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Adjacent Price Anchoring and Consumer’s Willingness to Pay: A Bayesian Approach

Atanu Adhikari ()
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Atanu Adhikari: Indian Institute of Management Kozhikode

No 215, Working papers from Indian Institute of Management Kozhikode

Abstract: Considerable research on consumers' use of psychological reference points exists in pricing literature. Researchers examining brand choice have reasoned that reference point is based on past prices of the brand. We argue that consumers’ reference prices is motivated by the adjacent price of the product at point of display rather than any other reference prices in the context. This research studies the effect of adjacent price on consumers’ willingness to pay and purchase intention. This research considers consumer level heterogeneity since price sensitivity and consumers’ willingness to pay vary among individual. Hierarchical Bayes methodology is used to incorporate heterogeneity. This study shows significant difference in consumers’ willingness to pay when a medium priced brand is placed adjacent to a high priced brand as against adjacent to a moderately priced brand.

Keywords: Brand-choice decision; Willingness to pay; internal reference price; Consumer heterogeneity; Hierarchical Bayes (search for similar items in EconPapers)
Pages: 20 pages
Date: 2016-12
New Economics Papers: this item is included in nep-dcm and nep-mkt
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