, in that the pricelevel partworths decrease as the price increases. I also test whether the differences between the pricelevel partworths are significant by using paired Student's Mests. In all three settingstotal effect of price, informational component, and sacrifice componentthe partworths are significantly different (p<0.00\) for each price level. The same is true for the slopes in Fig. 2. I calculate the slopes between the three price-level partworths for each respondent to obtain appropriate measures of ICPR and SCPR, then use these measures in the subsequent analyses.
Figure 3 Estimated framework. LISREL Consumer characteristics
In summary, the tests suggest a high degree of reliability, predictive validity, and face validity of the choice-based conjoint approach and estimates. :
Structural models for the infonnational and sacrifice components of price response In this section, 1 investigate the relationships between the two price response components and their drivers, elaborate on the nomological validity of the choice-based conjoint approach, and provide insight into the associations between price response drivers and consumer characteristics. I use LISREL software (Jreskog 1982) to estimate the proposed models within a maximum likelihood estimation framework, which assumes the approximate normality of the data for model estimation and testing. Multivariate tests of normality based on skewness and kurtosis of the observed variables indicate the data are approximately normal (Chou and Bentler 1995). The estimated LISREL framework, depicted in Fig. 3, underscores the substantive insights of the proposed approach compared with previous methods. Previous work considers either quantitative, demand-based price effects (right-hand side of Fig. 3) or self-reported
Price response drivers Consumers' price response (with ICPR > 0 and SCPR < 0)
Qualiiy consciousness Motivation to conform Need for simplification of cognitive tasks Price consciousness Deal proneness Financial constraints Price mavenism Brand loyalty Time pressure Price reliance
Results for measuremenl models of constructs (with all interfactor covariances freely estimated): Table 1
Results for structural model: Table 2
Quality consciousness Motivation to conform Need for simplification of cognitive tasks Price consciousness Deal proneness Financial constraints Price mavenism Bnmd loyalty Time pressure Price reliance
^ ^ Allocative effects -^ ^ Transaction utility -^ ^-^
SCPR
j
1 1 1
Results for measurement models of constructs (with all inlcrfactor covariances freely estimated): Tab!e I
( Results for structural model: Table 2
Springer
369
measures pertaining to potential sources of the dual role of price and consumer characteristics (left-hand side of Fig. 3). By combining both research streams, and thereby disentangling the dual rote of price into several subcomponents (i.e., price response drivers), this research enables analyses of the choice share effects of changes in the price response drivers, as well as of modifications in segmentation and targeting strategies that alter the levels of the identified price response drivers. Measurement models of the price response drivers and consumer characteristics I evaluate the measurement scales of the latent constructs prior to estimating the structural relationships among the constructs and provide the reliability statistics in Table 1. Cronbach's alphas vary between 0.80 and 0.92. Furthermore, I specify two confirmatory factor analysis models-one for the 16 items related to the five price response drivers and another for the 29 items related to the ten psychographic correlates. I do not allow cross-loadings for either model, nor do I allow measurement errors to covary. All interfactor covariances are fi-eely estimated. The fit of both models is very good, even according to the high standards of measurement quality imposed by these conditions. The robust comparative fit index is 0.960 for the measurement model of the five drivers and 0.969 for the consumer characteristics measurement model. Similarly, the root mean squared error of approximation is 0.026 for the former and 0.039 for the latter. Loadings of all items on their factors are strong and significant. The magnitude of their i-statistics ranges fix)m 8.25 to 31.82. On average, 75.78% of the variation in an item is explained by its factor, and the magnitude of interfactor correlations ranges fi-om 0.011 to 0.417 (see Appendix 2 for details). Finally, I conduct a test for construct discriminant validity using Fomell and Larcker's (1981) procedure, which suggests that a construct possesses discriminant validity if the average variance extracted by it is greater than the shared variance (i.e., squared interfactor correlation) with other latent constructs. Each constnict satisfies this condition, which provides evidence of discriminant validity among all constructs.
Results for informational and sacrifice components of price response of demand (ICPR and SCPR) Tables 2 and 3 present the standardized parameter estimates., model R^, and fit statistics for the ICPR and SCPR models. All fit indicators fall within a satisfactory range, which indicates that the models fit well with the data (Byme 2001). The price response drivers are statistically significant and have the expected sign, in support of H| 5. as well as the nomological validity of the applied choice-based conjoint method. The price response drivers explain 21.5% of the variation in the ICPR and 28,7% of the SCPR variation. I note that the explanatory variables are self-reported measures of the three drivers, whereas ICPR and SCPR are tneasured on the basis of observed choice behavior within a choicebased conjoint setting; the /?" is notably good compared with findings in other studies that attempt to explain observed behavior on the basis of self-reported measures (e.g.. De Wulf et al. 2003; Pennings and Smidts 2000). Price-quality beliefs are the most important source of ICPR, followed by the prestige value of high-priced products and hedonistic effects. The strong effects of price-quality beliefs should be common in markets in which quality is difficult to evaluate (e.g., hotel accommodations, which consist of experience and credence attributes), whereas prestige effects should be particularly strong for products and services purchased or consumed in public, highly visible contexts (e.g., again, hotel accommodations). Finally, hedonistic effects depend on the individual consumer and likely drive consumers* price responses in a broad variety of markets. Transaction utility plays a stronger role than the allocative effect in explaining the SCPR, which might be a partial function of the relatively expensive product category investigated in this study. That is, paying a lower price than expected likely is particularly relevant for bigticket items but less relevant for inexpensive products. I also apply a single-indicator technique (Ping 1995) to incorporate the hypothesized moderating effects but find no statistically significant (p>OAO) effects for the three interaction terms. Both a step-by-step procedure and a simultaneous estimation of all three interaction effects
Table 2 Results for the infonnational and sacrifice componetits of price response of demand Dependent Variable Informational component of price response of demand Sacrifice compotietit of price response of demand Standardized paratnetcr estimates 0.259*** price-quality beliefs + 0.189*** prestige effects+0.130** hedonistic effects -0.174*** allocative effects-0.203*** transaction utility R0.215 0.287
Slope between the price-level partworlhs obtained iti the setting without budget constraitit, slope>0 **p<0.05 I *;7<0.0l
^ Springer
370 Table 3 Effects of consumer characteristics (standardized parameter estimates) Structural model for the ICPR Dqiendent variables Price-quality-beliefs Prestige effects 0.090 0.183*** -0.050 0.066 -0.073 -0.067 0.029 0.214*** -0.010 0.397*** 0.379 1.443 0.960 0.966 0.033 [0.028, 0.037] 0.999 Hedonistic effects 0.118** -0.002 0.100** -0.134*** -0.135*** 0.008 0.051 0.067 0.008 0.546*** 0.533 X^ Statistic" 12 d 1.752 7.996** 7.183** 9.790*** 5.413* 1.101 6.761** 7.390** 0.433 37.995***
Structural model for the SCPR Dependent variables Allocative effects -0.086* 0.044 -0.063 0.471*** -0.014 0.187*** 0.050 -0.051 -0.066 0.067 1.506 0.957 0.964 0.035 [0.030, 0.039] 0.999 Transaction utility 0.131** 0.064 0.097 0.220*** 0.488*** 0.035 -0.024 -0.183*** 0.017 0.096 X^ Statistic"
i2d
5.681** 0.023 1.069 32.761*** 8.294*** 7.863*** 1.457 0.062 1.461 0.202
Quality consciousness Motivation to conform Need for simplification of cognitive tasks Price consciousness Deal proneness Financial constraints Price mavenism Brand loyalty Time pressure Price reliance
0.045 0.185*** 0.138** 0.050 -0.024 0.012 -0.113* 0.030 -0.005 0.368*** 0.237
If
Chi-squaiddf Tucker-Lewis index Confirmatory fit index Root mean squared error of approximation [90% confidence interval] p value of test of close fit
" Statistic for testing equality of coefficients across the three equations *p<OAO **p<0.05 ***/i<o.ni
reveal statistically insignificant effects. Furthermore, I conduct a subgroup analysis to test the three moderating effects, in which I divide the sample into two groups on the basis of their levels of price-quality beliefs (low and high), prestige sensitivity (low and high), and hedonistic tendencies (low and high) using median and mean splits. I estimate the model for each subgroup while imposing the constraint that the structural relationships are invariant across the two groups. Next, I estimate the model for each subgroup without coefficient equality constraints. A chisquare difference test indicates the tenability of invariance constraints, such that a statistically significant decrease in the chi-square for the model without equality constraints would indicate the grouping variable moderates the structural relationships. I find no statistically significant {p> 0.10) chi-square differences in any subgroup analysis and therefore cannot confirm Hg, H7, or Hg. Consumer characteristics explain between 23.7% (pricequality beliefs) and 53.3% (hedonistic effects) of the variation in each price response driver. This level of explanatory power compares favorably with other studies of shopping behavior that use self-reported variables. Table 3 also
reports the x^ statistics for each consumer characteristic, which indicate whether the coefficient of that variable is equal for each of the drivers of ICPR and SCPR. For ICPR. seven of the ten x^ values are significant; for SCPR, four of the ten x^ values are significant. That is, most consumer characteristics have significantly different associations with the five price response drivers, which offers a strong basis for segmentation and targeting. The first column of coefficients in Table 3 shows that consumers who perceive high prices favorably because of their price-quality beliefs want to simplify their cognitive tasks and rely on the price cue to cope with imperfect information (i.e., risk). This result is consistent with the notion that price cues serve as heuristic techniques to assess product quahty when consumers want to reduce perceived purchase risk (Dawar and Parker 1994) or are not motivated to process attribute information (Suri and Monroe 2003). However, the relationship between price mavenism and price-quality beliefs emerges as significantly negative, which suggests consumers pay attention to price cues consistently. That is, they are sensitive to either high prices because of their price-quality inferences or low
^ Springer
J. of the Acad. Mark. Sei, (2008) 36:359-377
371
prices because they want to transmit information to others. Price mavens furthermore are less likely to believe they will receive product quality compensation in return for higher prices, which prompts a negative relationship between price mavenism and price-quality beliefs. Finally, the positive relationship of motivation to conform with price-quality beliefs demonstrates the role of social recognition in pricequality inferences, such that peers may look down on the purchase of products of medium or low quality. Consumers who choose high-priced products because of prestige effects are brand loyal, fee! motivated to conform to the expectations of others, and use the price cue to cope with perceived risk. The strong positive effect of brand loyalty indicates that the effect of price on product choice becomes more pronounced when a positive price cue appears with a positive second cue, such as a strong brand (Miyazaki et al. 2005). Prestige-sensitive consumers may perceive the combination of high price and strong brand name as an even better signal of status or wealth than price or brand name alone. Therefore, they buy high-priced brands and tend to be loyal to favored brand(s) that meet their requirements. The positive coefficient of consumers' motivation to conform to peer expectations also shows that
consumers seek social approval by purchasing expensive products. The negative associations between price consciousness or deal proneness and hedonistic effects support the notion that hedonist consumers buy expensive products primarily for their pleasure and want to reward themselves (Dubois and Laurent 1994), which means they place less emphasis on paying low pries. Rather, hedonist consumers are willing to pay high prices for products that are clearly distinguished by quality, as the significantly positive coefficient of quality consciousness reveals. The results further suggest that hedonist consumers use the price eue to cope with the perceived risk that product performance (functional and hedonic) will not meet their requirements. Finally, consumers who are not motivated to process information extensively are more receptive to hedonic consumption experiences. Consumers who are sensitive to the allocative effect of price are not quality conscious but are highly price conscious and fmancially constrained. They pereeive higher prices as a costly resource outlay and are willing to sacrifice product quality for low prices, as the significantly negative coefficient of quality consciousness shows. In contrast.
Table 4 Simulation of choice share effects (illustrative case) Hotel 1 Hotel 2 Hotel 3 Hotel 4 Hotel 5 Hotel 6 Hotel 7 Noneoption
Price {) Room size Location Health/fitness area Choice shares (%) Base scenario Increase of one unit'' in Price-quality beliefs Prestige efFects Hedonistic effects Allocative effects Transaction utility Quality consciousness Motivation to conform Need for simplification of cognitive tasks Price consciousness Deal proneness Financial constraints Price mavenism Brand loyalty Price reliance
60 Regular Near town center
90 Regular Near town center
90
Regular Near town center
90 Regular Town center No 7.58 7.91 7.84 1.11 7,23 7.16 7.59 7.71 7.66 7.30 7.35 7.52 7.53 7.71 7.89
90
Regular Town center
120 Regular Town center No 0.68 1.03 0.92 0.84 0.52 0.49 0.69 0.78 0.74 0.54 0.57 0.65 0.65 0.77 1.00
120
Spacious Town center
No
30.40 24.59 26.13 27.44 34.56 35.28 30.31 28.49 29.27 33.83 33.20 31.18 31.11 28.57 25.01
No
0.44 0.51 0.49 0.48 0.39 0.38 0.44 0.46 0.46 0.40 0.41 0.43 0.43 0.46 0.50
Yes
5.73 5.89 5.87 5.84 5.51 5.46 5.74 5.81 5.79 5.55 5.59 5.70 5.70 5.80 5.89
Yes
41.29 42.31 42.17 41.97 39.82 39.51 41.32 41.77 41.59 40.12 40.36 41.06
41.08
Yes
10.71 15.44 14.06 12.95 8.14 7.76 10.77 12.11 11.52 8.55 8.91 10.18 10.23 12.06 15.06 3.16 2.31 2.52 2.71 3.84 3.96 3.14 2.87 2.98 3.71 3.61 3.28
3.27
2.88 2.37
41.75
42.28
One point on the seven-point rating scale
^ Springer
372
those consumers who are receptive to the perceived transaction utility of a purchase are highly conscious of both price and quality. They are deal prone and not brand loyal. In addition, the significant and positive coefficient of quality consciousness suggests that transaction utility effects attract those smart shoppers who seek to pay low prices but want a good quality product. Finding a price for a particular item that is lower than expected enhances their perception of themselves as good shoppers. Furthermore, the statistically significant, negative coefficient of brand loyalty is consistent with the notion that switching costs are higher for brand-loyal consumers, so the negative coefficient of brand loyalty is plausible because price deals often require the consumer to switch brands (Bawa and Shoemaker 1987). Deal proneness relates exclusively to transaction utility effects, whereas financial constraints are associated only with allocative effects. This finding is consistent with the conceptualization of the allocative effect of price, in that price limits the resources available for spending on other goods. This effect should be particularly pronounced when consumers perceive themselves as financially constrained. In addition, transaction utility captures consumers' reactions
to actual prices relative to their expected prices and thus represents the incremental utility associated with a good deal, which should result in a positive relationship between deal proneness and transaction utility.
Simulation of choice share effects In this section, I outline a general procedure to simulate the choice/market share effects of changes in the levels of the price response drivers or modifications in segmentation and targeting strategies. Changes in the levels of price response drivers may result from communication programs that, for example, enhance consumers' price-quality beliefs or elevate hedonistic tendencies. The proposed procedure offers an intuitive tool managers may use to conduct what-if analyses that explore the effects of the dual role of price and price response drivers in terms of market choices; specifically, they can predict buyer behavior for specific market situations and different levels of ICPR and SCPR. I model choice shares for a given set of product alternatives with a multinomial logit model (e.g., Arora and Huber 2001):
Share, ^
(
1 \NP.h+
f-^
'
" ^
Z-, ylij.m
'
' î-J-m "T" [Ph.Price-inJo
'~ Ph. Price sacrifice)
' î.Price I
/
(2)
; S'iP I 2_^ ^
h.j.m 'î'J.m
+ {h,Pnce.-n,fo'^
h,Price..wcj-i.fice)
' ^j-,Pric
in which Share, is the choice share for product / in a set of 1^1, ..., 1 product alternatives, including an option not to buy any of the products offered. The set of product alternatives reflects a current (or fijture) market scenario: a firm's product versus the relevant competition. For the illustrative case, I consider a market scenario of seven hotels (see Table 4) that reflect middle-class alternatives available in the market, according to www.hrs.com. Using the estimated individual-level partworth utilities, I examine the choice shares of each product in this base scenario. Next, 1 investigate modifications ofthe base scenario; specifically, I consider the choice share effects of changes in
the informational ih.pricejnfo) or sacrifice (h,price_,acrice)
components of the price response of demand. The market simulation thus is straightforward, because it involves simply altering the price coefficients in the logit model and rerunning the analysis. In addition, managers might be interested in the choice share effects of (1) changes in the levels of the price
response drivers and (2) modifications in segmentation and targeting strategies that involve changes in the levels of the price response drivers. In the former case, they need to know the effects of a particular price response driver on the infonnational {h.price_mfo) and sacrifice (hj'rice^sacrifice) components, whereas in the latter, they require infonnation about the association between particular consumer characteristics and the two components of consumers" price responses. The structural model analysis (Tables 2 and 3) provides both. For example, a one-unit increase in the level of price-quality beliefs increases the ICPR of demand by 0.259 units. Similarly, I can explore the impact of changes in particular consiuner characteristics (resulting from segmentation and targeting strategy modifications). For example, a one-unit increase in price consciousness results in an increase of the sacrifice component (i.e., SCPR becomes more negative) by -0.127 units [=0.471 x(-0.174)+0.220x(-0.203); see Tables 2 and 3] and a decrease of the informational
Springer
373
component by -0.017 units (0.134x0.130, see Tables 2 and 3). Table 4 shows the choice share effects in the illustrative market simulation. I find notable choice share differences, particularly for hotels offered at the lower or upper levels of the price range. An increase in the price response drivers by one unit leads to choice share differences of up to 5.8 percentage points. On average, I fmd choice share differences of two percentage points, a notable and economically substantial result. Furthermore, simulating modifications in the segmentation and targeting strategies by means of one-unit changes in consumer characteristics yield choice share differences of up to 5.7 percentage points, which again suggests a notable and economically substantial result.
allocative effects and transaction utility; these two sources also indicate distinct behavior patterns. Perceived allocative effects relate particularly to price consciousness and perceived budget constraints, in that financially constrained consumers transfer their price consciousness to monetary savings, even at the expense of quality. In contrast, consumers who are receptive to the transaction utility of a purchase are quality conscious, deal prone, and less brand loyal. The estimated structural models form a basis for simulating choice share effects that result from changes in price response drivers, as well as from modifications in segmentation and targeting strategies. The illustrative market simulation reveals remarkable choice share differences of up to 5.8 percentage points. ' Implications for managers
Discussion Unlike previous research into the effects of price on consumers' product evaluations, this study merges two empirical research streams by combining stated preferences obtained from a choice-based conjoint approach with selfreported measures pertaining to price response drivers and underlying consumer characteristics to provide new insights into the dual role of price. Specifically, this article differentiates between the informational and sacrifice effects of price using a choice-based conjoint approach, differentiates further among several subcomponents (price response drivers) of these two main effects, examines underlying consumer characteristics, and evaluates the reliability and validity of the proposed approach. Finally, I introduce a procedure to simulate the choice share effects of changes in price response drivers and modifications in segmentation and targeting strategies. The results suggest that the proposed procedure has a high degree of reliability, predictive validity, face validity, and nomological validity. The structural model analyses that allow further differentiation among the subcomponents of the dual role of price also reveal that price-quality beliefs, the prestige value of high-priced products, and hedonistic effects significantly infiuence the ICPR. I flirthermore find that these three price response drivers attract consumers with unique profiles. Whereas hedonistic effects relate to quality consciousness, low price consciousness, and low deal proneness, price-quality beliefs are driven by a need to simplify cognitive tasks, pressure to conform to the expectations of others, and low price mavenism. Finally, prestige effects are particularly associated with brand loyalty and motivation to conform to peer expectations. The SCPR is strongly associated with pure The analyses suggest several key implications tor managers. In particular, price plays two distinct rolessacrifice and informationalin consumers* utility functions and therefore in consumers' price responses and choice behavior. The latter is fundamental to managerial decisions, because varying levels of sacrifice and informational components connect to variations in consumers' willingness to pay, which means they also provide the rationale for different pricing strategies. If managers understand the impact of the two price response components, the price response drivers, and the underlying consumer characteristics on product choice, they can exploit the informational effect of price and influence, at least to a certain extent, consumers' willingness to pay. ! also provide managers with an easy-to-implement approach for simulating the choice share effects of changes in price response drivers as well as segmentation and targeting strategies. Previous methods cannot provide managers with such infonnation because they consider quantitative, demand-based price effects or self-reported measures, but not a combination of both. Also important from a managerial viewpoint are the implications regarding the appropriateness of different pricing strategies. For example, to access consumers who are highly price conscious and perceive themselves as subject to financial constraints, managers should prime the perceived allocative effect of price by embracing an everyday low price (EDLP) strategy. In contrast, managers should not use an EDLP strategy if they want to access smart shoppers who are receptive to the transaction utility of a purchase, because these consumers are both price and quality conscious and likely assume that any brand that always appears on sale cannot be a high-quality product.
^ Springer
374
In such circumstances, a Hi-LO pricing strategy might be better. The proposed simulation procedure allows managers to compare different pricing strategies (to attract different consumer segments) in terms of choice share effects. Furthermore, managers may want to assess communication programs that enhance or decrease particular price response drivers (e.g., hedonistic tendencies, prestige sensitivity). The proposed market simulation-based procedure offers an intuitive tool managers may use to conduct whatif analyses that explore the effects of changing specific price response drivers in terms of market choices. Finally, managers must be aware that setting a low selling price or lowering the price with a discount offer not only attracts customers (by addressing SCPR) but also threatens to lower perceptions of product quality, prestige value, and hedonistic value because of the negative signaling effects related to lower selling prices. These latter effects may deter purchase by customers whose price response contains a strong informational component. For example, negative price-quality inferences occur most often when the brand name or retailer are poorly known or intrinsic product quality cues are ambiguous or unavailable. In these cases, price-quality beliefs likely induce a strong informational effect of price on demand that may even dominate the sacrifice component. This scenario could explain the fmdings in various empirical studies that price elasticities reach values that are significantly greater than zero (Tellis 1988). Further research This study has several implications for researchers that may provide interesting opportunities for further research as well. The first implication relates to the generalizability of price effects across product categories. Differences in the magnitude of ICPR and SCPR certainly exist across categories and merit additional research. However, this study's success in characterizing the identified price response drivers according to consumer characteristics reveals that consumers tend to have overarching reactions to price cues that may generalize across product categories. The second implication relates to the consequences of the dual role of price for modeling demand functions and setting optimal prices, which likewise merits additional attention. Managers may be particularly interested in models that can relate ICPR and SCPR to marketing mix decisions about price, sales promotions, distribution, and advertising. For example, a profit-maximizing price discrimination strategy likely differs when the infonnational effect of price joins the brand choice model and consumers' utility functions.
Appendix 1: Survey items

I. Price response drivers Price-quality beliefs The higher the price of a product, the higher the quality The old saying "you get what you pay for" is generally true You always have to pay more for the best It says something to people when you buy the high priced version of a product I have purchased an expensive product just because I knew other people would notice I like to purchase an expensive product merely because many others cannot afFord such an expensive product I sometimes purchase an expensive product primary for my own pleasure I spoil myself from time to time with an expensive product because I am worth it Buying a high priced product makes me feel good about myself If I want to give myself a treat, I sometimes buy an expensive product The higher the price of a product the more I get the feeling to do without some other products I would like to purchase I perceive the price of a product in a negative role because it indicates the amount of money that must be given up in order to obtain the product Before making a purchase I consider the amount of money available for spending on other products I would like to purchase Taking advantage of a reduced price gives me a sense of joy I am willing to go to extra efFort to fmd a lower price compared to the price 1 initially have expected I am annoyed, if I have to spend more money than expected for a product
Prestige effects
Hedonistic effects
Allocative effects
Transaction utility
2. Consumer characteristics Price consciousness I am very concerned about low prices when I buy products It is important for me to get the best price for the products I buy Deal proneness I often search consciously for special offers such as "two for one" or "all inclusive" I am more likely to buy brands that are on special It is worth the effort to search for products that are on sale Financial constraints I have to hold on to my money By the end of the month my accotmt is often relatively empty My household budget is always tight
pringer
J. of the Acad. Mark. Sei. (2008) 36:359-377 Quality consciousness 1 search for as much information as possible on the quality of the products before I choose one It is important for me to know exactly the quality of a product before 1 buy it It is important for me to buy high-quality products It is important for me what people think about me It bothers me if other people disapprove my choices It is important for me to fit in My behavior ofen depends on how 1 feel others wish me to behave 1 am considered somewhat of an expert when it comes to knowing the prices of products People ask me for price infonnation My friends think of me as a good source of information on places to shop for the lowest price 1 prefer one brand of most products I buy I am willing to make an effort to search for my favorite brand I am willing to pay a bit more for my favorite brand I wish I would have more time to relax I always seem to be in a hurry I do not like tasks that require much thinking It is important for me that my purchase decision making is fast and uncomplicated In purchase decision making, I often rely on easily available attribute infonnation A higher price gives me the feeling that I have not saved the wrong way if my expectations are not met ! sometimes purchase an expensive product in order not to have to reproach myself if my expectations are not met I sometimes purchase an expensive product because this gives me the feeling to make nothing wrong
375
Motivation to conform
o O
Price mavenism
O -- q
rn r-1
00 O
oc rn
Brand loyalty
c *
4t
o o
Time pressure
Need for simplification of cognitive tasks
I
a. u
c d
^11 11
'S g- S
o O
M (N 00
Price reliance
o q q (5 d d
Respondents were instructed as follows; Please think of a weekend trip to a major European city. The joumey and other details have already been arranged. You only have to book a hotel room (hereinafter referred to as "product") for the weekend.
tN r^
<
Appendix 2: Interfactor correlations Tables 5 and 6
-^ g E o = i
y
C O '^ U
i>
,051 .273' 041 .054 .158C5
CJ
-0.05 -0.08 -0.17 -0.10

c
r/J
00" 1
000'
o o
(N
3
(C C
Ss
1 C
^ Springer
376 Table 6 Price-quality beliefs Pnce-quality beliefs Prestige effects Hedonistic effects Allocative effects Transaction utility 1.000 0.273*** 0.379**' 0.051 ns 0.028 ns Prestige effects Hedonistic effects
J. of the Acad . Mark. Sei. (2008) 36:359-377
Allocative effects
Transaction utility
1.000 0.400*** -0.154*** -0.057 ns
1.000 -0.148**' -0.126**
1.000 0.122*
1.000
Each construct satisfies Fomell and Larcker's (1981) condition of discriminant validity
*/KO.1O
**p<0.05
References
Agarwal. S.. & Teas, R. K. (2001). Perceived value: Mediating role of perceived risk. Journal of Marketing Theory and Practice, 9(4). 1-14 (Fall). Ailawadi. K. L.. Neslin. S. A., & Gedenk, K. (2001). Pursuing the value-conscious consumer: Store brands versus national brand promotions. Journal of Marketing, 65, 71-89 (January). Ailenby, G. M., & Lenk, P. J. (1994). Modeling household purchase behavior with logistic normal regression. Journal of the American Statistical Association, 89, 1218-1229. Alpert, M. I. (1971). Identification of determinant attributes. A comparison of methods. Journal of Marketing Research. 8{2). 184-191. Amaldoss, W., & Jain, S. (2005). Pricing of conspicuous goods. A competitive analysis of social effects. Journal of Marketing Research, 42, 30-42 (February). Arora. N.. & Huber, J. (2001). improving parameter estimates and model prediction by aggregate customization in choice experiments. Journal of Consumer Research. 28(2). 273-283. Bawa. K., & Shoemaker, R. W. (1987). The coupon-prone consumer: Some findings based on purchase behavior across product classes. Journal of Marketing, 51, 99-110 (October). Bearden, W., Netemeyer, R. G., & Teel. J. E. (1989). Measurement of consumer susceptibility to interpersonal influence. Journal of Consumer Research, 15, 471-481 (March). Bijmolt, T. H. A., van Heerde, H. J., & Pieters, R. G. M. (2005). New empirical generalizations on the determinants of price elasticity. Journal of Marketing Research. 42. 141-156 (May). Brucks, M.. Zeithaml, V. A., & Naylor, G- (2000). Price and brand name as indicators of quality dimensions for consumer durables. Journal of the Academy of Marketing Science, 28(3), 359-734. Byme. B. M. (2001). Structural equation modeling with AMOS. Basic concepts, applications, and programming. Mahwah, NJ: Lawrence Erlbaum Associates. Chatteijee, S.. & Suman, B. (1998), Interpreting unilateral and competitive price signals: The moderating role of need for cognition. Advances in Consumer Research. 25(i), 151-155. Chou, C,-P, & Bentler, P M. (1995). Estimates and tests in structural equation modeling. In R. H. Hoyle (Ed.). Structural equation modeling: Concepts, issues, and applications (pp. 37-55). Thousand Oaks, CA: Sage Publications. Churchill Jr., G. A. (1995). Marketing research: Methodological foundations (6th ed.). Chicago: The Dryden Press. Darden, W. R.. & Perreault. W. D. (1976). identifying interurban shoppers. Multiproduct purchase patterns and segmentation profiles. Journal of Marketing Research, 13, 51-60 (February).
Dawar, N., & Parker, P. (1994). Marketing universals: Consumers' use of brand name, price, physical appearance, and retailer reputation as signals of product quality. Journal of Marketing, 58. 81 -95 (April). Dc Wulf. K.. Odekerken-Schrder. G., & Van Kenhove, P (2003). Investments in consumer relationships: A critical reassessment and model extension, international Review of Retail. Distribution & Consumer Research, 13(3), 245-261. Dodds, W. B., Monroe, K. B., & GrewaK D. (1991). Effects of price. brand, and store infonnation on buyers' product evaluations. Journal of Marketing Research, 28, 307-319 (August). Dubois, B., & Laurent, G. (1994). Attitudes toward the concept of luxury: An exploratory analysis. Asia Pacific Advances in Consumer Research, 1(2), 271-278. Erdem, T. (1998). An empirical analysis of umbrella branding. Journal of Marketing Reseaivh, 35. 339-351 (August). Erdem. T, Keane, M.. & Sun, B. (2005). A dynamic model of brand choice when price and advertising signal product quality. Working paper, Erickson, G. M.. & Johansson, J. K. (1985). The role of price in multiattribute product evaluations. Journal of Consumer Research, 2(2), 195-199. Feick, L. p., & Price, L. L. (1987). The market maven: A diffuser of marketplace information. Journal of Marketing. 51, 83-97 (January). Fomell, C , & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research. 8, 39-50 (February). Gautschi, D. A., & Rao, V. R. (1990). A methodoiogy for specification and aggregation in product concept testing. In A. de Fontenay et al. (Eds.). Telecommunications demand modeling: An integrated view (pp. 37-63). North-Holland: Eisevier Ghiseili. E. E., Campbell, J. R, & Zedeck, S. (1981). Measurement theory for the behavioral sciences. San Francisco: Freeman. Gijsbrechts, E. (1993). Prices and pricing research in consumer marketing: Some recent developments. International Journal of
Research in Marketing, 0(2), 5I-I51.
Grewal. D., Monroe, K- B.. & Krishnan, R. (1998). The effects of price-comparison advertising on buyers' perceptions of acquisition value, transaction value, and behavioral intentions. Journal of Marketing, 62{2), 46-59. Haaijer, R., & Wedel, M. (2003)- Conjoint choice experimente: General characteristics and altemative model specifications. In A. Gustafsson, A. Herrmann & F. Huber (Eds.), Conjoint mea.surement: Methods and applications (Vol. 3, pp. 371^12). Beriin: Springer. Hawes, J. M., & Lumpkin. J. R. (1984). Understanding the outshopper. Journal of the Academy of Marketing Science, 12, 200-218 (Fall),
Springer
J. ofthe Acad. Mark. Sei. (2008) 36:359-377 Hirschman, E. C , & Hoibrook, M. B. (1982). Hedonic consutnption: Emerging concepts, methods and propositions. Journal of Marketing, 46, 92-101 (Summer). Huber, J.. Winink, D. R.. Fiedler, J. A.. & Miller, R. (1993). The effectiveness of alternative preference elicitatlon procedures in predicting choice. Journal of Marketing Research, 30, 105-114 (February). Huber, J., & Zwerina, K. (1996). The importance of utility balance in efficient choice designs. Journal of Marketing Research, 33(3), 307-317. Joreskog, K. G. (1982). The LISREL approach to causal modelbuilding in the social science. In K. G. Joreskog & H. Wold (Eds.), Systems under indirect observation, part 1 (pp. 81-100). Amsterdam. Kalyanaram, G.. & Winer, R. S. (1995). Empirical generalizations from reference price research. Marketing Science, 4(3), GI61-GI69. Kardes, F. R., Cronley, M. L., Kellaris, J. J., & Posavac, S. S. (2004). The role of selective information processing in price-quality inference. Journal of Consumer Research, 3!, 368-374 (September). Kimiani. A., & Rao, A. R. (2000). No pain, no gain: A critical review of the literature on signaling unobservabie product quality. Journal of Marketing, 64, 66-79 (April). Lichtenstein, D. R., Netemeyer, R. G.. & Burton, S. (1990). Distinguishing coupon proneness from value consciousness: An acquisition-transaction utility theory perspective. Journal of Marketing, 54, 54-67 (July). Lichtenstein, D. R., Ridgway, N. M., & Netemeyer, R. G. (1993). Price perceptions and consumer shopping behavior: A field study. Journal of Marketing Research, 30. 234-245 (May). Mason, R. S. (1981). Conspicuous consumption. New York: St. Martin's Press. Milgrom, P., & Roberts, J. (1986). Price and advertising signals of product quality. Journal of Political Economy, 94(4). 796-821. Miyazaki, A. D., Grewal, D., & Goodstein, R. C. (2005). The effect of multiple extrinsic cues on quality perceptions: A matter of consistency. Journal of Consumer Research, 32, 146-153 (June). Monroe, K. B. (2003). Pricing: Making profitable decisions (3rd ed.). Boston: McGraw-Hill. Murphy, P. E., & Enis, B. M. (1986). Classifying products strategically. Journal of Marketing, 50. 24-42 (July). Nagle, T. (1984). Economic foundations for pricing. Journal of Business, 57(1), S3-S26. O'Neill, R. M., & Lambert, D. R. (2001 ). The emotional side of pHce. Psychology Marketing, !8{3), 217-237. Orme, B. (1999). CBC user manualversion 2.0. Sawtooth Software, SequimAVA. Pennings, J. M. E., & Smidts, A. (2000). Assessing the construct validity of risk attitude. A/i/^gemeH/-iV/icc, #6(10). 1337-1348. Peterson, R. A., & Wilson, W. R. (1985). Perceived risk and pricereliance schema as price-perceived-quality mediators. In J. Jacoby & J. C. Olson (Eds.), Perceived quality: How consumers view stores and merchandise (pp. 247-267). Lexington, MA: Lexington Books.
377 Ping, R. A. (1995). A parsimonious estimating technique for interaction and quadratic latent variables. Journal of Marketing Research, 32, 336-347. Rao, A. R.. & Monroe. K. B. (1989). The effect of price, brand name, and store name on buyers' perceptions of product quality: An integrative review. Journal of Marketing Research, 26, 351-357 (August). Rao, V. R., & Sattler, H. (2003). Measurement of price effects with conjoint analysis: Separating infonnational and allocative efFects of price. In A. Gustafsson, A. Herrmann, & F. Huber (Eds), Conjoint measurement: Methods and applications (3rd ed., pp. 47-66). Berlin et al.: Springer. Richardson, P. S., Dick, A. S., & Jain, A. K.. (1994). Extrinsic and Intrinsic cue effects on perceptions of store brand quality. .lournal of Marketing, 58, 28-36 (October). Schindler, R. M. (1989). The excitement of getting a bargain: Some hypotheses concerning the origins and effects of smart-shopper feelings. Advances in Consumer Research, 16, 447-453. Sloot, L. M., Verhoef, P. C , & Franses, P H. (2005). The impact of brand equity and the hedonic level of products on consumer stock-out reactions. Journal of Retailing, 8I(\). 15-34. Srinivasan, N.. & Ratchford. B. T. (1991). An empirical test of a model of extemal search for automobiles. Journal of Consumer Research. 18, 233-242 (September). Stiving, M., & Winer, R. S. (1997). An empirical analysis of price endings with scanner data. Journal of Consumer Research, 24(\), 57-67. Suri, R., & Monroe, K. B. (2003). The effects of time constraints on consumers" judgments of prices and products. Journal of Consumer Research. 30. 92-104 (June). Teas. R. K.. & Agarwal. S. (2000). The effects of extrinsic product cues on consumers" perceptions of quality, sacrifice, and value. Journal ofthe Academy of Marketing Science, 28(2). 278-290. Teilis. G. J. (1988). The price elasticity of selective demand: A metaanatysis of econometric models of sales. Journal of Marketing Research, 25, 331-341 (November). Thaler, R. (1985). Mental accounting and consumer choice. Marketing Science, 4(3), 199-214. Urbany, J. E., Bearden. W. O.. Kaicker. A., & Smith-de Borreo, M. (1997). Transaction utility effects when quality is uncertain. Journal ofthe Academy of Marketing Science, 25. 45-55. Urbany, J. E., Dickson, P. R., & Kalapurakal, R. (1996). Price search in the retail grocery market. Journal of Marketing. 6f), 91 -104 (April). Vigneron, P., & Johnson, L. W. (1999). A review and a conceptual framework of prestige-seeking consumer behavior. Academy of Marketing Science Review, I, 1-19. Vlckner. F., & Sattler, H. (2005). Separating negative and positive effects of price with choice-based conjoint analyses. Marketing
Journal of Research and Management, / ( I ) , 1-13.
Wood, L. M. (2004). Dimensions of brand purchasing behaviour. Consumers in the 18-24 age group. Journal of Consumer Behaviour, 4(\), 9-24. Zeithaml, V. A. (1988). Consumer perceptions of price, quality, and value: A means-end model and synthesis of evidence. Journal of Marketing, 52, 2-22 (July).
^ Springer
Copyright of Journal of the Academy of Marketing Science is the property of Springer Science & Business Media B.V. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.

Dual Role Price Customer

Transféré par

Informations du document

Description originale:

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Dual Role Price Customer

Transféré par

Droits d'auteur :

Formats disponibles

J. of the Acad. Mark. Sei. (2008) 36:359-377 DOI 10.

The dual role of price: decomposing consumers' reactions to price

J. of the Acad. Mark. Sei. (2008) 36:359-377

J. of the Acad. Mark. Sei. (2008) 36:359-377

Figure I Conceptual model.

Sources of the dual role of price (price response drivers)

Consumers* price response (with ICPR > 0 and SCPR < 0)

J. ofthe Acad. Mark. Sei. (2008) 36:359-377

J. of the Acad. Mark. Sei. (2008) 36:359-377

J. of the Acad. Mark. Sei. (2008) 36:359-377

J. of the Acad. Mark. Sei. (2008) 36:359-377

.759 0.811 0.916 0.878 0.719

0.629 0.682 0.778 0.710 0.719

0.688 0.713 0.927 0.956 0.739

0.778 0.689 0.924 0.742 0.663

0.685 0.936 0.673 0.823 0.662

0.658 0.753 0.559

0.670 0.984 0.961 0.886

J. of the Acad. Mark. Sd. (2008) 36:359-377

NP.h XNP,i + (1 ~ XNP.i) ( E Plu =

J. ofthe Acad. Mark. Sei. (2008) 36:359-377

Total effect of price on demand (partworths)

Informational component of consumers' price responses (partworths)

Sacrifice component of consumers' price responses (partworths)

90.00 Price (Euro)

90.00 Price (Euro)

Price 60 Euro 90 Euro

Price 60 Euro 90 Euro

Partworths*" Standard (mean) deviation

1.62 0.47 1.49 Standard deviation 0.06 0.05 0.05

J. of the Acad. Mark. Sei. (2008) 36:359-377

Results for structural model: Table 2

^ ^ Allocative effects -^ ^ Transaction utility -^ ^-^

( Results for structural model: Table 2

J. of the Acad. Mark. Sei. (2008) 36:359-377

J. of the Acad. Mark. Sei. (2008) 36:359-377

J. of the Acad. Mark. Sei, (2008) 36:359-377

60 Regular Near town center

90 Regular Near town center

One point on the seven-point rating scale

J. ofthe Acad. Mark. Sei. (2008) 36:359-377

' ^i-J-m "T" [Ph.Price-inJo

'~ Ph. Price sacrifice)

J. of the Acad. Mark. Sei. (2008) 36:359-377

J. of the Acad. Mark. Sei. (2008) 36:359-377

Appendix 1: Survey items

Appendix 2: Interfactor correlations Tables 5 and 6

,051 .273' 041 .054 .158C5

-0.05 -0.08 -0.17 -0.10

J. of the Acad . Mark. Sei. (2008) 36:359-377

1.000 0.400*** -0.154*** -0.057 ns

1.000 -0.148**' -0.126**

Vous aimerez peut-être aussi

1.000 0.400* -0.154* -0.057 ns

1.000 -0.148' -0.126