Overpredicting and Underprofiting in Pricing Decisions
LUXI SHEN, CHRISTOPHER K. HSEE, QINGSHENG WU and and CLAIRE I. TSAI
Journal of Behavioral Decision Making, J. Behav. Dec. Making, 25: 512–521 (2012)
joint evaluation (JE)
single evaluation (SE)
H1 : Sellers who make a price decision engage more in
JE of alternative prices than do buyers who make a
purchase decision.
H2 : When setting prices, sellers who engage in the JE
mode will set lower prices than sellers who engage in
the SE mode
H3 : The prices sellers set are lower than what would be
profit maximizing
H4 : Encouraging sellers to mimic SE will lead them to set
higher and more profitable prices.
H5 : Buyers are more price sensitive toward priceevaluable products than toward price-inevaluable products
H6 : Sellers are less likely to underprice their product if
its price is evaluable to buyers than if it is inevaluable to
buyers.
These propositions (were given identifiers H1 to H6 but were referred to as propositions in the paper) were empirically tested.
Brand management to protect brand equity: A conceptual model
Simon D.M. M ’ zungu , Bill Merrilees and Dale Miller
Brand Management Vol. 17, 8, 2010, 605–617
P1 A brand orientation mindset is the fi rst essential requirement towards safeguarding brand equity.
P2 Brand needs to be clearly defined before it can be developed into a strategic asset.
P3 Brand needs to be communicated so that its meaning is understood internally and externally.
P4 Internal branding provides a key platform for living the brand within the organisation.
P5a Corporate ability or expertise to deliver the brand promise contributes to the brand ’ s credibility with stakeholders.
P5b Brand equity is conditional on consistent and reliable delivery of the brand.
P6 Brand recovery from perceived breaches of promise is essential to safeguarding reputation.
Conceptualization of Market Expansion
Strategies in Developing Economies
Vasant V. Bang and Sharad L. Joshi
Academy of Marketing Science Review
volume 12 no. 4, 2008 Available: http://www.amsreview.org/articles/bang04-2008.pdf
P1: The greater the extent to which a company targets un-served and/or underserved market
segments, the greater is the extent to which the company pursues market expansion strategy.
P1a: The greater the desire of a company to target market segments with high per capita income and
high per capita GDP, the less the likelihood that company pursues a market expansion strategy.
P1b: The stronger the belief that a market has reached its maturity phase, the greater the likelihood
of a company trying to strive for a higher share of the existing market.
P1c: The higher the estimated profitability from untapped/ underserved market segments as
compared to the served market, the greater is the likelihood of a company pursuing a market
expansion strategy.
P2a: The greater the extent to which a company targets non-customers of the industry, the greater is
the extent to which it pursues a market expansion strategy.
P2b: The greater the extent to which a company targets existing customers of its industry for
increasing their usage rate of the industry‟s products, the greater is the extent to which it pursues a
market expansion strategy.
P3: The greater the efforts a company makes on understanding non-customer behavior, the greater is
the extent to which it pursues a market expansion strategy.
P4: The greater the efforts a company makes to deal with the competition beyond the product
category level, the greater is the extent to which it pursues a market expansion strategy.
P5: The greater the extent of need awakening efforts a company makes, the greater the extent to
which it pursues market expansion strategy.
P6: The greater the extent to which a company makes efforts to deal with competition from
substitutes, the greater is the extent to which it pursues market expansion strategy.
P7a: The greater the extent to which a company makes efforts to improve potential customers‟
competence to use the industry‟s products, the greater is the extent to which it pursues a market
expansion strategy.
P7b: The greater the extent to which a company makes efforts to increase customer benefits and
decrease customer costs associated with its complementary products and services, the greater is the
extent to which it pursues a market expansion strategy.
P7c: The greater the extent to which a company makes efforts to improve the consumption context
and/or adapt its offering to the existing consumption context, the greater is the extent to which it
pursues a market expansion strategy.
P8a: The greater the extent to which a company adapts its pricing strategy to the disposable income
of customers in untapped/ underserved segments, the greater is the extent to which it pursues a
market expansion strategy
P8b: The greater the extent to which a company facilitates pre purchase or post purchase payment in
installment by customers, who can not afford to make one-time payments, the greater is the extent to
which it pursues a market expansion strategy.
P8c: The greater the extent to which a company facilitates credit access to customers, who do not
have access to formal sources, the greater is the extent to which it pursues a market expansion
strategy.
P8d: The greater the extent to which a company facilitates joint purchases by more than one
customer, who can not individually afford to buy, the greater is the extent to which it pursues a
market expansion strategy.
P8e: The greater the extent to which a company facilitates use of non–financial assets by customers
for financing their purchases, the greater is the extent to which it pursues a market expansion
strategy.
P8f: The greater the extent to which a company involves itself in wealth creation efforts for
customers, who have inadequate income, assets and credit access, the greater is the extent to which it
pursues a market expansion strategy.
P9: The greater the extent to which a company‟s sales and distribution efforts are directed at
untapped and/or underserved geographic market segments, the greater is the extent to which it
pursues a market expansion strategy.
P10: The greater the share a market expander company gains in the expanded market, the greater is
the sustainability of a market expansion strategy.
P11: The better the performance of a market expander company on economic, social, and
environmental parameters, the more sustainable is its market expansion strategy.
Reference Price Research: Review and Propositions
Tridib Mazumdar, S.P. Raj, & Indrajit Sinha
Journal of Marketing
Vol. 69 (October 2005), 84–102
Summary 1: The following factors involving a consumer’s prior purchase experiences have been shown to
influence IRP:
•The strongest determinant of a consumer’s IRP is the prior prices he or she observes.
•Prices encountered on recent occasions have a greater effect on IRP than distant ones.
•The greater the share of prior promotional purchases, the lower is the consumer’s IRP.
Summary 2: The negative effect of deal frequency on consumers’ IRP is moderated by (a) the dealing pattern (i.e., regular versus random) of the purchased brands, (b) the dealing pattern of competing brands, and (c) the framing of the deal (percentage off versus cents off). In addition, the marginal (negative) effect of deal frequency and depth on IRP decreases as the frequency and depth of promotions increases.
Summary 3: IRPs for durable products are influenced by such aggregate factors as anticipated economic conditions (e.g., inflation) and household demographics. In addition, in the formation of IRPs for durable products, competitive prices and differences in attribute configurations and features across alternatives are more salient than historical prices; historical prices of durable products are used only to discern a price trend, if it exists.
Finally, consumers’ price expectations are influenced by the technology used in a specific brand compared with other brands in the same durable product category
Proposition 1
: For continuously provided services, IRP depends on the pricing scheme adopted.
(a) For a fixed-fee option, IRP is a function of competitors’ prices for similar services; in addition, consumers
retain IRP as a dollar per unit of expected usage for monitoring actual usage.
(b) For a strictly variable pricing, IRP is a recencyweighted average of amount spent in the past.
(c) For a two-part pricing scheme, consumers retain either dual IRPs or a single IRP, depending on the relative magnitude of each part, budget importance, and perceived price–usage equity.
Summary 4: Research on how previously encountered prices are integrated to form a reference price has produced the following results:
•Assimilation contrast theory and the adaptive expectation model seem to depict the process of
integration of prior prices and contextual information accurately.
•Consumers update their reference prices (a) by weighting their existing reference price and the observed prices and (b) by factoring in a price trend observed from prior prices.
Summary 5: The findings on the integration of information at the store environment are summarized as
follows:
•Retailer-provided ARP that exceeds the selling price raises the consumer’s IRP, even when the
ARP is deemed to be exaggerated. The effect of ARP on IRP is nonlinear; it has an inverted-U
shape. A moderately discrepant ARP has a stronger impact on IRP than either very similar
or very dissimilar (i.e., implausibly high) ARP.
•The use of semantics aimed at competitive comparison (i.e., compare at) is more effective in
raising IRP than is the use of temporal comparisons (i.e., was–now). Cues that are distinctive
in relation to the competition and have low consistency have stronger effects on IRP.
•In an automobile purchase context, the seller’s invoice cost information is more readily integrated into an IRP than is a manufacturer’s list price. In an Internet auction context, reserve prices are more readily integrated into an IRP than is a minimum bid.
•When faced with a large amount of externally available information, consumers are selective
in deciding which pieces of contextually provided information are salient. Customers who are loyal to a few brands integrate prices of only the favorite brands, whereas switchers tend to integrate prices of promoted brands. In addition, lacking diagnostic information in the purchase environment, consumers unwittingly integrate readily available incidental and irrelevant price information.
Proposition 2
: (a) IRP for a durable product depends on the default option that serves as an initial anchor from which consumers insufficiently adjust their IRPs upward or downward on the basis of addition or deletion of product features, respectively. (b) In integrating the fixed and the variable part of two-part prices of services, consumers use either the fixed or the variable part as an anchor depending on their relative magnitude and then insufficiently adjust upward to account for the other part. Frequent payment of a moderate variable fee is more likely assimilated into IRP than are rare occurrences of large magnitude.
Proposition 3
: (a) Consumers retain IRP in both numeric and evaluative forms. The form changes from a numeric form to a more evaluative form with repetitive purchase experiences. Consumers use the numeric structure (e.g., spatial location of digits) of price to form price evaluations or to derive numeric price estimates from evaluations. (b) The representations of IRP in memory are ordered at different levels of aggregation (i.e., spending level, product category level, and brand and item level). The level of aggregation in which IRP is represented depends on consumers’ assessments of the cost and benefits of detailed price comparisons at the brand and item level.
Summary 6: Research on the differential use of memory for prior prices versus externally available information has produced the following findings:
•Consumers use both memory and external information, but they assign weights to each that
depend on consumer and product characteristics.
•The weight placed on memory (relative to external information) is related (a) negatively to the
size of the consumer’s consideration set, (b) negatively to the frequency of purchases during
promotions such as features and displays, (c) positively to the price level of the product category, (d) negatively to the increase of interpurchase time of the category, and (e) negatively to the frequency of promotions in the category
Proposition 4
: (a) In making a store choice decision, consumers retrieve store-specific reference prices as a basis for price comparison. However, the retrieval of store-specific reference prices may be biased as a result of erroneous sampling caused by relative familiarity with prices of different product categories and retail promotional strategies. (b) In consideration set formation, retrieval accuracy is moderated by the consideration set size and the frequency of promotions of the brands in the set.
Proposition 5
: (a) In low-involvement purchase tasks, price memory (i.e., IRP) is implicit and is retrieved outside of awareness by invoking heuristics such as ease of retrieval. (b) Retrieval and use of IRP is biased because of partitioning of price (i.e., consumer’s cost), spatial positions of the digits in price, and task interferences. (c) Consumers may infer IRPs of a brand based on available nonprice information.
However, the inference may be biased as a result of consumers’ prior beliefs about the relationship between price and these nonprice attributes.
Summary 7: (a) The symmetric sticker shock effect of reference price on brand choice is empirically generalizable. However, the evidence for loss aversion is mixed. (b) The effect of reference price on purchase quantity is mediated by household inventory position and brand loyalty. (c) Reference
price has a significant effect on consumers’ purchase-timing decisions, in which they evaluate the “attractiveness” for buying into a category now or later.
Summary 8: The confounding roles of consumer heterogeneity in the estimation of loss aversion and sticker
shock effects are as follows:
•The loss aversion effect in brand choice models is significantly attenuated (and may even disappear) when consumer price response heterogeneity is considered.
•Accounting for heterogeneity in consumer price sensitivities reduces the sticker shock effect in
brand choice models, but the effect remains significant.
•When reference price effect is present in purchase timing, ignoring purchase-timing heterogeneity overstates the reference price effects (both loss aversion and sticker shock) in brand
choice
A brand orientation typology for SMEs: a case research approach
Ho Yin Wong and Bill Merrilees
Journal of Product & Brand Management
14/3 (2005) 155–162
For the benefit of future research, the following research
propositions are identified.
P1. The relationships amongst the constructs shown in Figure 2 can be statistically estimated as a five equation structural model of the brand strategy process.
P2. Each of the five parameters contributes to explain key constructs of the brand strategy process.
P3. Both brand orientation and brand distinctiveness contribute to brand-marketing performance. It
stresses the importance of the antecedents, which are brand distinctiveness and brand orientation.
The Uses of Marketing Theory
Joep P. Cornelissen and Andrew R. Lock
Marketing Theory 5(2), 2005, 165–184
P1: Instrumental science use by practitioners is related negatively to substantive formal theory.
P2: Instrumental science use by practitioners is related negatively to substantive conceptual
devices.
P3: Instrumental science use by practitioners is related positively to methodological model
theory.
P4: Instrumental science use by practitioners is related positively to methodological methods
theory.
P5: Conceptual science use by practitioners is related positively to substantive formal theory.
P6: Conceptual science use by practitioners is related positively to substantive conceptual
devices.
P7: Conceptual science use by practitioners is related positively to methodological model
theory.
P8: Conceptual science use by practitioners is related positively to methodological methods
theory.
P9: Symbolic science use by practitioners is related positively to substantive formal theory.
P10: Symbolic science use by practitioners is related positively to substantive conceptual
devices.
P11: Symbolic science use by practitioners is related negatively to methodological model theory.
P12: Symbolic science use by practitioners is related negatively to methodological methods
theory.
P13: the greater the operational quality of a theory, the stronger the relationship between
theory type and theory use.
P14: the greater the goal relevance of a theory, the stronger the relationship between theory type
and theory use.
P15: the greater the descriptive relevance of a theory to practitioners, the stronger the relationship between theory type and theory use.
P16: the greater the timeliness of a theory to practitioners, the stronger the relationship
between theory type and theory use.
The Theoretical Underpinnings of Customer Asset Management: A Framework and Propositions for Future Research
Ruth N. Bolton, Katherine N. Lemon, and Peter C. Verhoef
Journal of the Academy of Marketing Science.
Volume 32, No. 3, Summer 2004, pages 1-20.
The Influence of Price Perceptions
Proposition 1: Increases (decreases) in perceptions of price fairness will have a positive (negative) influence on relationship length, where increases (vis-à-vis the customer’s price threshold) will have a smaller absolute effect on relationship length than decreases.
Proposition 2: Variable-rate pricing policies will reduce the customer’s usage of a service relative to
fixed subscription fee policies. The size of the reduction depends on the actual prices for both the variable-rate pricing and fixed-rate pricing.
Proposition 3: Customers’ price perceptions of currently consumed services will have a stronger effect
on their cross-buying for service organizations with a consistent pricing policy than for service organizations that do not use a consistent pricing policy.
Proposition 4:Current perceptions of the firm’s prices will have a smaller effect on cross-buying, in terms of explained variance, than on relationship length or service usage.
Proposition 5: Current perceptions of competitors’ prices will have a larger effect on cross-buying, in
terms of explained variance, than on relationship length or service usage.
The Influence of Customer Satisfaction
Proposition 1: Increases in customer satisfaction over time will positively influence relationship length,
where the effects of changes will be asymmetric: negative changes in satisfaction will have a larger effect than positive changes.
Proposition 2: Customer satisfaction will have a positive (no) influence on cross-buying for organizations with a high (low) similarity among the offered services.
Proposition 3:Customer satisfaction will have a smaller effect on cross-buying, in terms of explained variance, than on relationship length and service usage.
The Influence of Commitment
Proposition 1: Affective commitment will have no influence on service usage.
Proposition 2: Calculative commitment will partially mediate the effect of price and price perceptions on
service usage.
Proposition 3: Affective commitment will positively influence cross-buying, whereas calculative commitment will have no influence on cross-buying.
Proposition 4: The effect of commitment (especially affective commitment) on relationship length and
cross-buying will be stronger for service organizations providing hedonic experiences than those providing utilitarian experiences.
The Influence of Direct Marketing Promotions
Proposition 1: The positive influence of DM promotions on the length of the customer’s relationship
with the service organization is mediated by relationship breadth.
Proposition 2: Although the short-run influence of DM promotions on service usage may be positive,
DM promotions will have a negative influence on service usage in the long run.
Proposition 3: DM promotions will have a smaller effect on relationship length and service usage, in
terms of explained variance, than on cross-buying
The Influence of Relationship Marketing Instruments
Proposition 1: The positive effect of social reward programs on relationship length is mediated by satisfaction and commitment.
Proposition 2: Economic reward programs will positively influence service usage levels in the short
term, but not in the long term.
Proposition 3: Social programs will have a small influence on service usage levels in the short term (compared with economic benefits) but will also have an influence in the long run.
Proposition 4:The effect of social programs on customers’ cross-buying will be mediated by satisfaction
with prior experiences and commitment to the service organization
Preposition 5:Social programs will be more effective in influencing customer behaviors for service organizations offering hedonic experiences or serving highly involved customers.
The Influence of Advertising and Communications
Proposition 1: The positive influence of brand advertising on relationship length is mediated by commitment, where the influence of brand advertising on commitment is smaller for customers with longer relationships.
Proposition 2: Brand advertising will moderate the effect of price perceptions on service usage.
The Influence of Distribution Channels
Proposition 1: Customers acquired through channels with a focus on price information, such as DM channels, will have shorter relationships with the service organization.
Proposition 2: Customers acquired through channels with more (less) opportunities to create economic or
social relationships, such as personal selling or retailing channels, will have longer (shorter) relationships with the service organization
Proposition 3: Customers who are served through channels that create stronger (weaker) social and/or
economic bonds will have higher (lower) levels of satisfaction and higher (lower) levels of service usage.
Proposition 4: Customers who are served through channels that create stronger (weaker) social and/or
economic bonds will have higher (lower) levels of satisfaction and commitment, and higher (lower) levels of cross-buying.
The Moderating Influence of Service Industry Characteristics
Proposition 1:Switching costs will decrease (increase) the magnitude of the effect of customer satisfaction
(commitment) on the length of the customercompany relationship, his or her service usage levels, and cross-buying.
Proposition 2: DM promotions designed to increase the length of a customer’s relationship with a service
organization, service usage levels, and/or crossbuying will be less effective in highly competitive markets than in less competitive markets.
Proposition 3: Marketing instruments designed to increase the length of a customer’s relationship with a
service organization, service usage levels, and/or cross-buying will be more effective in markets with high performance risk perceptions (i.e., uncertainty) than in markets with low performance risk perceptions.
Toward a general theory of creativity in advertising: Examining the role of divergence
Robert E. Smith and Xiaojing Yang
marketing theory 4(1/2), 2004
P1a: Ads with high divergent will receive significantly more notice than ads with low divergence.
P1b: Divergence related to ad execution elements will play the bigger role in attracting attention, while divergence related to brand/message elements will play the bigger role in motivation
to process the message and depth of processing.
P2: Consumers will have significantly higher motivation to process divergence ads than nondivergence ads in order to attain closure.
P3a: When an ad’s divergence corresponds with the consumer’s divergent production system,
the consumer will have significantly more motivation to process the ad.
P3b: When an ad’s divergence corresponds with the consumer’s divergent production system,
the consumer will have significantly more favorable responses to the ad.
P4: Ads rated high on brand-related divergence will receive significantly more processing depth
than ads rated low on brand-related divergence.
P5: Some types of divergence should resist wear-out significantly longer than non divergent
ads.
P6a: Divergence related to execution elements is most likely to serve as a peripheral cue in the
persuasion process.
P6b: Divergence related to brand/message elements can serve as a motive for central processing of the brand message
P7: Ads rated high on divergence will produce significantly more favorable cognitive and
affective responses.
P8a: When divergence is execution-related it will produce more favorable consumer responses
in terms of ad cognitions and ad attitudes than when divergence is brand-related.
P8b: When divergence is brand-related it will produce more favorable consumer responses in
terms of brand cognitions, brand attitudes, and purchase intentions than when divergence is
execution-related.
P9a: Consumers will have better memory for ads high in divergence (on execution elements)
than for ads low in divergence.
P9b: Consumers will have better memory for brands in ads with high divergence (on
brand/message elements) than for brands in ads with low divergence.
P10: Relevance and divergence will show a significant interaction effect on ad notice, motivation to process the ad, depth of ad processing, and consumer responses.
P11: An interaction effect is predicted for consumer involvement and divergence. When consumer involvement is low, the pre-attentive, attention and motivation effects of divergent
execution elements are significantly higher than when consumer involvement is high.
P12a: Different levels of ad divergence and relevance will be needed for different communication-effects goals.
P12b: Different types of ad divergence (execution-related versus brand-related) will be needed
for different communication-effects goals.
Building Brand Equity Through Corporate Societal Marketing
Steve Hoeffler and Kevin Lane Keller
Journal of Public Policy & Marketing Spring Vol. 21 (1), 2002, 78–89
P1 : CSM programs (a) will lead to increases in awareness for a brand and (b) will not lead to enhanced associations related to specific consumption or usage situations.
P2: The more prominent user imagery is in the marketing program (e.g., as the focus of an advertising campaign), the more likely it is that the brand image will be enhanced.
P3: Abstract associations are more likely to be transferred from a cause to a brand than concrete associations are.
P4: Enhanced levels of feelings of social approval will be created when CSM programs provide consumers with external symbols to explicitly advertise or signal their affiliation to others.
P5: Enhanced levels of feelings of self-respect will be created when CSM programs provide consumers with moments of internal reflection that reinforce the positive outcomes associated with the cause program and the way their involvement contributed to that success.
P6: The more consumers perceive fit or similarity of the cause to the brand, the more likely consumers will infer similar associations to the brand.
Modelling the components of the brand
Leslie de Chernatony and Francesca Dall’Olmo Riley
European Journal of Marketing, 32,11/12, 1998
Proposition 1:Brand consultants have well-developed mental models to make sense of brands.
Proposition 2:There are similarities between the components constituting brand consultants’ mental models of brands.
Proposition 3:The atomic model of the brand represents a useful model and can reflect brand consultants’ conceptions of brands.
PERCEIVED PRICE FAIRNESS: A NEW LOOK AT AN OLD CONSTRUCT
Marielza Martins and Kent B. Monroe (1994) ,
Advances in Consumer Research Volume 21, eds. Chris T. Allen and Deborah Roedder John, Provo, UT : Association for Consumer Research, Pages: 75-78.
Proposition 1: Buyers may take into account the prices paid by other customers for the same products they acquire.
Proposition 2: A perceived disadvantageous price inequity likely will generate a more unfavorable customer response than a perceived advantageous price inequity of the same magnitude generates a favorable customer response.
Proposition 3: A decrease (increase) in the perceived price paid by the customer will have a similar reducing (increasing) effect on his/hers perceptions of monetary sacrifice as an equivalent increase(decrease) in the perceived price paid by someone else.
Proposition 4: A perceived disadvantageous price inequity, or a loss, increases buyers' perceptions of sacrifice and decreases buyers' perceptions of value and willingness to buy, while a perceived advantageous price inequity, or a gain, reduces buyers' perceptions of sacrifice, and increases buyers' perceptions of value and willingness to buy, as compared to a perceived equitable price.
Proposition 5: When an individual compares the price he/she is offered for a particular product to the price someone else is offered for the same product and finds a discrepancy, perceived price inequity is more likely to result if their income levels are similar than if their income levels are different.
Proposition 6: More favorable pricing terms offered to consumer groups generally perceived as low income on product categories considered basic necessities, such as food or transportation, are more likely to be perceived as fair by other customers than equally more favorable pricing terms offered to those groups on non-necessary products.
First Mover Advantage: A Synthesis, Conceptual Framework and Research Propositions
Journal of Marketing,Vol. 56, (October 1992), 33-52
Market Orientation: The Construct, Research Propositions, and Managerial Implications
Ajay J Kohli and Bernard Jaworski
Journal of Marketing Vol. 54, April, 1990, 1-18
19 propositions
P1a: The greater the variability over time in the gap between top managers' communications and actions relating to a market orientation, the greater the junior managers' ambiguity about the organization's desire to be market oriented.
Consumer Perceptions of Price, Quality and Value: A Means-End Model and Synthesis of Evidence
Valaree A. Zeithmal
Journal of Marketing, Vol.52 (July 1988), 2-22.