Consumer Response to Deals: a Discussion of Theoretical Perspectives

P. S. Raju, The Pennsylvania State University
Manoj Hastak, The Pennsylvania State University
ABSTRACT - Theoretical explanations offered in the literature for the effects of deals and deal retraction on consumer response are reviewed. Major problems with these explanations include their inadequacy in explaining behavior at the individual level and failure to consider the interaction of deals with price and post-trial experience. An alternative cognitive interpretation for the effect of deals is proposed to explain behavior at the individual level.
[ to cite ]:
P. S. Raju and Manoj Hastak (1980) ,"Consumer Response to Deals: a Discussion of Theoretical Perspectives", in NA - Advances in Consumer Research Volume 07, eds. Jerry C. Olson, Ann Abor, MI : Association for Consumer Research, Pages: 296-301.

Advances in Consumer Research Volume 7, 1980     Pages 296-301

CONSUMER RESPONSE TO DEALS: A DISCUSSION OF THEORETICAL PERSPECTIVES

P. S. Raju, The Pennsylvania State University

Manoj Hastak, The Pennsylvania State University

[P. S. Raju is Assistant Professor of Marketing and Manoj Hastak is a doctoral student in Marketing at The Pennsylvania State University, University Park, Pennsylvania 16802. All correspondence should be addressed to the senior author.]

ABSTRACT -

Theoretical explanations offered in the literature for the effects of deals and deal retraction on consumer response are reviewed. Major problems with these explanations include their inadequacy in explaining behavior at the individual level and failure to consider the interaction of deals with price and post-trial experience. An alternative cognitive interpretation for the effect of deals is proposed to explain behavior at the individual level.

INTRODUCTION

Consumer deals constitute an important part of the promotional mix for many companies. In the consumer context, deals are primarily used to encourage trial of a new brand or switching to an established brand, with the expectation that such trial or switching would also lead to higher repeat purchase rates. In the past few years, the use of deals seems to have increased considerably, partly due to inflationary economic trends and partly due to the proliferation of brands in the marketplace. For these reasons, the investigation of consumer response to deals promises to be a fruitful area with several practical implications. Consequently, several marketing researchers have addressed issues in this area. The authors of this paper feel, however, that the extent literature on consumer response to deals has not conceptualized the effect of deals on consumer response in sufficient detail. Studies conducted thus far suffer from one or more of the following limitations:

1.  Conclusions are based solely on empirical data analysis with no prior theoretical framework (Webster 1965, Montgomery 1971, Schiffman and Neiverth 1974).

2.  An adequate explanation of response to deals at the individual level is not provided. In some cases (Scott 1976; Dodson et. al. 1978) explanation of the results is provided at the individual level but the analyses are not conducted at the individual level. Hence it is difficult to determine if the explanations truly represent the psychological processes that take place at the individual level, and

3.  The interaction of deals with other variables, most notably price and post-trial experience, is not considered.

In this paper, the authors review the major conceptual frameworks that have been used in the past to explain consumer response to deals. They then suggest an alternative cognitive framework for examining this issue. This cognitive framework differs from existing conceptualizations in that it provides an individual level explanation for the effects of deals. There are several advantages to such an individual level explanation. First, it provides a clear understanding of the psychological process underlying consumer response to deals. Second, in delineating the psychological process, it identifies the roles of certain crucial variables, like price and post-trial experience which have been ignored in the past. Third, it offers several strategy implications for marketers, especially if the specific relationships postulated between variables are tested in future research. Before proceeding to describe the proposed cognitive framework, the background literature on deals is examined briefly.

BACKGROUND

Past literature on deals can be divided into three categories. The first category of studies has attempted to determine the correlates of "deal-proneness" (Webster 1965; Montgomery 1971; Schiffman and Neiverth 1974; Blattberg et. al. 1978). The correlates have included a number of demographic, socio-economic, psychological, and purchase related variables. The findings suggest that, except for brand loyalty, these variables are not significantly correlated with "deal-proneness" with any degree of consistency. A major problem with these studies is that no conceptually precise definition of "deal-prone-ness" is provided. The second category of studies has examined the influence of first trial at different price levels (or alternatively deal levels) on subsequent purchase of the product/brand (Doob, et. al. 1969; Scott 1976). Results indicate that a lower introductory price is generally beneficial for initial purchase but harmful for repeat purchase. The third category of studies has examined the impact of deals on brand switching and repeat purchase behavior (Brown 1976; Shoemaker and Shoaf 1977; Cotton and Baab 1978; Dodson et. el. 1978). Findings again suggest that deals induce consumers to switch in favor of the dealt brand and deal retraction undermines the likelihood of repeat purchase behavior.

Among the studies cited above, very few have offered theory based explanations of the findings. The next section examines these explanations.

PAST THEORETICAL EXPLANATIONS

Doob et. al. (1969) used field experiments to examine the effect of initial selling price on subsequent sales of five common household products. Matched pairs of stores were used to introduce the products at the regular price and a discounted price. The positive effect of deals upon immediate sales and negative effect on later sales was explained by the use of cognitive dissonance theory (Festinger 1957). One major deduction from this theory is that if an individual exerts more effort to attain a goal, a greater amount of dissonance will be generated. One way to reduce this dissonance is by increasing the evaluation of the goal (Aronson 1961; Wicklund, Cooper, and Linder 1967). In the marketing context, it can be interpreted that a person who tries a product at a higher price will develop a greater liking for it, and therefore will have a higher repeat purchase rate than one who tries it at a lower price. It is not clear, however, if the results of the Doob et. al. experiment can be generalized to the case of deal situations. A lower price may not be equivalent to a higher price with deal in terms of consumer response.

There are also some problems with the cognitive dissonance explanation, the major ones being 1) the interpretation of price as equivalent to effort is questionable, 2) it is not clear why purchase price should lead to cognitive dissonance, especially if the consumer perceives different brands to be homogeneous in quality, and 3) changing attitude toward the brand is only one way of reducing dissonance, and hence may or may not be adopted by consumers.

Scott (1976) also used an experimental design with newspaper subscriptions to investigate the effects of trial and incentives (deals) on repeat purchase behavior. The theoretical framework of the study was based on self-perception theory. Self-perception theory (Bem 1972) states that an individual uses his own past behavior as a cue to draw inferences about his attitudes, emotions, and internal states. Past behavior can be attributed to internal or external factors. To the extent external factors are available to which the behavior can be attributed, internal factors will be discounted.

On the basis of this framework, Scott (1976) predicted that those who took advantage of a trial subscription of the newspaper, when it was offered them, would be more likely to become regular subscribers. The trial, in this case, would be attributed to positive feelings about the newspaper. The other prediction was that those who were offered larger incentives to try the newspaper would be less likely to become regular subscribers as larger incentives increase the possibility of trial being attributed to the incentives rather than to positive feelings about the newspaper. Scott's study did not confirm the first hypothesis and only partially confirmed the second, thus raising some questions about the adequacy of self-perception theory to explain response to deals.

Dodson et. al. (1978) also used self-perception theory, but in a different manner. Deal retraction was the focus of their investigation. Their predictions were based on the hypothesis that both the monetary value of the deal and the effort to redeem the deal would determine the attributions made to a deal purchase and hence also behavior when the deal was retracted. For example, a deal requiring considerable effort to redeem but having low monetary value is likely to lead to higher repeat purchase. There is a higher probability of the effort being attributed to liking for the brand as opposed to the monetary value. The results obtained by Dodson et. al. (1978) were generally in compliance with predictions made on the basis of self-perception theory.

In general, self-perception theory seems to be quite effective in explaining the effect of deals and deal retraction on repeat purchase behavior. Since self-perception theory is an alternative way of looking at cognitive dissonance phenomena, the results obtained by Doob et. al. (1969) can also be explained on the basis of this theory. The main problem with self-perception theory is the difficulty of testing it at the individual level. The issue is whether the types of attributions hypothesized are really made by individual consumers. The other problem is that, in most cases one can construct chains of attributions which give rise to predictions that are the opposite of attributions typically hypothesized to account for the effects of trial and deal. Table 1 illustrates some such attributions. If trial of a brand is attributed to variety seeking, such trial would not lead to higher repeat purchase. In fact, it might lead to lower repeat purchase, if the consumer seeks variety on the next purchase also, Similarly, buying a brand on deal could lead to increased repeat purchase if the consumer begins to ponder why he bought the brand on deal when he has rejected other similar deals before.

Dodson et. al. (1978) also examined the effect of deal on brand switching. In conformity with earlier studies, a positive relationship was found. They used economic utility theory to explain the switching caused by deals. Deals encourage brand switching because of the economic incentive provided. This explanation is again, perhaps, adequate in the aggregate sense but does not consider the psychological effects of deal in inducing trial.

TABLE 1

SOME ATTRIBUTIONS THAT YIELD OPPOSITE PREDICTIONS

In summary, past theoretical frameworks have utilized cognitive dissonance theory and self-perception theory to explain the effect of deals and deal retraction on repeat purchase, and economic utility theory to explain the impact of deals on brand switching. Ail these frameworks are primarily useful to interpret the aggregate effects of dealing activity but are inadequate as individual level explanations. They also neglect the interaction of deal with variables such as price and post-trial experience. In the next section the authors provide a cognitive interpretation of the effects of dealing activity which is appropriate at the individual level.

A COGNITIVE APPROACH

Before delineating the approach, the following assumptions will be made to facilitate the discussion:

1.  A deal will be interpreted as being a monetary incentive offered at the point of purchase. Deals that do not fit this description can be accommodated by minor modifications in the conceptualization.

2.  It is assumed that the consumer is familiar with the product class and has a "preferred brand". The "preferred brand" provides an anchor point for judging other brands. In that sense, the concept of "preferred brand" is used merely to designate an anchor point. It is left to research to determine precisely how the anchor point is established.

The essential feature of the cognitive approach is that a deal is considered to be a cue at the point of purchase which triggers certain psychological processes within the consumer. These psychological processes include encoding of the deal and using it in the formation of beliefs necessary for evaluation of the brand as well as post-trial experience. Since the role of deals in determining first purchase (trial) appears to be very different from its role in determining repeat purchase, these two aspects are treated separately in the following discussion.

Pre-Trial Influence of Deals

In the pre-trial stage the individual has no prior experience with the brand. As a result, point of purchase cues, especially price and deal information, will have considerable influence on the choice process. The authors suggest that the pre-trial stage is composed of three distinct psychological processes:

1.  Evaluating the monetary value of the deal - the consumer examines if the deal represents a monetary gain,

2.  Evaluating the quality of the dealt brand - the consumer uses available cues to evaluate the quality of the dealt brand relative to the preferred brand, and

3.  Making the choice decision - the consumer compares any perceived gain in monetary value due to the deal with any perceived loss in quality due to buying the dealt brand, and makes a decision whether to try or not try the dealt brand. Each of these processes is discussed below:

Evaluation of Monetary Value of Deal.  A reasonable assumption is that price and deal will be used jointly in evaluating the monetary value of a deal. Social judgment theory (Sherif, Sherif and Nebergall 1965) provides a conceptual framework for specifying the nature of this process. Past studies in the area of price-quality relationships suggest that a consumer has acceptable and unacceptable ranges of price (Monroe and Venkatesan 1969; Monroe 1971; Raju 1977b). Considering for the moment only the aspect of price, we can assume that there is a maximum price above which the consumer would be unwilling to pay for the product. Prices above this maximum comprise the unacceptable range of the "latitude of rejection" and prices below this maximum comprise the acceptable range or "latitude of acceptance". Note that when we talk of price perception which is independent of perceived quality there would be no lower unacceptable range of prices. A brand will not be considered as a candidate for choice unless it is priced in the acceptable range. If a brand is priced in the unacceptable range, a deal might be instrumental in bringing the price down into the acceptable range, provided the deal is sufficiently large. Very small deals might not significantly alter the price of the brand so that it remains in the unacceptable range. This implies a prerequisite for deals to be considered by the consumer. In order for a deal to be considered, the brand should be already priced in the acceptable range or the deal should be large enough to move the price of the brand from the unacceptable range to the acceptable range. If this prerequisite is satisfied, the price after deal of the dealt brand is then compared with the price of the preferred brand to establish the monetary value of the deal.

Social judgment theory postulates that the sizes of the latitudes of acceptance and rejection are dependent on ego-involvement with the issue. Subjects who have higher ego-involvement with the issue are presumed to have smaller latitudes of acceptance and larger latitudes of rejection than subjects with lower ego-involvement. In the case of deals, the relevant issue would be "price". Consequently, subjects who are more ego-involved with price would be expected to have a smaller acceptable price range.

Another prediction of social judgment theory is that the subject will perceptually distort the communication that is aimed at changing his position on an issue. If the communication falls in the acceptable range, subjects will have a tendency to perceive the position advocated as being closer to their own than it actually is. This is called the assimilation effect. If the communication falls in the unacceptable range, subjects will have a tendency to perceive the position advocated as being more discrepant than it actually is. This is the contract effect. According to social judgment theory, the assimilation and contrast effects are also a function of ego-involvement with the issue. Subjects who are more ego-involved with the issue will manifest greater assimilation and contrast effects. In the context of deals, the issue is "price", the initial position of the consumer is the price of the preferred brand, and the communication is the price after deal of the dealt brand. On the basis of the theory, it can be predicted that subjects who are more ego-involved with price will manifest a greater degree of assimilation of prices within the acceptable range and contrast of prices in the unacceptable range. Switching between brands which fall in the acceptable range of price should therefore be greater for these subjects. As stated earlier, however, these subjects will also have a smaller acceptance range which will make the prices in this range quite close to each other.

In summary, social judgment theory yields the following predictions:

1.  If a brand is priced in the unacceptable range, a deal will not be considered by the consumer unless it is large enough to move the price into the acceptable range.

2.  Subjects who are more ego-involved with price will have a smaller acceptable range of prices and a larger unacceptable range of prices than subjects who are less ego-involved with price.

3.  Subjects who are more ego-involved with price will manifest greater switching between brands priced within the acceptable range. Therefore, if a deal is able to move a brand from the unacceptable price range to the acceptable price range, the possibility of it being chosen will be greater for a subject with high ego-involvement with price.

Apart from these considerations, the authors also suggest that if the price after deal falls in the acceptable range, the monetary value of the deal will be a function of the difference in price payable for the dealt brand and the preferred brand as well as the absolute values of the pre-deal price levels. The precise nature of this function, however, cannot be specified at present.

Evaluating Quality of the Dealt Brand.  A second aspect of the pre-trial stage is the determination of how the quality of the dealt brand compares with the preferred brand of the consumer. In the absence of other strong cues, price and deal will be functional in this assessment of quality. Previous studies have shown that price influences quality evaluation considerably, especially if the brand is unfamiliar (see Olson 1974, 1977 for a review of studies in this area). However, the impact of deals on quality judgment has not been examined in the past. It is argued here that both the magnitude of the deal and the perceived frequency of dealing activity for the brand will influence perception of quality in the pre-trial stage.

The process underlying the impact of price and deal on brand evaluation can be conceptualized in terms of inferential belief formation (Fishbein & Ajzen 1975, Olson 1978). Inferential belief formation refers to the cognitive process by which a subject uses available cues in a situation to make inferences about other attributes of the stimulus on which information is not available. Olson (1978) postulated that the formation of inferential beliefs is largely dependent on logical associations or linkages learned through past experience. In cases where the brand is unfamiliar, as in the pre-trial stage, it seems likely that a high price will lead to positive inferences about the attributes. The negative inferences associated with the deal would be more significant in cases where the deal is unusually large, or is known to be offered relatively frequently in relation to the norm for the product class. It is reasonable to assume that inferences regarding attributes which are perceived to vary significantly between brands will be more affected by external cues such as price and deal. For example, if toothpastes are perceived to vary greatly in terms of "pleasantness of taste", a consumer might infer that a heavily dealt brand is likely to be unpleasant tasting. Whether the inferences on specific attributes will influence brand evaluation will depend on how important these attributes are to the consumer. Thus, in the toothpaste example, if "pleasantness of taste" is not very important to the consumer, it will not influence choice in spite of the negative inference.

In essence then, both price and deal will determine the inferences drawn about attributes on which information is not available for the brand. Sometimes, price and deal may have opposite effects on the inferences, as in a case where a high priced brand is frequently on deal.

The Choice Decision.  In making the choice, the consumer would compare the dealt brand with his preferred brand on both monetary value and brand evaluation. In most cases, a consumer would perceive a gain in monetary value and a loss in quality associated with the dealt brand. The choice would depend on a trade-off between the two. The manner in which this trade-off is executed would depend partly on the personality of the consumer. A risk-taker would be more likely to take advantage of the immediate monetary benefit and take risks with respect to the quality. Another aspect of personality that is relevant is the variety-seeking tendency of the consumer. Recent evidence has shown that variety-seekers often like to take risks also (Raju 1977a). Deals would provide an ideal opportunity to obtain variety or take risks, and at the same time gain some monetary value.

Post-Trial Influence of Deals.  The area of "disconfirmation of expectations" offers a conceptual framework that seems suitable at the individual level (Olson and Dover 1979) because it incorporates post-trial experience with the brand.

According to this framework, a consumer is presumed to have pre-trial expectations regarding the performance of the brand. If the brand is purchased, actual experience may either confirm or disconfirm these expectations. Disconfirmation can be positive or negative depending on whether the experience is better or worse than expected. Olson and Dover (1979) provide strong evidence to show that disconfirmation of expectations significantly alters the cognitive structure of the consumer with respect to the brand. Consequently, the consumer will revise his evaluation of the brand after trying it. Olson and Dover (1979) also found an assimilation type effect to underlie changes in cognitive structure due to disconfirmation of expectations. In other words, there is a tendency to rate the brand after trial closer to pre-trial expectations than it objectively deserves to be (objectively in the sense the evaluation is based on experience in the absence of prior expectations). This implies that a brand that performs better than expected levels will not be evaluated as highly as it deserves to be after the trial, and correspondingly a brand that performs below expected levels will not be evaluated as poorly as it deserves to be.

In applying this framework to the case of deals, the authors propose that the expectations for a brand are directly the result of the pre-trial inferential beliefs formed on the basis of external cues such as price and deals. In most cases, the presence of a deal will lead to reduced expectations, especially if the consumer has no prior experience with the brand. If the consumer tries the brand, the post-trial cognitive effects can be predicted on the basis of the assimilation effect found by Olson and Dover (1979).

For illustration purposes let us consider a case where the price of the dealt brand was originally the same as that of the preferred brand. Assuming that price and deal are the only major external cues, the effect of the deal would be to create lower expectations for the dealt brand. The objective unbiased evaluation of the dealt brand may be higher, lower, or equal to that of the preferred brand. In other words, the dealt brand may actually be superior, inferior, or about the same as the preferred brand. The post-trial evaluation of the dealt brand would then depend on the relative positions of the expectations and the objective evaluation for the dealt brand with respect to the preferred brand. Table 2 summarizes post-trial effects in five possible situations represented in terms of the relative positions of the expectations for the dealt brand (E), objective evaluation of the dealt brand (0), and the evaluation of the preferred brand (P). The post-trial evaluation of the dealt brand is represented by (A). It can be observed in Table 2 that for the case illustrated (when E is lower than P) the possibility of repurchase when the deal is retracted is quite low. Situation 1 is the only case where the objective superiority of the dealt brand is large enough to overcome the assimilation effect caused by lower expectations. Hence the consumer will keep buying the dealt brand even when the deal is retracted. However, it also appears that the possibility of repurchasing the dealt brand when a similar deal is of-fared again is quite high. In situations 2, 3, and 4, A is lower than P but higher than E. The consumer, therefore, does not have to give up in quality as much as he expected in order to gain the monetary advantage of the deal. This would make the dealt brand attractive whenever the deal is offered, but since A is lower than P, the brand would not be repurchased if the deal is retracted. In situation 5, A is lower than both P and E. There is a small possibility that the consumer might repurchase the brand if it is on deal, provided he is willing to compromise even more in quality than originally expected for the monetary gain from the deal. In essence, situation 1 is the only one which supports repurchase when the deal is retracted. Situations 1, 2, 3, 4, and to a small degree, situation 5 support repurchase when the brand is on deal.

One aspect which is not clarified by the disconfirmation of expectations framework is whether a sufficient number of experience occasions will bring the post-trial evaluation of the dealt brand more in line with its objective evaluation. If this is true, the repurchase after deal retraction in situations 2 and 3 of Table 2 can be improved by offering the deal for a fairly long period of time. This would allow 2 to 3 consecutive purchases to be made on deal and the consumer's evaluation will come closer to objectivity. Table 2 also indicates that, in situations 2 and 3, offering deals may not be a desirable strategy since the deal undermines repeat purchase after deal retraction in spite of the brand being as good (Situation 3) or better (Situation 2) than the preferred brand.

The deductions from the illustration in Table 2 are in conformity with the findings of several studies that deals have a positive effect on brand switching but have a negative effect on repurchase upon deal retraction (Cotton and Baab 1978; Dodson et. al 1978; Shoemaker and Shoaf 1977). The crucial test, of course, is to determine if deals influence expectations at all, and if so, to what degree.

DISCUSSION

The authors have attempted, in this paper, to offer an individual level explanation of consumer response to deals which incorporates the interaction of deals with price and post-trial experience. Figure 1 summarizes the framework used.

TABLE 2

AN ILLUSTRATION OF DISCONFIRMATION OF EXPECTATIONS EFFECTS

FIGURE 1

ELEMENTS OF THE COGNITIVE APPROACH

Clearly, the cognitive approach provides a more detailed explanation of the phenomenon of deal impact on consumer behavior than has been achieved before. Past empirical findings are also well within the framework of this new approach. For example, it can he argued that an individual who is strongly loyal to his preferred brand rates the quality of almost any brand far below his preferred brand. Hence the discrepancy in quality between the dealt brand and the preferred brand is likely to far outweigh any monetary gain achieved through a deal purchase. Therefore, the cognitive theory supports the finding that brand loyal consumers are unlikely to be influenced by deal offerings.

Suppression of repeat purchase likelihood on deal retraction can also be explained by this theory. Table 2 shows that repeat purchase despite deal retraction will occur only when post-trial evaluation of the dealt brand is significantly higher than evaluation of the consumer's preferred brand. This suggests that offering deals at an introductory stage would be a good strategy only if trial experience is likely to surpass expectations, and provide a far better experience than even the preferred brand. In most other cases (Table 2) deal retraction suppresses repeat purchase probability, sometimes even when the brand is as good or better than the preferred brand.

Apart from its greater explanatory power, the cognitive approach also suggests several hypotheses and marketing implications. It could, therefore, provide the basis for developing a theory of consumers response to deals.

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