Price Perceptions: a Cross-National Study Between American and Chinese Young Consumers

Zheng Zhou, Virginia Polytechnic Institute and State University
Kent Nakamoto, Virginia Polytechnic Institute and State University
ABSTRACT - This paper examines the influence of cultural factors (i.e., face consideration and risk aversion) and marketing environments upon price perceptions and compares price perceptions between American and Chinese young consumers empirically. The cross-national measurement validity is assessed to make the comparison meaningful. The findings show that, contrast to the common notions about Chinese traditionalism, Chinese young consumers perceive a weaker price-quality relationship than American young, and they are more prestige sensitive, less price conscious, and less coupon prone than their US counterparts, but they are as value conscious as American young consumers.
[ to cite ]:
Zheng Zhou and Kent Nakamoto (2001) ,"Price Perceptions: a Cross-National Study Between American and Chinese Young Consumers", in NA - Advances in Consumer Research Volume 28, eds. Mary C. Gilly and Joan Meyers-Levy, Valdosta, GA : Association for Consumer Research, Pages: 161-168.

Advances in Consumer Research Volume 28, 2001     Pages 161-168

PRICE PERCEPTIONS: A CROSS-NATIONAL STUDY BETWEEN AMERICAN AND CHINESE YOUNG CONSUMERS

Zheng Zhou, Virginia Polytechnic Institute and State University

Kent Nakamoto, Virginia Polytechnic Institute and State University

ABSTRACT -

This paper examines the influence of cultural factors (i.e., face consideration and risk aversion) and marketing environments upon price perceptions and compares price perceptions between American and Chinese young consumers empirically. The cross-national measurement validity is assessed to make the comparison meaningful. The findings show that, contrast to the common notions about Chinese traditionalism, Chinese young consumers perceive a weaker price-quality relationship than American young, and they are more prestige sensitive, less price conscious, and less coupon prone than their US counterparts, but they are as value conscious as American young consumers.

INTRODUCTION

With its substantial population and fast growing economy, China has become one of the most fascinating markets to Western companies. However, due to its high-context culture, difficult language and different political system, China is also confusing and frustrating to foreigners (Tse, Belk, and Zhou 1989). As Ram (1994) notes, surprisingly, Chinese consumers’ demands for luxury products extend beyond watches and cognac to include a wide range of high price tag consumer items even before they have secured adequate food, clothing, and shelter.

Unfortunately, academic research on Chinese market and consumers is still limited. Another critical issue of cross-national research is the lack of validity assessment in applying measurement models eveloped in one country to other countries and cultures (c.f., Steenkamp and Baumgartner 1998). The current study intends to shed some light on these issues by comparing price perceptions between American and Chinese young consumers (aged from 16 to 35). Price perceptions, which emphasize on consumers’ negative perceptions of price (e.g., economic sacrifice) as well as the positive perceptions of price such as perceived quality and prestige (Zeithaml 1988), are found to have a strong predictive validity of consumers’ marketplace responses and behaviors (Lichtenstein, Ridgway and Netemeyer 1993). The reasons why the young are especially studied are (1) young consumers are recognized as a specialized global market segment for a variety of goods and services (Moschis and Moore 1979). (2) In China, compared with the older, the younger have more appetites for and consuming experience with Western products, and are more likely to be the potential consumers for Western companies (Anderson and He 1998). To make the comparison valid, the cross-national applicability of price perception measures is assessed through the model comparison procedures proposed by Steenkamp and Baumgartner (1998).

PRICE PERCEPTIONS

Price, one of the most important marketplace cues, is the pivotal factor in consumption values due to its prevalence in every purchasing situation (Monroe 1979). Price is perceived as a multidimensional stimulus to consumers in that it affects consumers’ purchasing intentions both positively and negatively (Dodds, Monroe and Grewal 1991). On one hand, a higher price increases the perceived economic sacrifice and thus decreases the consumer’s willingness to buy. On the other hand, a higher price may lead to a higher perceived quality or prestige and consequently increase one’s intention to buy (Zeithaml 1988).

In order to investigate the "positive role" and "negative role" of price, Lichtenstein, Ridgway and Netemeyer (1993) put forward seven constructs to conceptualize price perceptions. Two of them, price-quality schema and prestige sensitivity, are believed to impact consumers’ willingness to buy positively. The other five, value consciousness, price consciousness, coupon proneness, sale proneness, and price mavenism, [Price Mavenism is not a theoretical predictor of the market place responses/behavior (Lichtenstein, Ridgway and Netemeyer 1993), and it may be interpreted differently in the US and China, so we don=t study this construct here.] are viewed to play a negative role in affecting consumers’ purchase intentions.

Price-quality schema refers to the generalized belief that the price cue is related positively to the quality level of the product. Prestige sensitivity means the favorable perceptions of the price cue based on purchaser’s feelings of prominence and status brought by higher prices. Value consciousness emphasizes the consumers’ concern about the ratio of quality received to price paid in a transaction. In other words, value conscious consumers are trying to maximize the product quality from the money they spend. Price consciousness focuses on the degree to which the consumer focuses exclusively on paying low prices. Coupon/sale proneness refer to consumers’ propensity to respond to a purchase offer because the coupon/sale promotion positively affects their purchase evaluations (for a detailed discussion, see Lichtenstein, Ridgway and Netemeyer 1993).

FACTORS SHAPING PRICE PERCEPTIONS

Level of economic development is undoubtedly a very important factor that influences price perceptions (Tse, Belk, and Zhou 1989). Rostow (1952) suggests that in a less developed economy, consumers pay more attention to the basic necessities such as food and shelter. As the economy develops, consumers will express higher and social needs such as prestige and self-actualization (Maslow 1954). According to this logic, it is natural to predict consumers in a less developed economy (China) are more likely to have negative price perceptions, and consumers in a more developed economy (the US) tend to perceive price positively.

However, the Maslow’s hierarchical needs, as a theory developed in Western society, may not apply in Chinese cultures (Tse, Belk, and Zhou 1989). As described by Belk (1988), Chinese consumers are acquiring the higher needs of consumption values such as social status and prestige in a different way and much more rapidly than Western consumers. In an international context, cultures and marketing environments are the important factors in shaping price perceptions (Belk 1988; Hofstete 1980; Triandis 1995).

Individualistic and Collectivistic Culture

American culture is characterized as highly individualistic, while Chinese culture is a typical collectivistic one (Triandis 1995). The basic difference between individualistic and collectivistic cultures is that, an individualistic culture emphasizes "I-identity" and personal self-esteem enhancement, but a collectivistic one pays more attention to "We-identity" and social group-esteem maintenance (Hofstede and Bond 1984). More specifically, Chinese consumers differ from American consumers in their face consideration (Ho 1976; Ting-Toomey and Kurogi 1998) and risk aversion (Hosfstede and Bond 1984; Gao 1998).

Face is defined as a claimed sense of favorable social self-worth that a person wants others to have of him or her in a relational and network context (Ting-Toomey and Kurogi 1998). Face consideration, accordingly, refers to one’s desire to enhance, maintain, and avoid losing face in social activities. In China, one’s needs for self-face, as well as concerns for others-face, influence people’s everyday life (Gao 1998; Ho 1976). Because of face consideration, consumption in China has a strong social trend and serves every aspect from physiological need to self-actualization need. The social needs, consequently, make Chinese consumers pay more attention to the "extrinsic" rather than "intrinsic" attributes of a product due to their desires to express their images, positions, or feelings toward group members (Belk 1988).

On the contrary, in an individualistic culture like the US, an individual is an independent entity with free will, emotions and personalities (Markus & Kitayama 1991). Decisions are encouraged to be made individually (Reykowski 1994). Therefore, the consumption of American young is more likely to reflect their own wills.

Risk aversion is defined as "the extent to which people feel threatened by ambiguous situations, and have created beliefs and institutions that try to avoid these." (Hofstede and Bond 1984, p. 419). Partly because of face effects, i.e., people are afraid of losing face in public, and also because of other factors such as the influence of the long history of an agriculture-dominated economy, Chinse people are highly risk averse (Gao 1998). On the other side, American people are encouraged to be adventurous (Triandis 1995). As argued by Shimp and Bearden (1982), risk aversion strongly affects consumers’ decision makings. Therefore, the different attitudes towards risk could result in various price perceptions of Chinese and American consumers.

Market Environments

Compared with the US, the marketing environments in China are deficient in terms of market regulation and market competition (Fan and Xiao 1998; Nee 1992). In the US, extensive regulations and ready access to litigation prevent fake products from entering the market. American companies also tend to use various sale and promotion campaigns in order to attract consumers (Mela, Gupta, and Lehmann 1997). The intense competition makes abundant and comparable goods available to every consumer. As a result, American consumers become used to comparing various brands and stores when they purchase a product (Lal and Rao 1997).

In the transition process from a planned central economy to a market economy, the Chinese market is characterized by lack of coherent business regulation and legislation (Nee 1992). Deceptive advertising (exaggerated and fraudulent advertising), trademark violation (counterfeit goods with poor quality but always under the names of popular brands), and unethical business practices (e.g., selling poor-quality products at very high prices) are prevalent and arouse a particular concern in China (Fan and Xiao 1998; Ho and Sin 1988). Therefore, Chinese consumers have to be very cautious about the information in the ad and have to distinguish fake products by themselves (Ho and Sin 1988). In addition, competition in China is relatively low. Consequently, Chinese consumers are more concerned with the availability and/or the quality instead of the price of a product (Fan and Xiao 1998).

As a summary, these two societies differ widely with respects to cultural and market environments. American young consumers are more self-concerned and adventurous in a more refined market, and Chinese young are more face-concerned and risk-averse in a developing market. These differences form the base for why and how American and Chinese consumers differ in their price perceptions.

HYPOTHESES

Price-quality Schema

As we discussed before, the market in China is far from the refined market in the US. Less intensive competition and incomplete regulation lead to a less fair pricing system in China. Some name brand products are overpriced, yet some general products are under-priced due to the poor marketing administration (Fan and Xiao 1998). In addition, weak regulation allows large numbers of fake products to enter the market. Fake products charge consumers much more than their own values, and sometimes are unsafe and even fatal to use (e.g., food and electronic products) (Ho and Sin 1988). But in the US, the intense market competition and strong regulation make price a relatively good indicator of product quality. Therefore, we predict Chinese young consumers are more likely to doubt the credibility of price in indicating product quality than American young.

H1: Chinese young consumers perceive a weaker price-quality relationship than American young consumers.

Prestige Sensitivity

A traditional Chinese virtue is saving money, while American consumers are used to consuming in advance. Further, the income level of China is much lower than that of the US. Thus, it sounds reasonable to expect that American consumers might be more prestige sensitive than Chinese consumers. However, face consideration makes Chinese young consumers pay much attention to the social functions of a product. The purchase or use of a prestigious product becomes a symbol for people to show their face (Belk 1988). In the US, though the consumption behaviors of American youth are also influenced by others, the extent of the influence is not as strong as that in such a face-considerate culture like China (Tse 1996). Moreover, in China, group interest is the priority over individual interest. It leads to face loss if one does not conform within a group or distinguish from other groups (Gao 1998). While in the US, individual interest ranks first. One will lose nothing and can maintain his/her prestige without conformity (Ting-Toomey and Kurogi 1998). Since losing something is much more painful than not gaining something (Heath, Chatterjee, and France 1995), Chinese consumers sometimes have to be prestige sensitive. For these arguments, we hypothesize,

H2: Chinese young consumers are more prestige sensitive than American young consumers.

Value Consciousness and Price Consciousness

In a less refined market, Chinese young are more concerned about quality rather than price. In order to get the authentic or high-quality product, they are willing to pay a higher price. On the contrary, the intense competition and strict regulation make American young accustomed to comparing various brands and stores even for a specific product, and consequently, becoming more and more price sensitive (Lal and Rao 1997; Mela, Gupta, and Lehmann 1997). Therefore,

H3: Chinese young consumers are less price conscious than American young consumers.

Highly risk-averse consumers tend to pay more for a product as a means of reducing the risk of purchasing one of inferior quality (Rao and Bergen 1992). This might imply that Chinese consumers may be less value conscious than American young. On the other hand, in such an immature market, Chinese youth must carefully judge the benefits in relation to price in purchase decision makings because they are highly risk-averse. As such, we may imply that Chinese young are more value conscious than their American counterparts. In balance, we predict,

H4: Chinese young consumers are as value conscious as American young consumers.

Sale Proneness and Coupon Proneness

In America, sale and coupon promotions are two of the most widely used marketing strategies (Lal and Rao 1997). According to acquisition-transaction utility theory (Thaler 1985), purchase with a coupon or a price discount represents a "good deal" by increasing consumers’ transaction utility through decreasing the purchasing price (Zeithaml 1988). Therefore, it is natural for American young to purchase a product on sale or with a coupon. However, the situation in China is quite different. First, the poor regulation of the market and deceptive advertising make consumers doubt the credibility of a sale or coupon. In addition, in a high-context culture, people think more for what is not being said than what is being said, such as "is there anything wrong with the product" (Anderson and He 1998, p. 154). For example, an ad like "$19.95, was $29.95", which is normal in America, will be easily interpreted as "was $16.95, now labeled $19.95" by Chinese consumers. Thus, Chinese consumers tend to perceive sale or coupon promotions as efforts to get rid of inventory that is below average in quality. Being highly risk-averse Chinese consumers are not likely to be sale-prone or coupon-prone. These arguments suggest,

H5: Chinese young consumers are less coupon-prone than American young consumers.

H6: Chinese young consumers are less sale-prone than American young consumers.

METHODOLOGY

Sampling

A survey study was constructed to collect data regarding young consumer’s price perceptions in both the US and China. No attempt was made to select the sample on a purely random basis. Rather, convenient college student samples were used in both the US and China because college student was a typical representative of the target population (young consumers). To insure time comparability, both data sets were collected during the Fall semester of 1999. Altogether 226 usable questionnaires were obtained, in which 120 collected from a university in Beijing, China and 106 from a large southern state university in the US. The demographic characteristics of the sample were similar in these two data sets. For example, all the American subjects were undergraduate students, 72.9% were Junior, and they aged from 19 to 27 with a mean as 21.1. All the Chinese subjects were also undergraduate students, 48.7% were Junior, and they were between 18 and 25 years old with a mean age as 20.4.

The questionnaire was translated into Chinese by a doctoral student from China who was studying business administration at a Western university. The translated questionnaire was then back translated into English by another Chinese student. The translation was modified several times in order to make it accurate and consistent.

Measures

Price perceptions were measured with thirty-six seven-point Likert scale items ranging from 1 "strongly agree" and 7 "strongly disagree" (adapted from Lichtenstein, Ridgway, and Netemeyer 1993). An exploratory factor analysis and a reliability analysis were conducted to refine the measures. After dropping ten items possessing either low item-total correlations or high cross loadings, we got a six-factor measure with twenty-six items which were consistent in both data sets (see Appendix).

Assessing Measurement Invariance. Measurement invariance refers to whether or not the measurement operations yield measures of the same attribute under different cultures or countries. If a measure is not cross-nationally invariant, conclusions based on that scale are "at best ambiguous and at worst erroneous" (Steenkamp and Baumgartner 1998, p. 78). For example, if we compare directly price perceptions between American and Chinese young without assessing the measurement invariance and find some difference, we won’t tell whether the difference comes from consumers’ price perceptions or just due to their semantic interpretations of the questionnaire. In order to compare means across counties, metric and scalar invariance for at least two items per construct is required. Following the procedures proposed by Steenkamp and Baumgartner (1998), we tested the price perception measurement invariance via Amos 4 with maximum likelihood as the estimation method (Arbuckle and Wothke 1999).

Price-Quality Schema. The first step was to test of the equality of covariances and means of the four indicators of this measure. The test results were: c2 (14) = 69.53, p < .001; comparative fit index (CFI) = .98, Tucker-Lewis Index (TLI) = 0.96; root mean square error of approximation (RMSEA) = .133, Akaike information criterion (AIC) = 97.53. The significance of chi-square and the relatively large RMSEA and AIC indicated the lack of invariance of covariance matrices and mean vectors across the US and China.

Thus w turned to test the configural invariance, which means indicators should load on the factor in a similar pattern across countries. This model was the baseline model against which further models could be compared. The results (c2 (4) = 9.63, p = 0.047; CFI = 0.97, TLI = 0.91; RMSEA = 0.079, AIC = 41.63) indicated a good fit of the model. All factor loadings were highly significant in both countries (p < 0.01), and standardized factor loadings ranged between .50 and .82. Therefore, it could be concluded that the price-quality schema was configurally invariant across the US and China samples.

Next, we tested the metric invariance which means the matrix of factor loadings was invariant across countries. Results (c2 (7) = 12.55, p = 0.084; CFI = 0.97, TLI = 0.95; RMSEA = 0.059, AIC = 38.55) showed that the increase in chi-square was not significant (Dc2 (3) = 2.92, p = .40) and CFI, TLI , RMSEA, and AIC actually improved. Thus, the price-quality schema was also fully metric invariant across the US and China samples.

Finally, the scalar invariance was tested. The intercepts of the four indicators were set to be invariant across countries. Such a model resulted in an acceptable fit (c2 (11) = 22.01, p = 0.024; CFI = 1.00, TLI = 0.99; RMSEA = 0.067, AIC = 56.01). The increase of chi-square over the full configural invariance model was not significant (Dc2 (7) = 12.38, p = .089); CFI, TLI, RMSEA, and AIC also exhibited a good fit. Thus full scalar invariance was supported.

The previous procedure was run for each of the six price perception constructs. Note that if the full metric or scalar invariance model was not adequate, then constraints on certain indicators (as revealed by Modification Index [MI]) were relaxed to get an acceptable partial invariance model. Details of construct invariance assessment were listed in Table 1.

TABLE 1

ASSESSMENT OF MEASUREMENT INVARIANCE

The results of Table 1 showed that the measure of prestige sensitivity was configural invariant, full metric invariant, and partial scalar invariant (the scalar invariance constraints on indicator PS2 and PS9 were relaxed). Table 1 also showed the support to the covariance and means equality model of the measure of value consciousness. Thus, the measure model satisfied full metric and scalar invariance automatically (Steenkamp and Baumgartner 1998). Measures of price consciousness, coupon proneness, and sale proneness were also found to be configural invariant and full metric invariant. But we only got acceptable partial scalar invariance models for price consciousness and coupon proneness measures. The best partial scalar invariance model for sale proneness obtained after relaxing the constraints on the intercept invariance of SP3 and SP4 didn’t show adequate fit; therefore, the measure of sale proneness is not cross-nationally invariant.

TABLE 2

CORRELATIONS, MEANS, STANDARD DEVIATIONS, AND RELIABILITIES

In summary, five measures of price perceptions (except sale proneness) were full metric invariant and either full or partial scalar invariant; therefore, these five measures were cross-nationally invariant and their means could be compared meaningfully (Steenkamp and Baumgartner 1998). [An optimal approach would be assessing the measurement invariance for the full measurement model. But in this study, given the number of items, it is unrealistic to test the full model with the relatively small sample size.] To make the comparison more intuitive, construct means are averaged and reverse coded. Table 2 reports the means, standard deviations, correlations, and coefficient reliabilities of these five measures (price-quality schema, prestige sensitivity, value consciousness, price consciousness, and coupon proneness).

RESULTS

We tested the hypotheses with structural equation method, which was considered advantageous to the traditional ANOVA/MANOVA approach by incorporating errors in construct measurement (Durvasula et. al. 1993). Following Steenkamp and Baumgartner (1998), we constructed a model (M1) that fixed the factor means as zero in the US data set and constrained one intercept per factor to be invariant across the two data sets. The factor means in Chinese sample were then estimated relative to the meas in the US sample. If model M1 fit the data well, the p-value of relative factor means in Chinese sample would show whether the mean difference was significant or not. If M1 didn’t fit the data adequately, then a further restriction which constrained the construct means in Chinese sample to be zero was imposed on the model (M2). A significant chi-square change (M2-M1) indicated the non-equality of the means. The results of hypotheses testing were reported in Table 3.

H1 argues that Chinese young consumers perceive a weaker price-quality relationship than American young. The results in Table 3 show that M1 fits data satisfactorily (c2 (4) = 9.63, p =.047; CFI = 1.00, TLI = .99; RMSEA = .008). The mean value of Chinese sample (4.68) is significantly less than that of American sample (5.02, p < .01). Further, a comparison between M1 and M2 (Dc2(1) = 8.70, p < .01) also indicates the non-equality of the price-quality schema between American and Chinese young consumers. Therefore, these findings lend support to H1.

H2 deals with the comparison of prestige sensitivity. Table 3 shows M1 fits data acceptably (c2 (10) = 17.53, p = .063; CFI = 1.00, TLI = .99; RMSEA = .058) and Chinese young consumers are more prestige sensitive (m = 4.77) than American young (m = 4.23, p < .001). In addition, a comparison between M1 and M2 (Dc2(1) = 18.925, p < .001) also indicates that American and Chinese young differ in their prestige sensitivity. Thus, H2 is supported.

H3 to H6 deal with the negative role of price. Consistent with our predictions in H3 and H5, the results show that Chinese young are less price conscious (m = 3.91) than American young (m = 4.92, p < .001), and Chinese young are not as coupon-prone (m = 3.52) as American young (m = 3.89, p < .05). From the results of M1 and model comparison (M2 B M1), we also get supports for H4, i.e., Chinese young are as value conscious (m = 5.05) as American’s (m = 5.19, p > .10). As indicated earlier, sale proneness measure is not cross-nationally invariant. We cannot test H6 since we do not know whether the mean difference of sale proneness comes from consumers’ price perception or semantic interpretation. So H6 is left undetermined.

TABLE 3

RESULTS OF HYPOTHESES TESTING

DISCUSSIONS

Our findings show that, Chinese young consumers behave quite differently from the common notions about Chinese traditionalism and their price perceptions may seem strange to foreigners. Constrained by immature market system, and motivated by face consideration, Chinese young consumers perceive a weaker price-quality relationship, and are more prestige sensitive, less price conscious, and less coupon prone than their US counterparts. But they are as value conscious as American young consumers.

These findings are very encouraging for Western companies seeking business opportunities in China, especially for American companies. The US represents the most advanced technology in the world and American products are perceived as highly prestigious by Chinese young consumers (Anderson and He 1998). American companies thus can get a premium simply because of being from the US. This provides important implications for these Western companies in making their pricing strategy. Our study can also guide companies toward effective advertising and promotion. High product quality and distinguished product social status should be emphasized and sale or coupon promotion may be improper. Maintaining a steady price or even raising the price may be perceived as signaling more prestige for Chinese young consumers. But since Chiese consumers perceive a weak price-quality relationship, other market cues such as store and brand name must be provided to assure the product quality and prevent the impairment of fake brands. For example, a company can choose marketing channel seriously so as to assure the product quality through the retailer’s reputation.

However, the results do not imply Chinese young have a higher purchasing power than American young. In a developing economy, Chinese young do not purchase frequently or impulsively (they are as value conscious as American young), although Chinese young are more sensitive to prestige. "Buy nothing, or buy something prestigious" is a good saying to reflect their consumer behaviors precisely.

This paper also provides important implications for future research. First, face is such an important factor in Chinese society (Gao 1998) that its conceptualization and operationalization will greatly help us better understand Chinese consumers and predict their consuming behaviors. Then, the predictive power of face consideration could be investigated within a model which links face consideration to price perceptions, and price perceptions to shopping behaviors in an international context. Third, this paper also emphasizes the importance of validity assessment of models developed in one country (mostly the US) must be examined in other countries before we use them to examine consumer behaviors cross-nationally. For example, in this study, sale proneness is found lack of invariance. Table 2 shows the coefficient reliabilities in American sample (ranging from .79 to .89) are generally higher than those in Chinese sample (ranging from .57 to .80). This suggests that the measurements adapted from one culture may not capture variance in another culture very well. And consistent with the results exhibited by Lichtenstein and his colleagues (1993), the correlations for American sample show the price-related constructs can be meaningfully categorized as "positive" and "negative" in the predicted direction. But for Chinese sample, value consciousness is positively related to price-quality schema and prestige sensitivity, which again suggests measurement validity should be first assessed for a cross-cultural study.

Future research is also encouraged to overcome the limitations of this paper. First, samples from other consumer segments are needed in order to generalize the findings. Second, in this study, the sample size is relatively small. So we cannot investigate the invariance of the full measurement model of price perceptions. As discussed earlier, the underlying dimensions of these six constructs in China may be not the same as proposed by Lichtenstein, Ridgway and Netemeyer (1993). Future research with a larger sample is needed in order to examine this point. Finally, this study only compares price perceptions between American and Chinese young. Given that face consideration plays an important role in collectivistic cultures (Ting-Toomey and Kurogi 1998), and over two thirds of the population in the world live in collectivistic cultures (Triandis 1995), it would be worthwhile to conduct further studies in a worldwide context.

MEASUREMENT APPENDIX

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