Consumers’ Reactions to Price: an Information Processing Approach

ABSTRACT - This paper constructed a conceptual model in which explains consumer reaction to price, based on the information processing perspective. To understand the mechanism of consumer response to price, this study examined three hypotheses that predict the influence of product types (search goods, experience goods, and credence goods) and consumer characteristics (price-reliance schema) on the interpretation of price stimuli by regression analyses.

Citation:

Michiyo Aoki (2001) ,"Consumers’ Reactions to Price: an Information Processing Approach", in AP - Asia Pacific Advances in Consumer Research Volume 4, eds. Paula M. Tidwell and Thomas E. Muller, Provo, UT : Association for Consumer Research, Pages: 269-273.

Asia Pacific Advances in Consumer Research Volume 4, 2001      Pages 269-273

CONSUMERS’ REACTIONS TO PRICE: AN INFORMATION PROCESSING APPROACH

Michiyo Aoki, Tamagawa University, Japan

ABSTRACT -

This paper constructed a conceptual model in which explains consumer reaction to price, based on the information processing perspective. To understand the mechanism of consumer response to price, this study examined three hypotheses that predict the influence of product types (search goods, experience goods, and credence goods) and consumer characteristics (price-reliance schema) on the interpretation of price stimuli by regression analyses.

The results suggest that consumer interpret price stimuli differently depending on the type of product. And consumer characteristics (price-reliance schema) influence consumers’ interpretation of price stimuli. Finally, theoretical and managerial implications of these findings are discussed.

INTRODUCTION

Price is clearly an important information in making a decision about what to buy in a store. However, consumers’ interpretation of price stimuli should be different depending on the type of product. What kind of mechanism work there? To answer this question, it is helpful to know the mechanism of consumers’ interpretation for price stimuli, and examining the cognitive process from "Stimulus" of the price information to "Response" of the purchase decision making.

In this study, consumers’ reaction to price is modeled on an information processing approach (Bettman 1979). To understand what type of price information influences consumers’ reactions to price, three hypotheses are examined. These hypotheses suppose that product types and consumers’ characteristics have effects on the cognitive process.

LITERATURE REVIEW

As for the price research on the consumer behavior, main concern has been put on the relationship of perceived price and quality, and the focus has been put on the possibility whether the consumer accepts the price of the product. However, the process and mechanism between "Stimulus" of price and consumer’s "Response" have not been well considered in a Stimulus-Response paradigm. Therefore, existing studies are not able to explain the reason why consumers react to the price.

Jacoby and Olson have reviewed such price research systematically, to improve predictions regarding consumer response to price, and to provide some conceptual understanding of the dynamics underlying this response (Jacoby and Olson 1977). They began by examining the historical linking of three concept; price, consumer attitude and consumer response. And they provided the model of "Conceptual Schema for Discussing Consumer Reactions to Price," which is shown in Fig.1. Finally, they concluded that marketers and consumer behaviorists know very little about consumer reaction to price. They say that we do not know which consumers will seek price information for which products under which circumstances, nor do we know what price attitudes have on product/brand attitudes, behavioral intentions, or even on actual purchase. They pointed out that researchers must begin to delve more deeply into the reasons why consumers react to O-price as they do. And they strongly argued that the conceptual approach that they built would present the base of the price research in the future (Jacoby and Olson 1977, p.83).

However, pricing research by the information processing approach was slow to develop in several years after the appearance of their survey (Olson 1980). Olson presented, therefore, the basic aspects of an explicit theoretical perspective in pricing research based on information processing theories, and illustrated the advantages of such an approach by discussing several of its implications for pricing research (Olson 1980). He concluded that the information processing perspective can provide a valuable framework for conceptualization and empirical research of price. Zeithaml (1982) conducted a laboratory experiment in which she evaluated the impact of eight store information environments on consumer processing of price information. Her survey found that both item making and a list of unit prices would facilitate processing of grocery store prices. Continuously, Zeithaml (1983) investigated the accuracy of consumers’ reported reference prices for professional services. She used "Conceptual Schema for Discussing Consumer Reactions to Price" (Jacoby and Olson 1977) as a theoretical background in her study.

And Zeithaml (1984) points out the problem that concepts representing consumer response to price lack uniformity, and the domain of price consciousness is not clearly specified in the literature. She listed measures of consumer response to price corresponding to stages in conceptual schema (Jacoby and Olson 1977) in the literature. Results of her survey indicated that conceptual and measurement refinements woud be possible and necessary.

In addition to the examination of such measurement problems in the literature, paying attention to the individual variation in the interpretation of information of price and having arranged as mediators were done by Helgeson and Beatty (Helgeson and Beatty 1985). They have brought the problem drawn out by reviewing the literature based on the conceptual schema which was by Jacoby and Olson presented (Jacoby and Olson 1977). They discussed mediators at each stage of the schema, and presented a number of research questions as follows, (1) What impact do the mediators of exposure and attention have on the processing of price stimuli? (2) How does the existence and amount of useful product information, other than price, impact the allocation of attention to price stimuli? (3) What is the impact of consumer price expectations on the processing of price stimuli? and (4) How do individuals derive "meanings" from price stimuli? (Helgeson and Beatty 1985 p.94-95)

CONCEPTUAL MODEL AND HYPOTHESES

A theoretical frame is obtained from the price research based on the information processing approach, "Conceptual Model of Interpreting Price Information" (Fig. 2) which is constructed in this study. We use this model for testing three hypotheses.

The way of interpreting price information will be influenced by the type of product in the economics of information, that is, "Search goods, Experience goods, and Credence qualities" (Nelson 1970; Darby and Karni 1973). If the product is a search goods, the quality of product should be understood prior to it’s purchase. So, the information of price will be interpreted how much can save money for the purchase. If the product is an experience goods, the quality of product will be understood after the purchase of it. Therefore, consumers will interpret the price information as a signal for the quality of product. If the product has credence qualities, consumers cannot know the quality of product even after the purchase of it. The role of price information varies with the type of product, therefore, hypotheses 1 and 2 are led.

On the other hand, a moderator, or consumer’s "Price-Reliance Schema" (Peterson and Wilson 1985) is assumed to have an effect on the interpretation of price information. This effect is supposed in hypothesis 3.

H 1.The price will work as information to save money in the case of search goods.

H 2.When the product is an experience goods or credence goods, the price will work as information to guess the quality of product, and the degree of influence for the experience goods will be greater than that for credence goods.

H 3.When the product is an experience goods or credence goods, there will be a positive relation to the degree of the influence of price on the evaluation of quality and the degree of consumer’s "Price-Reliance Schema."

FIGURE 1

CONCEPTUAL SCHEMA FOR DISCUSSING CONSUMER REACTIONS TO PRICE

FIGURE 2

CONCEPTUAL MODEL OF INTERPRETING PRICE INFORMATION

TABLE 1

RESULTS OF MANIPULATION CHECK FOR EACH PRODUCTS

METHOD

Subjects

The data collection for this study was conducted in the first week of April 1996. Subjects were 500 females who lived in Minato-ku, Tokyo. They were mostly housewives, recruited by random sampling.

Procedure

The questionnaire was left with the resident and was picked up later in the week. Respondents were asked to provide their evaluations on the price and quality of three fictitious products. After discarding questionnaires containing incomplete responses, the final sample size was 226.

Three of the product categories were selected on the basis of several criteria. First, the products had to be frequently purchased, nondurable items readily available in stores. Second, the set of product categories had wide range of prices. Third, the products were used in previous price studies. Finally, we selected a sports shoes for search goods, wine for the experience goods, and cold medicine for credence goods, respectively. In this study, we prepared two kinds of questionnaires in which one was low pricing condition and the other was the condition with high pricing, the former sample size was 120 and the latter was 106.

Measures

Dependent MeasureBReaction to Price:

The dimension of each construct of the information processing schema (Jacoby and Olson 1977) was examined in detail, based on the survey by Zeithaml (1984). She reviewed previous studies for using measures of consumer response to corresponding stages in Jacoby and Olson’s conceptual schema. She showed that two summary measures, "price acceptability" and "perceived value for the money" constructed to characterize "attitude toward price." In this study, "Reaction to the Price" was measured by 7-point semantic differential scale: "reasonable-unreasonable." Response alternatives were labeled with the following descriptors for the 7-points; "extremely," "quite", "slightly", "neither", "slightly", "quite", and "extremely". The item read, "I think the price of this product is

reasonable 1: 2: 3: 4: 5: 6: 7: unreasonable."

Independent MeasuresBQuality Benefit:

Two 7-point items were used to record responses. One item read, "I think the quality level of this product is

low 1: 2: 3: 4: 5: 6: 7: high."

The second item read, "I think the quality of this product is

not good 1: 2: 3: 4: 5: 6: 7: good."

Monetary Benefit:

Two 7-point items were used to record responses. One item read, "I think this price is discounted

disagree 1: 2: 3: 4: 5: 6: 7: agree."

The second item read, "I think this price saves money

disagree 1: 2: 3: 4: 5: 6: 7: agree."

Price-Reliance Schema:

The measurement of "Price-Reliance Schema" (Peterson and Wilson 1985) followed the method which had been used in their study. Their original scale ranged from 1(strongly disagree) to 6 (strongly agree) to such statement that "the higher the price of the item, the higher the quality." We changed their scale from 6-point to 7-point, in our survey. Respondents were asked o indicate the extent to which they agreed with the statement that " I think the higher the price of this product, the higher the quality" for each of three products.

Manipulation Check:

We select three types of product in our study, therefore, it is necessary to check respondents’ recognition for each product. We prepared 7-point item which examined operating definition (Ford, Smith and Swasy 1988) for each product classification in the economics of information. Respondents were asked to indicate the extent to which they agreed with the statement for the operating definition. We judged whether means exceeded 4 point or not. The results showed in Table 1, in which search goods could not exceed 4 point. This is major limitation of our study.

We tested hypotheses in the regression equation as follows (see equation 1). The relation of the predicted coefficient in hypothesis 1 is b₂>b₁, and it is predicted as b₂<b₁ in hypothesis 2. In hypothesis 3, we examined whether the relation of coefficient was high or low in two groups, consumer’s "Price-Reliance Schema" was high and low.

Reaction to Price=b₁(Quality Benefit) + b₂(Monetary Benefit) + e

TABLE 2

CORRELATION OF INDEPENDENT VARIABLES

TABLE 3

RESULTS OF STANDARDIZED REGRESSION ANALYSIS

RESULTS AND DISCUSSION

First, we examined the correlation of independent variables. The results are shown in Table 2. The correlation is low in Table 2, so, we can use the regression analysis to test hypotheses. The results of standardized regression analyses are shown in Table 3 and Table 4.

In Table 3, all of coefficients were significant at 1% level on High-Price Condition. Therefore, we used these results to test Hypothesis 1 and 2. The expected relationship is b₂>b₁ in Hypothesis 1, that is, Monetary Benefit>Quality Benefit, and the results showed Monetary Benefit 0.291>Quality Benefit 0.266 for search goods, therefore, Hypothesis 1 was supported. Hypothesis 2 is reverse to Hypothesis 1, the expected relationship is b₂<b₁, that is, Monetary Benefit<Quality Benefit. The results showed Monetary Benefit 0.447>Quality Benefit 0.260 for experience goods, and Monetary Benefit 0.469>Quality Benefit 0.263 for credence goods. Therefore, Hypothesis 2 was not supported.

By the degree of "Price-Reliance Schema" (Peterson and Wilson 1985), the consumers divided into two groups in which the standardized regression analysis was used to test Hypothesis 3. These results are shown in Table 4, but each coefficient was not significant enough to compare. We must examine another way. In the two groups, we noticed that the adjusted R² was different enough for supposing the role of moderator. For example, when consumer’s Price-Reliance Schema was high, the adjusted R² for credence goods was 0.084, this coefficient has risen to 0.573 when the schema was low. It can be predicted that this schema plays a moderating role.

In this study, we examined the influence of product types and consumer characteristics, in reaction to price. The implications of this study are as follows. First, consumers’ reaction to price can be explained using the model in Fig.2. The results showed that the model is fit for each product type exceeded 0.1, the fit was high for credence goods, especially. If we know that consumers’ reactions to price is a function of these two variables, "Quality Benefit" and "Monetary Benefit" of the product, then we will be able to predict the effect of each variable by product type. This prediction will be useful for introducing a good strategy setting a reasonable price for the product.

In future study, a next question is how to influence such characteristics in consumer purchase behavior. An what moderating role the product type and the consumer characteristics will play in the purchase behavior? In our next study, the conceptual model in Fig.2 can be expanded into a new model including the purchase intentions. In this new model, the relationship between "Reaction to the price" and "Purchase intention" in which the influence of the product type and the consumer characteristics will be examined.

Based on the information processing approach, each process from price stimulus to the response of purchase were treated as a series of processes in the Jacoby & Olson model (Jacoby and Olson 1977). Similarly, the suggestion on the purchase behavior may be obtained from our new model. Finally, the relation between consumer’s reaction to price and the purchase intention depends on the product type and consumer characteristics.

To know the mechanism of consumer’s reaction to price, we took the information processing approach in this study. Hypotheses (1-3) dealt with the aspect of information acquisition in this model. The remained issues are the part of information integration in this model, for example, the attitude to price and the relation to the purchase intention. In addition, it is necessary to understand the effects of product types and consumer characteristics on consumers’ reaction to price more clearly.

TABLE 4

RESULTS OF STANDARDIZED REGRESSION ANALYSIS

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