The Effect of Contextual Cues on Korean Consumers’ Perceptions of Comparative Price Advertisements

ABSTRACT - This paper presents research examining the joint effects of the plausibility of advertised reference price, country-of-manufacture and retailer image on the process through which comparative price advertisements affect Korean consumers’ perceptions of value and intention to purchase. The results of the experiment generally are consistent with the predictions of the proposed model.

Citation:

So-Eun Hyun and Kent B. Monroe (1998) ,"The Effect of Contextual Cues on Korean Consumers’ Perceptions of Comparative Price Advertisements", in AP - Asia Pacific Advances in Consumer Research Volume 3, eds. Kineta Hung and Kent B. Monroe, Provo, UT : Association for Consumer Research, Pages: 166-172.

Asia Pacific Advances in Consumer Research Volume 3, 1998      Pages 166-172

THE EFFECT OF CONTEXTUAL CUES ON KOREAN CONSUMERS’ PERCEPTIONS OF COMPARATIVE PRICE ADVERTISEMENTS

So-Eun Hyun, Dong-Duk Women’s University, Seoul, South Korea

Kent B. Monroe, University of Illinois at Urbana-Champaign, U.S.A.

ABSTRACT -

This paper presents research examining the joint effects of the plausibility of advertised reference price, country-of-manufacture and retailer image on the process through which comparative price advertisements affect Korean consumers’ perceptions of value and intention to purchase. The results of the experiment generally are consistent with the predictions of the proposed model.

INTRODUCTION

Although the effects of advertised price and discount cues on consumer perceptions have been studied previously, few studies have examined these price perceptions from advertisements in the presence of other extrinsic cues such as brand name, store name or country-of-manufacture. In this research, extrinsic information that may directly influence (1) consumer perceptions toward an advertisement, or (2) through other variables influence consumers’ perceptions will be called contextual cues. Specifically, this study investigates the processes in which the advertising cntextual cues are perceived and compared or moderated by other variables. To study these processes a model identifying the causal relationships between the contextual cues and consumers’ perceptions is proposed and tested.

THEORETICAL BACKGROUND

This research draws on four theoretical bases to develop the conceptual model. Adaptation-level theory (Helson 1964; Monroe 1973, 1990) suggests that if consumers are exposed to either a set or a series of prices for a product, they will form internal reference prices for the product (i.e., adaptation levels). These internal reference prices form the standard to compare subsequent prices that may be encountered. However, these internal reference prices are not static; indeed, they change when new price information is received. This theory also suggests that judgments of price cues are context dependent. Therefore, understanding multiple price cue effects within the context of a comparative price advertisement is important, because the joint effects of these multiple cues influence consumers’ internal reference prices and their resulting price perceptions.

Transaction utility theory suggests that consumers first judge the value of the offer and then decide whether to purchase (Monroe and Chapman 1987). Positive transaction value occurs when the consumers’ internal reference price is less than the selling price. Whenever a seller advertises a higher regular price that is discounted to a lower selling price, then to the extent that the consumer accepts the advertised regular price as valid, transaction value will be positive. Thus, in comparative price advertising, if the consumer’s internal reference price could be increased by an adaptation effect due to a high-advertised reference price while holding the offering price constant, the offering price would be perceived more favorably (Monroe and Chapman 1987).

Knowing that consumers might perceive value in an advertised discount, sellers might be tempted to artifically inflate the advertised regular price (exaggerated reference price). However, Urbany, Bearden and Weilbaker (1988) suggest that consumers will discount an advertised exaggerated reference price because it is not believable. While they found evidence for this discounting hypothesis, nevertheless, it was also demonstrated that consumers’ internal reference price adapted towards the exaggerated advertised price.

Finally, message-learning theory has shown that a communication’s persuasive power is in part dependent upon the characteristics of the source of the message (Hass 1981; Sternthal, Phillips, and Dholakia 1978). In the comparative price advertising context, retailer image, brand image and country-of-origin image are believed to influence message acceptance (e.g., comparative price claims) because these images are antecedents of source credibility (Fry and McDougall 1974; Barnes 1975; Bearden, Lichtenstein and Teel 1984).

The influence of retail store image has been examined based on source credibility effects. The probability of consumers accepting advertised regular prices increased when the advertisement was from the more trustworthy advertiser with a smaller discount size. Furthermore, consumer overall reactions such as believability of the advertised purchase offer, perception of the value for the money, and motivation to buy the advertised product were significantly higher when subjects were shown the high-prestige department store’s advertisement versus those sponsored by the low-prestige discount store (Fry and McDougall 1974; Berkowitz and Walton 1980).

It has been shown that brand name, interacting with price, influenced buyers’ perceptions of quality, revealing a positive and significant relationship between brand name and perceived quality. (Dodds and Monroe 1985; Rao and Monroe 1989).

The country-of-origin cue influences the way descriptions of products’ specific attrbutes are interpreted (Schooler and Wildt 1968; Dornoff, Tankersley, and White 1974; Khera and Wise 1985; Schleifer and Dunn 1968; Dunn 1976; Wall, Liefeld and Heslop 1991). It has been shown that country-of-origin not only has a direct influence on product evaluations, but also appears to stimulate subjects to think more extensively about other product attribute information (Hong and Wyer 1989; Han 1989).

Advertisement believability has been examined in various ways. The probability for an advertised reference price to be accepted as true was influenced by discount size, indicating a smaller discount size is more likely to be regarded as true (Fry and McDougall 1974). However, consumer discounting of advertised reference prices was regarded as a natural response to reference price advertisements, particularly to advertisements that offer seemingly exaggerated saving claims (Blair and Landon 1981; Ahmed and Gulas 1982; Liefeld and Heslop 1985).

In the study by Wall, Liefeld and Heslop (1991), it was shown that the effect of an advertised reference price on perceived offer value works through perceptions of transaction utility. Since the advertised reference price is higher than the sale (actual selling) price, there would be a positive perceived transaction value, and the overall perceived value will increase (Monroe and Chapman 1987). It has also been shown that positive perceived transaction value enhances overall product value and increases intentions to buy (Grewal, Monroe and Krishnan 1998).

THE EFFECTS OF COMPARATIVE PRICE ADVERTISING

A summary of the conceptual argument of how comparative price advertising influences consumers’ perceptions of price, value, and behavioral intentions and the development of the hypotheses follows.

Reference Price Perceptions

One of the key antecedent variables influencing price perceptions is the consumers’ beginning internal reference price for the specific product category (IRP). Primarily, consumers’ pre-existing or initial internal reference prices are formed by their previous experiences with the product category and prices. Further, these internal reference prices are dynamic in the sense they change when consumers encounter new price stimuli. In comparative price advertising, the consumer is exposed to two prices: the advertised regular price (ARP) and the advertised sale price (ASP). Moreover, the subjectively perceived prices may not be necessary isomorphic with the actual (objective) prices. Therefore, (1) the perceived advertised regular price (PRAR) likely will differ from the advertised reference price (ARP), and (2) these prices along with the advertised sale price influence consumers to form a new "adapted" internal reference price (AIRP) that is used in subsequent evaluations and behaviors.

Two other contextual variables likely influence consumers’ internal reference price for a product are the country in which the product was manufactured (i.e., the country-of-manufacture image (COMI), and the retailer’s image (RI). Consumers likely will have relative expectations about prices from specific countries, similar to their expectations about prices from specific retailers. Based on message learning theory, if an advertising retailer has a favorable image, the advertised price promotion will be more likely to be perceived as credible. In this situation, it is likely that the consumers’ perceived regular selling price (PRAR) will be closer to the actual advertised regular price. Based on these arguments, it is hypothesized:

H1:  Consumers’ initial internal reference price will be positively related to their perceptions of the country-of-manufacture.

H2:  The perceived regular selling price of the advertising retailer will be positively related to the advertised reference price.

H3:  Consumers’ perceptions of the regular selling price of the advertising retailer will be moderated by their perceptions of the retailer.

H4:  Consumers’ adapted internal reference prices will be positively related to their (i) initial reference prices, (ii) perceived regular selling price of the advertising retailer, and (iii) advertised sale price.

Subjective Product Evaluations

Previous research has demonstrated that extrinsic cues such as retailer image, brand image, or country-of-manufacture may influence consumers’ perceptions of product quality. Further, there will be a positive relationship between perceived quality and perceived benefit.

H5:  Consumers’ perceptions of quality will be positively related to (i) country-of-manufacture image, (ii) retailer image, and (iii) brand image.

H6:  Consumers’ perceptions of benefits will be positively related to perceptions of quality.

Perceptions of Value

Consumers’ perceptions of value derive from their perceptions of the gain to be realized by acquiring the product and their perceptions of the merits of the deal or promotion (Monroe and Chapman 1987). Consequently, there should be a positive relationship between their perceptions of the benefits to be obtained from acquiring the product and perceptions of value, but a negative relationship between their perceptions of value and their perceptions of the advertised sale price(ASP). Moreover, the perceptions of the merit of the offer will be positively related to their adapted internal reference price, but negatively to the advertised sale price. Finally, perceptions of value will be positively related to willingness to buy, but negatively related to intentions to search. Consequently, it is hypothesized

H7:  Consumers’ perceptions of value will be positively related to (i) perceived benefits, and (ii) their adapted internal reference price.

H8:  Consumers’ perceptions of value will be negatively related to their perceived advertised sale price.

H9:  Perceived value will be (i) positively related to willingness to buy, but (ii) negatively related to intentions to search.

METHODOLOGY

Experimental Procedures

To test the proposed conceptual model, a 3 x 2 x 3 factorial design was used. A mini cassette tape player was selected for the the product to be advertised. To test the proposed contextual cue effects on consumers’ perceptions, the experiment used simulated advertisements that contained information about product features with intrinsic product attributes, manufacturing country, advertising retailer and comparative price cues (regular price/sale price).

Three levels of advertised regular price (plausibly low, plausibly high, and implausibly high), two levels of retailer type (Hyundai department store vs. Hi-mart discount store) and three different countries-of-manufacture (made in Japan, U.S.A., and South Korea) for an unknown brand 'Realitic’ were used. Three different levels of advertised regular prices and advertised sale price were manipulated (implausibly high ($250: 195,000won); plausibly high ($203: 159,000won); plausibly low ($120: 93,600won); sale price ($90: 72,540won)). The manipulation check for the prices (F=103.538, p =.000) supported the prices were perceived to be significantly different.

The data collection was conducted in the class room immediately following a regular class session using a convenience sample of 630 students at Yonsei University in South Korea. Respondents were assigned randomly to the eighteen experimental cells. The experiment proceeded in three stages: The first stage preceded exposure to the simulated advertisements to get subjects’ pre-existing internal reference prices and pre-existing acceptable price ranges. Subjects’ pre-existing internal reference prices and acceptable price ranges were measured to investigate how the reference prices changed after exposure to the external reference price information. This study used two common indicators such as expected price and normal or usual price for measuring consumers’internal reference prices. Perceptions of regular selling price of the advertising retailer were also measured. Adapted internal reference price was obtained after advertisement exposure by asking consumers’ internal reference prices.

TABLE 1

MANOVA RESULTS

The second stage obtained the perceptual measures of the effects of the comparative price advertisements. The third stage provided a manipulation check of the advertised regular price levels, retailer image and country-of-manufacture image.

RESULTS AND ANALYSES

Initially, the reliability of each conceptual construct was assessed using Cronbach’s alpha. Most measures of the constructs had an acceptable level of internal consistency (the least one=0.51; the highest one=0.94); Cronbach’s alpha value for 10 constructs was higher than .80.

MANOVA and ANOVA initially confirmed the effects of reference price, retailer type, and country-of-manufacture on price and value perceptions and behavioral intentions (Table 1). Next, stepwise regression analyses were conducted to examine structural relationships in perceptions and behavioral intentions. Lastly, LISREL was used to test the proposed causal relationships (Table 2).

Goodness of fit of the proposed model was 0.91. Most of the proposed structural relations among latent concepts was confirmed and additionally, structural paths in relations were derived through LISREL analysis (Table 3). As shown in Table 3, the t values of all the structural path coefficients were significant.

Through these analyses, all the proposed hypotheses except the effect of brand image (H5,iii) and the effect of the advertised sale price (H8) were confirmed. Because only one brand was used, the proposed brand image effect was not studied. Similarly, since advertised sale price was fixed at $93 (72,540 won), the influence of advertised sale price on value perceptions was not measured. The moderating effect of retailer image (H3) was observed given there was a significant interaction of retailer (RI) x advertised reference price (ARP) on perceived selling price (F_2,610=3.29, p=.04).

DISCUSSION AND CONCLUSIONS

The Effects of Contextual Cues

As suggested by adaptation-level theory, the advertised reference price influenced price perceptions. Further, the higher the advertised reference price, the greater were the shifts in the adaptation-level prices. However, in this study the adapted internal reference prices were lower than the pre-existing internal reference prices due to a shift-down effect of the advrtised sale price. This shift-down effect is logical because an adaptation-level is formed by integrating all the relevant price information. Nevertheless, the high advertised reference prices also influenced value perceptions. However, the influence of the implausibly high advertised reference price on perceived value was not significantly different from that of the plausibly high advertised reference price. In addition, the implausibly high reference price had an unfavorable influence on retailer image. The influence of the advertised reference price level was also significant on intention to buy (F_2,612=3.18, p=0.10). The highest intention to buy was produced in the plausibly high advertised reference price condition.

ANOVA for retailer image confirmed that Hyundai department store was regarded as more prestigious and more credible in its advertised prices than Hi-mart; the Hyundai department store had a higher advertisement believability than Hi-mart. Furthermore, Hyundai department store had a significantly higher perceived regular selling price than did Hi-mart. The moderating effect of retailer image was detected by the significant retailer x advertised reference price interaction effect on the perceived regular selling price of the advertising retailer. That is, when reference prices were advertised by Hyundai department store (assumed to be the prestigious retailer), the perceived regular selling price was closer to the advertised reference price. Thus, the Hyundai reference price was discounted less from the advertised reference price levels than when reference prices were advertised by Hi-mart.

TABLE 2

MEASUREMENT MODEL PARAMETER ESTIMATES (THE SELECTED MODEL IN LISREL ANALYSIS)

One important finding was that the magnitude of country-of-manufacture effects were larger than the other experimental variables on perceptions and behavioral intentions. The image of the same 'Realistic’ brand advertised to be made in Japan was rated most highly, followed by made in U.S.A. The lowest brand image occurred when it was advertised to have been made in South Korea. For the adapted acceptable price range, perceived regular selling price of advertising retailer, and adapted internal reference price, there were no statistically significant differences between advertised products made in Japan and U.S.A. Products made in South Korea had the lowest values. On the other hand, for perceived quality, perceived benefit, perceived value and intention to buy, (1) the advertised products made in Japan had the highest values, while (2) perceived values of products made in U.S.A. and in South Korea were not significantly different. These results imply that Korean consumers favor Japanese products over American products, although their internal reference prices or adaptation-level prices of products made in U.S.A. were similar to those of products made in Japan. However, they do not favor products made in U.S.A. over products made in South Korea on perceived quality, benefit, value or intention to buy.

Perceptual Dimensions

It was proposed that consumers’ perceptual processes have a structure, which includes a perceptual path. These perceptual paths will indicate the relationships among perceptions and will identify antecedent and subsequent perceptions. Stepwise regressions and LISREL confirmed most of the proposed perceptual paths.

TABLE 3

STRUCTURAL COEFFICIENTS OF THE SELECTED MODEL (t VALUES OF STRUCTURAL COEFFICIENTS)

Price-related Perceptions

It was confirmed that adapted internal reference price is influenced by pre-existing internal reference price and regular selling price of the advertising retailer. Additionally, it was found that the perceived regular price of the advertising retailer was influenced also by subjects’ pre-existing internal reference prices. The adapted internal reference price was also influenced by the advertised sale price, although in this experiment, advertised sale price was constant. The revealed shift-down effect due to the low advertised sale price level was as follows: adapted internal reference price and adapted acceptable price range were less than pre-existing internal reference price level and pre-existing acceptable price range.

Prodct Evaluation

The LISREL analysis confirmed the proposed paths for product evaluation. First, perceived quality led to perceived benefits. Secondly, it was proposed that consumers will consider not perceived quality but perceived benefit as the "get" component when they evaluate perceived value of a product because perceived benefit includes additional utilities received. This proposition was confirmed first by stepwise regression; the stepwise regression with dependent variable of perceived value indicated that the most significant regressing variable was perceived benefit. LISREL analysis also confirmed the proposed path from perceived benefit to perceived value.

Value Perceptions

As proposed, it was confirmed that perceived benefit leads to perceived value. On the other hand, perceived monetary sacrifice would be expected to be based on the advertised sale price. However, in this study, sale price was not varied across experimental conditions. Thus, the subjects’ adapted internal reference price was utilized to evaluate monetary sacrifice; the difference between adapted internal reference price and advertised sale price represents transaction value. Therefore, the path from adapted internal reference price to perceived value, which is a combination of perceived acquisition value and perceived transaction value, was confirmed.

Behavioral Intentions

The proposition that perceived value mediates the influence of perceived benefits and perceived sacrifice on behavioral intentions was confirmed; perceived value has a positive relationship with intention to buy and a negative relationship with intention to search further. One interesting finding here is that the LISREL model revealed a direct path from perceived benefit to intention to buy. The path implies that consumers may also buy a product that provides specific benefits they need.

CONTRIBUTIONS OF THIS RESEARCH

This research conceptualized the effects of advertisement contextual cues by incorporating consumers’ perceptual processes. First, in explaining the effects of advertised price cues, advertised reference price was regarded as an objective price that subsequently influences price-related perceptions. Initial internal reference price and the subjectively perceived advertised price were postulated to lead to adapted internal reference price. It was also revealed that adaptation-level is context dependent; other advertisement contextual cues such as country-of-manufacture and retailer type influenced the adaptation-level prices.

This study also developed perceptual paths for product evaluations, contributing to enhancing our (1) understanding of consumers’ perceptual processes evoked by advertisement contextual cues, and (2) identifying the perceptual paths through which the advertisement contextual cues influence behavioral intentions.

It was shown that country-of-manufacture image and retailer image influenced perceived quality and perceived benefit. Enhancing country-of-manufacture image will necessarily be a long term strategy in relation with other industries. However, in a specific product category, a country can develop a favorable image by selling high quality products or by advancing technology in a specific product line through research and development.

LIMITATIONS AND FURTHER IMPLICATIONS

The realism of the context within which the perceptions were obtained was limited because the research was conducted using a class-like lab experiment. In addition to that, using the American brand, 'Realistic’ as the controlled brand name for products made in three different countries added some artificiality to this experiment.However, including the products made in different countries were meaningful to investigate Korean consumers’ perceptions toward foreign products and to test domestic products’ competitiveness compared to foreign products. Another limitation was that some measures of the proposed concepts need to be improved with further research.

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