The effects of price promotion on consumers' price beliefs

Reference prices, which are extensively used in retail advertisements, have received considerable research attention over the last 25 years. The present research looks at the extent to which an advertised, or external, reference price included in a price promotion affects consumers' price beliefs. According to Helson's Adaptation-Level theory, consumers form an internal reference price, which they use as a basis for evaluating market prices. The process by which internal reference price can change according to an external reference price is, then, explained by a conjoint Adaptation-Level and Assimilation-Contrast theories. It is suggested that consumers may assimilate or contrast an external reference price and that only an assimilated price has the ability to affect the internal reference price. A first experiment was conducted to examine the extent to which consumers assimilate an external reference price. Findings from the present research suggested that, contrary to the predictions of the Assimilation-Contrast theory, the impact of an external reference price on consumers' internal price standards was monotonic. It was further suggested that this assimilation might be moderated by individual differences. A second experiment was conducted to examine the differential effects of two types of semantic cues. However, in the research, no differences were found between absolute and relative savings presentation formats. Findings as well as several issues about the measurement of internal reference price, the effects of an exaggerated external reference price and the effects of price familiarity are discussed