Framing Effects on Buyers' Subjective Product Evaluations

Kent B. Monroe, Virginia Polytechnic Institute and State University
Joseph D. Chapman, Bowling Green State University
ABSTRACT - Since Scitovszky (1945) suggested that buyers use price not only as an index of sacrifice, but also as an index of product quality, many researchers have investigated this proposed price-perceived quality relationship. Although the research results tend to support a positive price-perceived quality relationship, it has also been shown that brand name and store name interact with price to enhance perceptions of quality, as well as independently influencing perceptions of product quality. However, one type of extrinsic cue that has not been investigated is the effect of a price promotion on buyers' product evaluations.
[ to cite ]:
Kent B. Monroe and Joseph D. Chapman (1987) ,"Framing Effects on Buyers' Subjective Product Evaluations", in NA - Advances in Consumer Research Volume 14, eds. Melanie Wallendorf and Paul Anderson, Provo, UT : Association for Consumer Research, Pages: 193-197.

Advances in Consumer Research Volume 14, 1987      Pages 193-197

FRAMING EFFECTS ON BUYERS' SUBJECTIVE PRODUCT EVALUATIONS

Kent B. Monroe, Virginia Polytechnic Institute and State University

Joseph D. Chapman, Bowling Green State University

ABSTRACT -

Since Scitovszky (1945) suggested that buyers use price not only as an index of sacrifice, but also as an index of product quality, many researchers have investigated this proposed price-perceived quality relationship. Although the research results tend to support a positive price-perceived quality relationship, it has also been shown that brand name and store name interact with price to enhance perceptions of quality, as well as independently influencing perceptions of product quality. However, one type of extrinsic cue that has not been investigated is the effect of a price promotion on buyers' product evaluations.

Thaler (1985) has-suggested that whether buyers perceive the product offer as a "teal" affects subjective product evaluations. Promotional cues such as forms of discounts (coupons, rebates, regular price/sale price) may be perceived by buyers as offering a deal due to the use of reference prices to promote these forms of discounts. In this context, a reference price is a hi per comparison price mentioned in the offer to the consumer along with the actual selling price of the product. Thus, sellers who present both the offered (actual) price and a higher comparative price are attempting to provide a reference for the consumer so that there will be a perceived deal. This paper extends the price-perceived quality conceptualization proposed by Monroe and Krishnan (1985), to include the framing effects of price promotions on buyers' product evaluations.

PRICE AND PERCEIVED VALUE

The purpose of this paper is to combine two streams of research on the influence of price on buyers' evaluations of purchase offers. Research on the price-perceived quality relationship has been criticized as ignoring differences between consumer choice or preference and perceived value (Monroe and Krishnan 1985). That is, previous research has used either consumer preferences or actual quality evaluations as dependent variables to assess whether consumers use price as an indicator of quality. Moreover, the research using preference as a dependent measure, implicitly, has ignored the traditional economic argument that price serves as an indicator of cost or sacrifice to the buyer.

It would be expected that consumers' preferences or choices would depend on how they evaluate the quality or benefits to be received from a product relative to the cost or sacrifice inherent in the price. Thus, Monroe (1979) has argued that buyers' perceptions of value represent a trade-off between the quality or benefits they perceive in the product relative to the sacrifice they perceive by paying the price:

Perceived Value = (Perceived Benefits)/(Perceived Sacrifice).

where

    perceived benefits are a f(perceived quality) and

    perceived quality is a positive function of price;

    perceived sacrifice is a positive function of price.

Keon (1980) offered a similar conceptualization, except he used the term bargain value.

Monroe and Dodds (1985) argued that perceptions of value were directly related to preferences or choice; that is, the larger a buyer's perception of value, the more likely would the buyer express a willingness to buy or preference for the product. Thus, they offered the model shown in Figure 1.

The conceptual model defines the role of price on buyers perceptions of product quality, sacrifice, value, and willingness to buy. The model suggests that buyers use price as an index of perceived product quality as well as an index of the perceived sacrifice that is made when purchasing a product. Perceived value represents a trade-off between buyers' perceptions of quality and sacrifice and is positive when perceptions of quality are greater than the perceptions of sacrifice. At the same time, the increase in price will result in greater perceived sacrifice. Thus, the conceptualization posits 8 positive relationship between price and perceived quality and price and perceived sacrifice. Willingness to buy is positively related to perceived value. A recent test of this model has confirmed the basic hypothesized relationship (Rao 1986).

FIGURE 1

PRICE-PERCEIVED QUALITY CONCEPTUALIZATION

TRANSACTION UTILITY THEORY

As suggested above, it would be expected that consumers' preferences or choices would depend on how they evaluate the quality or benefits to be received from a product relative to the coot or sacrifice inherent in the price. Thus, it has been suggested that buyers' perceptions of value represent a trade-off between the quality or benefits they perceive in the product relative to the sacrifice they perceive by paying the price.

Thaler (1985) draws upon Kahneman and Tversky's prospect theory (1979) to develop a model of consumer choice blending economic reasoning with principles of psychophysics and cognitive psychology. Replacing the utility function of economics with prospect theory's value function the model is developed using three key propositions:

1. The value function v(D) is defined over perceived gains and losses relative to a reference point. This proposition incorporates the psychophysical principle that people respond to relative differences rather than absolute levels. The use of a reference point permits framing to be incorporated in the model.

2. The value function is assumed to be concave for gains and convex for losses.

3. The loss function is steeper than the gain function. That is, people are more sensitive to the prospect of a loss than to the prospect of a gain.

Perceived Value of a Transaction

A purchase or transaction is defined as a mixed outcome in that the buyer gains a product but loses the money paid for the product. Of concern in this theory is how buyers code or evaluate this mixed outcome. Thaler proposes that buyers evaluate a purchase opportunity by first judging the value of the offer and then deciding whether to make the purchase. This proposition is identical to the Monroe and Dodds (1985) model introduced above.

Also, as above, Thaler's model depends on the role that price plays in the evaluation process. However, three price concepts are used: (1) the actual price of the product, p, (2) the maximum acceptable price for the product, Pmax and (3) a reference price, Pr. The reference price may be an expected price to pay, the last price paid, the "normal" market price (Monroe 1973).

The acquisition value of the product is the perceived benefits inherent in the product compared to the outlay. The perceived benefits (or worth) of the product is equivalent to the dis-utility of paying the maximum acceptable price. Thus, perceived benefit is equivalent to p and acquisition value is (p - p), which is conceptually equivalent to perceived value in the original model.

To incorporate the notion of reference price, the concept of transaction value is used. Transaction value is the perceived merits of the offer and is defined as (p - p). Thus, transaction value is positive if the actual price is less than the reference price, and negative if the actual price is more than the reference price. Therefore,

perceived value = acquisition value + transaction value,

or,

pv = v(pmax - p) + v(pr - p)

As above, willingness to buy is positively related to perceived value.

Enhancing Transaction Value

Formally including a reference price in a purchase offer provides an opportunity for the seller to frame the buyers' purchase decision problem. The use of comparative price advertising or point-of-purchase tags to communicate the usual or regular price and the lower asking price is an attempt to provide buyers with a price frame of reference, and in the spirit of transaction utility theory to augment buyers' perceptions of value. Another way to communicate the transaction value is to offer coupons or rebates if a purchase is made. However, both coupons and rebates, potentially, will have some perceived negative utility associated with the procedures of qualifying for the price reduction, and, in the case of mail-in rebates, the wait for the actual monetary rebate. Figure 2 shows how the concepts of acquisition value and transaction value can be used to extend the original price-perceived quality model.

The concepts of acquisition value and transaction value are directly related to the use of discounts in the marketplace. First, examine the situation of a simple price reduction, e.g., the price of a product is reduced from $30 to $25 with no reference being made to the previous price. The consumer will make a tradeoff between the perceptions of quality and sacrifice derived from the new $25 price and arrive at a perception of value for the product as proposed by the original price-perceived quality conceptualization. This perception of product value may also be called acquisition value. Since there is no "deal" offered in the simple price reduction scenario, there will be no transaction value associated with the offer unless the buyer is aware of the price reduction; therefore, the total utility or value perceived by the consumer includes only the acquisition value. It should be noted this assumes that the consumer does not use an internal reference price for comparison.

FIGURE 2

THE EXTENDED CONCEPTUALIZATION

Second, take the situation where price is reduced and presented with a reference price to the consumer, e.g., a regular price/sale price scenario. Here the consumer may evaluate the quality of the product based on the regular price and the sacrifice for the product based on the actual selling price. The tradeoff between these two assessments results in the acquisition value for the offer. However, since the presence of the reference price compared to the sale price suggests a "deal," positive transaction value also exists. Perceived value for the offer will then be equal to the acquisition value combined with the positive transaction value.

This same concept is illustrated by the use of either coupons or rebates. In each of these situations the regular market price is the reference price used and the lower selling price is the price obtained by subtracting the amount of the coupon or rebate from the market price. The difference between the reference price (market price) and the lower selling price (the price minus coupon or rebate) results in positive transaction value.

Transaction value affects the perceived value of an offer. Positive transaction value is the perceived reduction of a loss (the price paid for a product) by a small gain (the savings from the coupon or rebate) and, when segregated in this manner, the perceived value of the offer is enhanced because the positive transaction value combines with acquisition value to enhance the perceived value of the offer.

Transaction value can have a positive or negative affect on perceived value. A mail-in rebate is an example of both the positive and negative effects of transaction value on perceived value. The mail-in rebate provides positive transaction value by reducing the regular price by the amount of the rebate. It also provides negative transaction value (transaction disutility) from the delayed reduction of the regular price (having to wait for the manufacturer to mail back the refund). It should be noted that the use of a coupon also possess transaction disutility because of the extra effort involved in clipping out the coupon and taking it to be redeemed; however, this effort is viewed as being less cumbersome than using a rebate that must be mailed to the manufacturer.

The price-perceived quality conceptualization (Monroe and Krishnan 1985), prospect theory (Kahneman and Tversky 1979), the discount literature, and Thaler's (1985) transaction utility theory are used to derive the following theoretical propositions.

THEORETICAL PROPOSITIONS

The first five propositions are derived from the original price-perceived quality model and refer to a selling situation without a "deal" being offered or perceived by the buyer. All propositions are understood to be under conditions of ceteris paribus.

1. There is a positive relationship between price and buyers' perceptions of product quality.

2. There is a positive relationship between price and buyers' perceptions of sacrifice.

3. There is a positive relationship between buyers' perceptions of product quality and their perceptions of acquisition value.

4. There is a negative relationship between buyers' perceptions of sacrifice and their perceptions of acquisition value.

5. There is a positive relationship between buyers perceptions of acquisition value and their willingness to buy.

The next propositions refer to a selling situation whether a "deal" is offered and perceived by the buyers.

6. There is a negative relationship between buyers' perceptions of sacrifice and their perceptions of transaction value.

7. There is a positive relationship between buyer's reference prices and their perceptions of transaction value.

8. There is a negative relationship between buyers- perceptions of the amount of effort required to obtain the "deal" and transaction value.

9. There is a positive relationship between buyers' perceptions of transaction value and their overall perceptions of the value of the offer.

10. There is a positive relationship between buyers' perceptions of acquisition value and their overall perceptions of the value of the offer.

11. There is a positive relationship between buyers' overall perceptions of value of the offer and their willingness to buy.

Proposition eleven is a restatement of proposition five for the "deal" situation.

HISTORICAL REVIEW OF SELECTED PRICING RESEARCH

Price-Perceived Quality

Empirical work in the price-perceived quality research stream can be traced back to Leavitt (1954) who concluded that higher prices may sometimes increase a person's satisfaction with a purchase because a higher quality is imputed by the higher price. Tull, Boring and Gonsoir (1964), Gabor and Granger (1966), and McConnell (1968), also concluded that there seems to be a positive price-perceived quality relationship.

While single cue studies were useful in establishing the existence between price and perceived quality, a criticism was that when price was the only cue available subjects would obviously use it to infer quality. Following these single-cue studies, several studies were conducted that manipulated not only price, but other extrinsic variables such as brand and store name or image. In general, these studies found that sometimes the brand effect is larger than the price effect; however, the presence of a brand name seemed to enhance the price effect (Monroe and Krishnan 1985). That is, when price and brand name are both present, there tends to be a greater price-perceived quality effect than when price is the only cue available. Brand name tends to be a stronger indicator of perceived quality than price.

There have been several reviews conducted in the price-perceived quality area. Monroe (1973) reviewed several price-perceived quality research efforts and concluded that there were indications of a positive relationship between price and perceived quality over some price ranges for certain product categories. Olson (1977) also supported the notion of a positive price-perceived quality relationship and pointed out the need for better theoretical justification in most empirical work. Monroe and Petroshius (1981) agreed that even though the results in the price-perceived quality literature are mixed, there does sees to be a positive price-perceived quality relationship. Finally, Monroe and Krishnan (1985) concluded that most of the past price-perceived quality research could be categorized as exploratory in nature and has contributed very little toward resolving the question of when price is used to infer quality.

In general, there seems to be a consensus that research in this area has been haphazard and exploratory in nature. There has been little systematic attempt to analyze the price-perceived quality relationship and determine what factors may affect this relationship.

Discounts in Subjective Evaluations of Products

There has been very little empirical research on the effect of discounts on buyers' subjective evaluations of products. Barnes ( 1975) varied comparison price cues and semantic cues for retail advertisements. A comparison price cue is provided when an explicit comparison (reference) price is paired with the actual price in an advertisement. Semantic cues are specific words or phrases that are paired with the price cues, e.g., regular price, sale price, special or x% off. Barnes (1975) found that product advertisements using semantic cues such as "regular/sale" were perceived as more believable and as offering a better value for the money than cues such as "special".

Fry and McDougall (1974) studying consumer perceptions of advertisements that contained discounts of varying sizes found that there was a positive relationship between acceptance of price as the lowest in the area and the magnitude of the discount. Blair and Landon (1981) found that advertisements with comparison (reference) prices produced larger perceptions of savings than advertisements without reference prices. Keiser and Krum (1976), like Barnes, found that advertisements using the regular price/sale price cue were more likely to create a perception of a true reduction in price. Berkowitz and Walton (1980), studying aspirin, fans, and cameras, fount significant differences for comparison cues for all products, but significant semantic cues for cameras only.

These findings suggest that the acceptance of an advertised regular (reference) price depends on the size of the sales discount and whether or not a regular price is quoted. Also, there seems to be greater acceptance of a regular price if it is provided in the advertisement regardless of its veracity. Della Bitta, Monroe, and McGinnis (1981) expanded on the above research and found that the differences in magnitude of price discounts did produce greater perceptions of value. They concluded that perceptual responses are more likely to be related to the overall references provided than to specific price levels per se.

Liefeld and Heslop (1985) studied the effects of reference prices and advertising contexts on consumer perceptions of the ordinary price of products. They concluded that the presence of a sale price condition lowered respondents estimates of the ordinary sale price. The latter result could be due to the fact that no reference price was presented with the sale price and, therefore, consumers based their reference (ordinary) price relative to the sale price presented.

In general, it has been found that responses to price statements are affected by both the price level and the size of discount implied by a price comparison. None of the above research on discounts investigated such as phenomena as coupons and rebates on buyers' perceptions of products or offers.

Coupons and Rebates

For years, coupons have played a substantial role in the promotion and purchasing of products. As Hisrich and Peters (1984) state, "The coupon is epidemic, omnipresent, and suddenly a controversial marketing tool, alternatively commanding our respect through the sheer volume of its use and in citing our- suspicion over its effectiveness." Cotton and Babb (1978), studying the response of consumers to promotional deals for dairy products, concluded that promotional deals substantially increase purchase levels and this increase is greater than the increase obtained by simply reducing price.

According to Hough (1980), "if cents-off coupons were the hot promotion of the 1970s, cash refunds give every indication of being the growth event of the 1980s." She big boost for rebates came when they were offered by auto companies. Since the late 1970s, the use of rebates has grown substantially. So, as shown, coupons and rebates do play a very significant role in our economy, and it would be useful to examine how such promotional tools actually affect a buyer's subjective evaluation of products.

CONCLUSIONS

Essentially similar propositions about how buyers form perceptions of value independently have been advanced from two different perspectives. Based on the price-perceived quality conceptualization, it has been proposed that buyers cognitively trade-off positive perceived utility based on quality perceptions with negative perceived utility based on price perceptions to form overall perceptions of value. Adapting prospect theory, Thaler (1985) has conceptualized a similar process and has label ed the outcome acquisition utility (re-named in this paper as acquisition value). Moreover, by explicitly incorporating the notion of a reference price, this trade-off model can be expanded to include perceptual processes buyers may use when evaluating a purchase "deal."

Available empirical evidence suggests that:

1. There does exist a general price-perceived quality relationship. However, the strength of the relationship varies depending on the relative strength of other external cues, and the degree buyers are familiar with the intrinsic attributes of the product (Rao 1986).

2. Advertised "deals" featuring both the regular price and actual price ant/or the magnitude of the price discount tend to produce greater perceptions of value than other forms of price promotions.

3. There is no known empirical evidence on how the use of coupons or rebates as forms of price promotions influence buyers' evaluations of product offers.

While the empirical evidence i; limited, there does appear to be some support for the propositions presented in this paper. In particular, it would appear that the offer of a deal could enhance buyers' overall perceptions of the value of the product acquisition and purchase. However, it is unclear whether this perceived value enhancement is monotonically related to the size of the discount. Moreover, when the buyer must engage in special redemptive efforts, such as coupon clipping and waiting for a rebate, it is unknown the degree that these efforts are perceived as an immediate reduction in the gain due to the deal, or as a separate cost (loss). Research efforts currently underway are attempting to answer these issues.

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