An Information Processing Perspective on the Internalization of Price Stimuli

ABSTRACT - A scheme is presented which reflects what is currently known or conjectured about the processing and internalization of price stimuli. Each stage of the scheme is explained in relationship to the processing of price, and additional variables relating to each stage are suggested. Additionally, a number of research questions, which were generated from the price processing scheme. are presented.

Citation:

James G. Helgeson and Sharon E. Beatty (1985) ,"An Information Processing Perspective on the Internalization of Price Stimuli", in NA - Advances in Consumer Research Volume 12, eds. Elizabeth C. Hirschman and Moris B. Holbrook, Provo, UT : Association for Consumer Research, Pages: 91-96.

Advances in Consumer Research Volume 12, 1985      Pages 91-96

AN INFORMATION PROCESSING PERSPECTIVE ON THE INTERNALIZATION OF PRICE STIMULI

James G. Helgeson, Gonzaga University

Sharon E. Beatty, University of Oregon

ABSTRACT -

A scheme is presented which reflects what is currently known or conjectured about the processing and internalization of price stimuli. Each stage of the scheme is explained in relationship to the processing of price, and additional variables relating to each stage are suggested. Additionally, a number of research questions, which were generated from the price processing scheme. are presented.

INTRODUCTION

Scholars in consumer behavior (e.g., Jacoby and Olson 1977; Olson 1980) have called for the use of an information processing perspective for the study of price stimuli. Olson (1980) notes that,"...for researchers interested in deeper, more causal explanations of consumers' reactions to price, the information processing perspective can provide a valuable framework for conceptualization and empirical research." (p. 15)

From the work of Lachman, Lachman and Butterfield (1979) and Olson's (1982) address to the A.M.A. doctoral consortium, the following assumptions can be made in regard to the information processing perspective:

1. Humans have internal representation (symbols) of stimuli and knowledge.

2. Humans are symbol manipulators and perform such operations aa encoding, comparing, locating, and storing, on these symbols.

3. The internal elements (symbols) are arranged in organized storage arrangements (e.g., propositional networks).

4. These storage arrangements (networks) are formed and changed via a process of spread of activation through the network (i.e., activation theory).

5. Humans have limited cognitive capacity.

This summary of the information processing paradigm delineates some of the central and generally accepted assumptions of this paradigm. To provide a richer perspective regarding the application of the information processing paradigm to the processing of price stimuli, a scheme of this processing will be presented. This scheme will be utilized to discuss what is currently known and not known about the processing of price stimuli. The scheme represents the union of information processing research and theory, price research and theory, and some conjecture.

Figure 1 presents the scheme of the processing of price stimuli. "O" price refers to the objective price, the literal dollars and cents of the price stimulus. "P" price represents psychological price and refers to the internal cognitive representation of "O" price (Jacoby and Olson 1977). The discussion that follows general: v coincides with the flow of stages presented in Figure 1.

"O" PRICE

Price has been found to be one of the most important pieces of information consumers acquire in the decision making process (e.g., Berning and Jacoby 1974.) About 40 percent of the information consumers sought in decision process studies was that of price information (e.g., Jacoby, Chestnut, Weigl, and Fisher 19,6). Part of this acquisition of price information is actually reacquisition to compare price changes to an individual's acceptable price level and to other cognitive structures. Brand name does appear to take precedence over price as an item of information sought by consumers (Gardner 1971; Jacoby, Szybillo, and Busato-Schach 1977; but brand name probably carries some information on price as well, as part of an overall "chunk" of information.

FIGURE 1

SCHEME OF THE PROCESSING OF PRICE STIMULI

MEDIATORS OF EXPOSURE

Exposure, or contact with environmental stimuli, presents the opportunity for the individual to experience sensation from the stimuli followed by perception and other information processing. Price information, possibly being the most ubiquitous form of product information, would present many exposure opportunities. Exposure may occur intentionally or unintentionally. Consciously examining price information on brands of jogging shoes would be an intentional exposure situation. Noticing a brand on sale while walking by the store window is an unintentional exposure situation.

Although no research has been done specifically dealing with consumers' mediators of exposure and selective exposure to price information, such items as price consciousness, budget constraints, involvement with being an efficient shopper, and so forth, could be proposed as such mediators. The use and nonuse of unit price information would appear to be one of the few examples of selective exposure from the price literature. It has been fount that a majority of consumers to not use this information (Carmen 1973; Monroe and LaPlaca 1972) and are probably not intentionally exposing themselves to this information.

MEDIATORS OF ATTENTION

Several criteria have been proposed as mediators in the allocation of attention. First, some type of internal cost/benefit assessment could be calculated by the individual. The benefit of allocating limited processing capacity could be mentally and instantly compared to the cost of this allocation. Second, limitations in the stimuli (data) being examined may produce heightened attention. The stimuli may be deteriorated, unclear, muted, and otherwise difficult to process, thereby requiring greater amounts of attention. Next, involvement with the stimuli may be considered a mediator of attention, with greater involvement manifesting greater attention. Other possible mediators for directing attention to price information could include: (1) price-promotion displays and advertisements, (2) prices different from the expected or familiar price, (3) price consciousness (See the Zeithaml (1984) discussion of the conceptualization of this and other related constructs), (4) product involvement, (5) situational variables (e.g., income, cash on hand), (6) motivation or reasons for purchasing the product, and (7) consumer habits (e.g., brand loyalty).

ATTENTION

The term attention includes much of -what is meant by the term consciousness. Lachman, Lachman, and Butterfield (1979) present the following explanation of attention: "...like consciousness, attention connotes awareness. To attend is to be conscious of something. Attention also implies selectivity; when we pay attention to something, we have selected it and ignored other things. Attention also means alertness. A person must be awake to pay attention, and alertness influences information processing. (P.186)

The myriad of stimuli to which individuals are exposed continually requires selectivity in the allocation of limited cognitive capacity. Attention performs this allocation function. Attention can be viewed as operating on a continuum from low to high attention.

Various processing continua have been proposed which have an attention allocation base. Several of these continua and the individuals associated with each are presented in Table 1. Three continua summarize the bulk of the distinctions being conveyed in Table 1. These continua are: (l) attention, which ranges from low to high, (2) meaning orientation, which ranges from expected to evaluated, and (3) processing orientation, which ranges from automatic to deliberate (also see the center portion of Figure 1). These distinctions are evident as we move from the low attention/expectancy oriented column to the high attention/evaluatively oriented column of Table 1.

TABLE 1

TWO APPROACHES TO PROCESSING STIMULI

The concepts and processing techniques in the low attention column of Table l are processing capacity enhancing mechanisms. These mechanisms expand the amount of information that an individual can process by allowing him/her to jump to conclusions, fill in gaps, and make assumptions based on prior experience, learning, and familiarity. Low attention, automatic processing usually generates meaning based on expectations. For example, Bettman (1979, p. 81) suggests that frequently occurring patterns based on experience, may be recognized as gestalts or total configurations and processed by a low attention, automatic processing approach.

The counterpart to the low attention, expected meaning, automatic approach to processing stimuli is the high attention, evaluated meaning, deliberate approach. In this "evaluated meaning" approach much cognitive capacity is allocated to a stimulus via high attention and greater detail is discerned.

PERCEPTUAL ENCODING

The first stage of what has been designated "P" (psychological) price in Figure 1 is encountered at the point of perceptual encoding. Perceptual encoding is a process of organizing, interpreting, and deriving meaning from stimuli. Perceptual encoding is influenced by pre ious experience, knowledge, motivation, values, personality, and so forth. A component of perceptual encoding is categorization of new experiences into existing classifications. Processing may be guided by what a stimulus seems to be, based on expectations and context, as well as by the actual features of the stimulus. Perceptions may depart from reality if expectations are strong (Bettman 1979).

There have been a number of perspectives taken on the perceptual encoding of price stimuli. For example, the referent, or expected, price has been viewed by researchers as: traditional past prices (Scitovsky 1944-45), fair price (Kamen and Toman 1970), price last paid (Uhl 1970), price most frequently charged (Olander 1970), price normally paid (Gabor and Granger 1966), and, more recently, as evoked price (Rao and Gautschi 1982), which is "the price the individual subjectively assigns to the product appropriate to the specific purchase context," (p. 64).

A theory that has been used to explain the formation and utilization of referent prices (expected prices) is adaptation level (A-L) theory (Helson 1964). There is evidence that referent prices serve as adaptation levels in price judgments (Monroe 1973).

Comparative presentations such as the "was-is" and "manufacturer's list our price" pricing approaches strive to establish referent (expected) prices (Fry and McDougall 1974; Sewall and Goldstein 1979). Blair and Landon (1981) found that though consumers discount comparative price presentations, they still overestimate the savings obtained more than if no referent price were presented. Apparently, this pricing approach has some success in establishing a referent price in the mind of the consumer.

MEMORY AND "DEPTH" OF PROCESSING

At the physiological level, the initial memory for a visual stimulus is called an iconic trace (sensory memory). For an auditory stimulus, there is an analogous echoic trace. The concept here is that there is a rapidly fading, literal icon or echo of a stimulus registered by the human after coming into contact with the stimulus. A good example of this type of memory is the residual pattern perceived when watching a July 4th sparkler being waved about on a dark night. The residual pattern left by the path of the moving sparkler against the dark background is its visual icon. This type of memory fates completely in about one second, and most of the useful information has deteriorated by .3 seconds (Lachman, Lachman, and Butterfield, p.229). Initial visual contact with a price stimulus can produce this type of iconic image.

The structurally oriented view of memory, with its three components (i.e., sensory memory, short-term memory, and long-term memory) has been replaced as the generally held view of memory. Currently, the most widely accepted theory of memory is the levels of processing (LOP) approach which views memory as a process rather than from a structural point of view (Craik and Lockhart 1972).

Within the LOP approach, strength of encoded information or memorability is related to the amount and type of processing that a stimulus receives. "Depth" of processing is one metaphor usually used to describe this strength or memorability. With regard to visual stimuli, the most "shallow" processing of a stimulus would result, possibly, in only a fading icon. A "deeper" level of processing is reached when a visual code is recorded of the physical features of the stimulus, e.g., the literal numeric symbols representing a price. This code may be rehearsed to assure its place in memory.

At still a "deeper" level more abstract meanings of price may be stored. This greater level of abstraction is called semantic processing. These more abstract meanings may include: (l) classifying a price in a category (e.g., inexpensive, average, expensive, etc.); (2) classifying a price relative to a referent price; (3) assigning some quality meaning to the price (Tull, Boring, and Gonsior 1964, etc.); (4) affixing some idea of value to the price (Barnes 1974); or (5) associating price with prestige/social status; etc. Cognitive structures are progressively more complex, internally consistent, and stable as "deeper" levels of processing are reached. Some recent research efforts have focused on the "level" of encoding of price stimuli (e.g., Ziethaml 1982).

MEDIATORS OF "DEPTH" OF PROCESSING

Attention would be a prominent mediator (or determinant) of "depth" of processing. The higher the level of attention, the greater the amount of cognitive capacity allocated to the stimulus and the "deeper" the resultant processing. Other mediators that have been proposed as determinants of the level of processing include: (I) links of stimuli to emotions (Zajonc 1980), (2) the imagery producing ability of stimuli (Pavio 1971) (this mechanism would not seem to be operative in most price stimuli processing), (3) stimuli rehearsal, (4) familiarity and past experience with stimuli, and (5) involvement producing capacity of stimuli (Mitchell 1981). These proposed determinants of level of processing are somewhat conjectural. Olson (1979) notes that a "...major problem with the LOP framework concerns the lack of clarity regarding the 'mechanism' or the 'factors' responsible for the depth effect," (p. 156).

Format in which prices are presented can have an effect on "depth" of processing. For example, the use of unit prices and hierarchical lists of prices can affect "depth" (ar.d "breadth"? of processing (Russo 19?7; and Ziethaml 19&2). Other mediators also undoubtedly exist. Regarding price stimuli, other mediators of "depth" of processing possibly include: (1) time constraints,(2) importance of the purchase, (3) percent of budget required by the purchase, (4) use of the product (i.e., personal use or gift), and (5) whether the information is for immediate or for later use.

"BREADTH" OF PROCESSING

The mediators of "depth" of processing, suggested in the previous section, can also be viewed as mediators of "breadth" of processing. "Breadth" of processing (or elaboration) is another proposed mechanism that affects the strength and memorability of memory traces. "Breadth" of processing has been defined as the number and types of traces produced during encoding (Anderson and Reder 1979).

With greater "breadth" of processing, more links to a stimulus (elaboration) will be made within a propositional network (a propositional network is an array of concepts and their interrelationships). The elaboration hypothesis would predict, for example, that if several brands had the same price, that price would have enhanced memorability due to the multiple links of the various brands to the price. The multiple links to the to-be-remembered item (e.g., price) produce the enhanced memorability by providing multiple access paths to the item. As Figure l conveys, the type of code (e.g., visual, semantic) and the concomitant "depth" and "breadth" of processing engaged in at the enc ding stage has a direct effect on the memory and retrieval stages.

The "depth" and "breadth" of processing of a price stimulus determines much about its encoded memory trace. The specific concepts to which a price is linked in propositional networks, the type or concepts to which it is linked, and how closely and directly a price is linked to these concepts impact on the meaning assigned to a price stimulus.

MEANING

In examining the meaning assigned to price stimuli, it is necessary to discuss how price is cognitively represented. Price may be represented as a fading icon or simply represented at a sensory level. As deeper processing occurs, the literal price may still be encoded and/or a more abstract form may be taken where price is stored relative to a referent price or by categories of price (e.g., high, low) (Olson 1980). Semantic, "deeper" meaning-oriented, encoding and "breadth" of processing may best be examined within the propositional network framework.

Within propositional networks, concepts obtain meaning by referring to their relationship to other concepts within the network. If a stimulus is linked to semantic or more abstract concepts, greater "depth" of processing occurs. She more concepts to which a stimulus is linked, the greater will be the "breadth" of processing, and possibly the more meaning that will be affixed to a stimulus. This phenomenon is termed configurational meaning (Anderson 1980). Price may be related to other concepts in a network, such as presented in the hypothetical memory network displayed in Figure 2. ln this figure, the nodes (i.e., concepts) are connected by links (i.e., interrelationships) to other conceptual nodes. As shown in Figure 2, price is linked to brand name (i.e., Camaro) in our hypothetical structure. Other possible items to which price nay be linked that have received examination in the marketing literature are also shown in Figure 2 (..e., value, quality, social status). Three possible ways price may be represented in this network are also presented (i.e., isomorphic to numeric symbols, relative to a referent, and organized by category).

FIGURE 2

HYPOTHETICAL PROPOSITIONAL NETWORK

Another fundamental concept represented in Figure 2 is that of semantic distance. This is the central organization principle of the propositional network (Collins and Loftus 1975). Semantic distance suggests that the nearer a concept is to another in a propositional network, the more memorable it will be when the first concept is brought to mind. This can be shown in Figure 2 by looking at the distance between "car" and "Camaro" and "car" and "skiing."

Another type of "meaning" linked to price stimuli in propositional networks is that of feeling or emotion. Prices and categories of prices can lead to commensurate feelings. For instance, an individual may experience a feeling of extravagance while also categorizing a price as expensive. Jacoby and Olson (1977) include discussion of the effect of price information on attitude (generally referred to as affect or the overall liking of an object) and state that " . . . the extant research clearly demonstrates that consumers do have attitudes toward specific prices" (p. 82).

Probably the most studied meaning attached to price stimuli is that of quality. Monroe and Krishnan (1983) examined 28 studies in the price/quality literature, via a statistical technique they recommend using in review articles, concluding that consumers tend to positively relate price and quality.

Although by far the most research has been done on the quality meaning of price, a number of other meanings have been advanced. These meanings include:

1. Cost, with a near a linear relationship found between "O" price and consumer judgment of cost (Della Bitta and Monroe 1973).

2. Price acceptability (Gabor and Granger 1970; Kamen and Toman 1970).

3. Brand attractiveness (Olander 1970).

4. Perceived worth (Rao 1972).

5. Social significance of the choice (Lambert 1972).

6. Value for the money (Barnes 1974).

Other possible meanings of price information that do not appear to have been researched include: (1) brand preference, (2) brand importance, (3) performance expectation, (4) satisfaction with the information, (5) brand prestige, and (6) perceived savings (Walton and Berkowitz 1980).

RETRIEVAL

The next step in the examination of the information processing of price is information retrieval from memory. The currently held perspective on this topic is that once an item is encoded and enters memory, it is stored there permanently. All items of information, however, are not easily accessible. There are physiological mechanisms that permanently retain information in the absence of injury to the brain. However, only a small portion of the vast amounts of information that we learn is "accessible" at any given time.

In a prior section, several mechanisms that would enhance memorability and also retrievability were mentioned. These included the number of links to an item in propositional networks in memory, strength of the relationship between items in memory, and general "depth" and "breadth" of processing.

Retrieved information can be thought of as being brought to active or working memory (Anderson 1980). The terms "active" or "working" convey the idea that information is being held for use in mental procedures. It is knowledge that is currently in use. A presently held view of how items are retrieved and brought to active memory is known as "the spread of activation" (Collins and Loftus 1975). This spread of activation has been compared to the flow of electrical current through a wiring system. The various facilitators of memory retrieval, in a sense, reduce the resistances in the wires (i.e., the links). Some pathways through the propositional networks are much more readily traveled. The persistent covariance of price and quality in the minds of consumers may be an example of a readily activated, much traveled (low resistance) pathway between two concePts.

An additional item that impinges on the retrievability of a memory trace is the context through which an item of memory is retrieved. In looking at Figure 2, snow would probably be more retrievable in the context of mountains than it would be in the context of cars. Similarity of the context of encoding and the context of retrieval can enhance retrievability.

RETRIEVAL AND PRICE STUDIES

In general, studies have found strong differences in the accuracy of price retrieval across brands, product categories, and consumers (Gabor and Granger 1961; Brown 1970). In the Gabor and Granger study, for instance, 57 percent of the prices were correctly retrieved from memory. A Progressive Grocer (1964) study found that 86 percent or the subjects knew the price of Coca-Cola; whereas only two percent knew the price of shortening. Determining exact price was generally difficult for consumers, but price ranges were much more retrievable. The high variability in recall accuracy has precipitated studies that include different dimensions that might explain this variability. Such dimensions as: socioeconomic (Gardner 1971), sex, age, and income (Progressive Grocer 1964), shopping behavior (Brown 1970), and various attitudinal items have been examined. Recent studies reported that a surprisingly large number of consumers could not accurately report prices of common grocery products (e.g., Progressive Grocer 1982).

It has been fount that the prices of the lowest and highest priced brands of a product are those that are the most retrievable (ant most noticeable) (Oxenfeldt 1966; Monroe 1968). The low end price has usually been fount to be more retrievable than the high end price and probably exerts an influence on marginal purchasers. These retrieval phenomena appear to be examples from the price literature of a broader human processing tendency. This tendency is to spend more time attending to and assigning heavier weight to information that is extreme and/or negative (Lynch 1979; etc.).

RESEARCH QUESTIONS

Many research questions can be generated from the above discussion and an examination of Figure 1. The following explores some of these questions, generally presenting topics in the order fount in Figure 1.

What impact do the mediators of exposure and attention have on the processing of price stimuli? Which mediators are operative and when these mediators are operative could be examined. Regarding mediators of attention, high levels of involvement (e.g., product involvement, purchase involvement) or price consciousness may lead to more attention being given to price stimuli. Based on the discussion presented earlier in this paper, it should be noted that throughout these proposed research questions, high attention would generally be associated with "deeper" and "broader" processing, more meaning assignment, and enhanced retrievability. These relationships are potential topics for research in themselves.

How does the existence and amount of useful product information, other than price, impact the allocation of attention to price stimuli? As the amount of other useful (i.e., available, comprehendible, and discriminable) information on a product decreases, the amount of attention allocated to price stimuli may increase.

For example, out of the price/quality literature there is evidence that the influence of price on quality perception tends to decrease as other important product attributes become available as cues (e.g.,Jacoby, Olson, and Haddock, 1971). As noted in the prior paragraph, along with an increase in attention an accompanying "deeper," "broader," etc. processing of price stimuli may occur.

What is the impact of consumer price expectations on the processing of price stimuli? As price stimuli move farther away from price expectations, does greater attention allocation occur along with greater "depth" and "breadth" of processing and greater retrievability? The basic effect of price expectations on price perception would be interesting to examine. The question whether price perception is pulled in a price expectation direction (an assimilation effect) or repelled away from price expectations (a contrast effect) should be addressed in future research.

The differential effect of positive versus negative disconfirmation of price expectations also provides research potential. Again, attention, "depth" and "breadth" of processing, and retrievability may be affected differentially by the opposing directions of disconfirmation. The idea of this differential effect would follow from general findings in other areas regarding the effect of negative (negative price disconfirmation in this case) and extreme information (see the end of the previous section).

How do individuals derive "meanings" from price stimuli? The much studied covariation of price and quality perception offers further research possibilities in an information processing context. Individuals who perceive a strong covariation in price and quality may direct more attention to price stimuli, manifest greater "depth" and "breadth" of processing, and may display enhanced retrieval capabilities over those individuals who to not perceive such a strong relationship.

Studies are also possible which examine the variety and number of meanings (including affective meanings) assigned to internalized price stimuli. Regarding this topic, the greater the number of meanings assigned to a price stimuli, the better the retrievability of the price information should be.

SUMMARY

Price is obviously an important feature of a market offering; still, little is known about the internalization of price by consumers. Adopting the information processing perspective has been recommended for greater understanding of the effect of price stimuli on consumers. Applicable theory and research from the information processing psychology, consumer behavior, and price literature were reviewed here. Presentation of this review generally followed the proposed scheme of the processing of price stimuli (Figure l). The goal in presenting this figure within an information processing perspective was to provide some new insights and research directions into price processing research. A number of concepts were proposed as mediators of the various information processing stages. A number of possible research questions were generated. Further, it is hoped that understanding of the processing of price was facilitated by this review.

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