The Moderating Effects of Learning Goals and the Acquisition of Product Information on the Limits of Price Acceptability

Citation:

Rashmi Adaval and Kent B. Monroe (1995) ,"The Moderating Effects of Learning Goals and the Acquisition of Product Information on the Limits of Price Acceptability", in NA - Advances in Consumer Research Volume 22, eds. Frank R. Kardes and Mita Sujan, Provo, UT : Association for Consumer Research, Pages: 225-229.

Advances in Consumer Research Volume 22, 1995      Pages 225-229

THE MODERATING EFFECTS OF LEARNING GOALS AND THE ACQUISITION OF PRODUCT INFORMATION ON THE LIMITS OF PRICE ACCEPTABILITY

Rashmi Adaval, University of Illinois

Kent B. Monroe, University of Illinois

Consumers' perceptions of price acceptability can have an important influence on their transactions with sellers. Available evidence suggests that prices consumers find acceptable, may be influenced by several contextual variables (Monroe et al. 1977). Of particular importance is the relative knowledge that consumers have about the product category in general. Further, positive or negative information about a general product category (e.g., jeans) could affect consumers' willingness to pay a given amount of money for a specific product within this category (e.g., Levi's 505s). Positive or negative information about how manufacturers in a product category typically use high or low quality materials, or are noted for excellent or poor workmanship, can be conveyed either through word-of-mouth or through articles in the general press.

However, the effects of such information on price acceptability, may vary depending on consumers' prior knowledge of the range of prices that are typically paid for category exemplars and the conditions under which this price knowledge has been acquired. The research reported in this article, examined the impact of positive and negative product category information on consumers' judgments of price acceptability under conditions in which knowledge about the prices of particular products was acquired intentionally or incidentally.

WHAT MAKES A PRICE ACCEPTABLE?

The Concept of Acceptable Prices

Consumers normally do not have clearly defined point estimates of acceptable prices for a product. Instead, a range of prices are generally considered acceptable. The concept of an acceptable price range is rooted in social judgment theory and assimilation-contrast theory (Sherif 1963). Monroe (1971, 1973) offered theoretical arguments for the existence of reference prices, acceptable price ranges and a logarithmic psychological scale for price judgments.

Consumers' exposure to price variations in the marketplace results in a set of prices that they consider acceptable. Monroe (1990) defines this acceptable price range as those prices that consumers are willing to pay for a good or service. Each time a price stimulus is encountered in a purchase context, an implicit judgment is made regarding its acceptability for the product or service to which it pertains. The implicit judgment is made by comparing the price cue to either an internal referent stored in memory, an external referent at the point of judgment, or to an adapted referent based on these internal and external referents (Lichtenstein et al. 1988). However, it is important to note that these judgments of acceptability, which indicate a willingness to pay a certain price, may not always result in actual purchase behavior and transactions involving that amount of money. A decision not to purchase may occur because of lack of financial resources, or because of specific strong beliefs and attitudes that surface at the time of the actual purchase.

The acceptable price range is defined by the upper and lower price limits or endpoints (Gabor and Granger 1966). The upper limit identifies the price above which consumers would consider the product to be too expensive or belonging to a higher priced category. The lower price limit identifies the price below which consumers would be suspicious of the quality or categorize it differently. Consumers differ not only in how wide a range of prices they find acceptable but also in whether this range includes predominantly higher market prices, predominantly lower prices, or a mix of higher and lower prices (Rao and Sieben 1992). It is likely that the prices consumers are willing to pay are included within both the actual market prices for products in the category, as well as the set that a consumer normally expects to see based on prior experience. However, not all of these actual or expected prices will be acceptable.

Cox (1986) contends that buyers do not bring rigidly formed price limits into a purchase situation and that the acceptable price range is influenced to some extent by the prices consumers encounter on a particular purchasing occasion. Numerous factors can affect the upper and lower limits of the acceptable price range, including brand name (Fouilhe 1970), market price knowledge (Kosenko and Rahtz 1988) and product involvement (Raju 1977).

The Relationship Between Perceived Value and Price Acceptability

A price's acceptability is likely to be influenced in part by the perceived value inferred from the transaction. Monroe (1984) proposed a conceptual model integrating the concepts of perceived quality and perceived value with the acceptable price range. Starting with Ahtola's (1984) conceptualization of "give" and "get", i.e., price is what the consumer has to give in order to get the product, Monroe noted the similarity to his conceptualization of perceived value (i.e., the perceived benefits relative to price). Although price influences the perceived sacrifice buyers must make to obtain a product (the "give" component), price also influences their perceptions of product quality (the "get" component). Buyers who focus on the "give" component are more likely to associate higher prices with greater sacrifices and are less likely to find higher prices acceptable to pay. In contrast, buyers who focus on the "get" component may associate higher prices with greater quality of the product, and are more likely to find higher prices acceptable. For lower prices, the reverse situation is likely to exist. That is, consumers who focus on the "give" component are more likely to find lower prices acceptable, but consumers who focus on the "get" component are less likely to find lower prices acceptable.

More generally, there is likely to be a tradeoff between the utility of the perceived sacrifice against the utility inferred from the perception of quality. If the positive utility inferred from the perception of quality is greater than the negative utility of the perceived sacrifice, then a positive perception of value results. As long as there is a positive perception of value, the prices will be considered acceptable.

Therefore, identifying when consumers are more likely to focus on the "get" component (i.e., infer positive quality from price) versus the "give" component (i.e., perceive price largely as a sacrifice) is important in understanding the phenomena. Previous research has demonstrated that consumers generally perceive that a price-quality relationship exists in the marketplace. However, consumers are more likely to infer positive quality from higher prices in some situations than others (Zeithaml 1988; Dodds, Monroe and Grewal 1991). Rao and Monroe (1988) found that consumers' use of extrinsic price cues and intrinsic product cues for the assessment of product quality depends on their prior knowledge. Specifically, subjects who are either unfamiliar or highly familiar with a product category are more likely to perceive a strong price-quality relationship than those who are only moderately familiar with it. Consumers who do not have sufficient knowledge are more likely to use extrinsic cues like price in product quality assessments because they have relatively less developed schemas about how intrinsic information should be evaluated. However very knowledgeable consumers are also capable of using price as an indicator of quality provided price has diagnostic value (Rao and Monroe 1988). The differential use of price as an indicator of quality by people with differing knowledge levels implies that people may use price information in different ways to make quality inferences about the product. If these beliefs or quality inferences are reinforced or discredited (through positive or negative information about the general product category), perceptions of value would be affected leading to changes in prices considered acceptable.

The questions addressed by this research are: What makes a price acceptable and how does acceptability change when consumer market price knowledge is affected through different learning goals (intentional versus incidental) and different types of product category information (positive and negative)?

THE IMPACT OF POSITIVE AND NEGATIVE INFORMATION UNDER DIFFERENT LEARNING CONDITIONS

When consumers receive positive or negative information about the product category, their perceptions of quality may be influenced by this information. As argued above, these perceptions will influence overall perceptions of value and consequently, the acceptability of prices. However, the processing of positive or negative information may result in different kinds of inferences being drawn about quality. Recent work examining inferential processes has shown that consumers expand on given product information to form new beliefs (Ford and Smith 1987), or modify existing beliefs (Yi 1990a) about attributes that are either unknown or not mentioned in the communication. In addition, negative information may be effective in stimulating inferential thinking (Price 1992). Dick, Chakravarti and Biehal's (1990) work suggests that any factor that increases either the relevance, the accessibility, or the diagnosticity of an inferencing rule will increase the likelihood that inferential processing will occur.

Previous research suggests that consumer judgments are more influenced by negative than by positive information (Price 1992). Negative information about the product category in general, is likely to increase the perceived risk associated with the purchases of particular members of this category. Prices may be used to infer quality especially if the inferencing rule (drawing positive quality inferences from high price) is believed to be diagnostic. In general, if a positive price-quality relationship is observed in many product categories, it will lead to a highly accessible rule linking the two characteristics (Price 1992).

While negative information might enhance the use of this inferencing rule, nevertheless, an inference of high quality based on a high price might also depend on previous learning of price and product information. For example, prices of specific products that a consumer has previously encountered might be retrieved and reevaluated in light of new information about the product category in general. However, the ability to retrieve price information from memory obviously depends on how it was learned initially. Different processing goals at the time price information is encountered will lead to differences in the encoding of this information into memory (Mazumdar and Monroe 1990). In some cases, buyers might learn price information intentionally because they expect to have to use it in performing some future task. However, people also encounter price information when they have other processing goals in mind for which the price information is not important. In such cases, the learning of the price information is only incidental (Mazumdar and Monroe 1990).

Intentional learning of price information should lead to greater knowledge about market prices than would incidental learning. Thus, consumers who have intentionally learned price information should be better able to integrate it with the positive or negative product category information they receive relative to consumers who learn about prices incidentally. Also, consumers who are knowledgeable about market prices for a product category are likely to use price cues in evaluations and choices differently than low price knowledge consumers.

When consumers are familiar with market prices for various brands and have a better overall understanding of the market, there are many pieces of information they can use. In the presence of these multiple pieces of information, they may be less likely to use price as a signal of quality (Dodds, Monroe and Grewal 1991). In addition, negative information about a product category also is likely to reduce the diagnosticity of price for making quality inferences. If so, these consumers will be more likely to focus on the price-perceived sacrifice relationship. As argued above, perceived value will therefore be less and a relatively high price that may have been initially considered acceptable might now be categorized as unacceptable.

However, consumers who have paid less attention to price and product information are likely to be less familiar with prevailing market prices. When negative information about the product category is encountered, because of insufficient knowledge, these consumers are more likely to perceive greater risk and to use price to infer product quality (Rao and Monroe 1988). Consequently, high prices will lead to positive perceptions of quality, leading to higher perceptions of value. Thus, prices that were initially considered too high (unacceptable) may now be categorized as acceptable.

As noted earlier, the attention devoted to examining and learning price information will determine how familiar a consumer is with market prices and, therefore, how this information may be used in subsequent purchase decisions. If intentional learning of price information, leads to high familiarity with prices, then consumers might use price as a diagnostic cue of quality. However, negative information about the product category, likely would diminish the use of price as an indicator of quality. In contrast, consumers who have only a cursory knowledge of market prices are less likely to question the use of price as a diagnostic cue of quality. This use of price as an indicator of quality might be more likely to occur when they believe that the quality of products in the category varies considerably. Thus, prices that might normally be considered unacceptable might now become acceptable. Thus, these consumers might consider higher prices to be more acceptable when they receive negative information about the product category as a whole than when they receive positive information about it. These changes in price acceptability can be determined by measuring the upper and lower limits of their acceptable price range. More specifically, it is hypothesized that:

H1: In conditions of intentional learning, subjects exposed to negative product information will have lower upper and lower price limits than when exposed to positive product information.

H2: In conditions of incidental learning, subjects exposed to negative product information will have higher upper and lower price limits than when exposed to positive product information.

METHOD

Subjects and Design

Fifty-two undergraduate students, enrolled in an introductory marketing course, participated in the experiment for extra course credit. Thirteen subjects were assigned randomly to each of the four conditions representing two learning goals (intentional versus incidental) and two types of product category information (positive versus negative).

Procedure

Upon arriving for the experiment, subjects were administered an initial questionnaire designed to assess their a priori perceptions of price acceptability and also their general product knowledge. This initial information was collected for three product categories (sneakers, jeans and 35mm compact cameras) of which jeans were the category of interest. The target category was chosen because (a) there was substantial variation in prices within the category, and (b) the category was one that subjects were familiar with and about which they had similar pre-experiment knowledge. The pre-measures of the acceptable price range were obtained using a price scale from $5 to $75. Subjects were asked to check all the prices that they found acceptable to pay for all three product categories. This was done in order to ensure that subjects did not remember what prices they had checked as 'acceptable' when the post measure was taken after experimental manipulations. No brand information was provided.

After subjects had indicated what prices they found acceptable, they were given a booklet containing (a) reviews of recent motion pictures, and (b) excerpts from Consumer Reports for several product categories. The excerpts on product categories were in the form of a table that listed brands, prices and performance with respect to various attributes. The prices were highlighted with markers. Subjects in the incidental learning condition were asked to skim through the entire booklet before focusing their attention on remembering information about the motion picture reviews for a memory test to be taken later. Subjects in the intentional learning condition were asked to focus on the product and price information table provided. Subjects in each condition were given 5-7 minutes to peruse the material.

After reading the booklet, subjects were asked to read another excerpt, ostensibly from Consumer Reports, pertaining to the product category of jeans. In the negative information condition, the report cast aspersions on the profit seeking motives of many industry giants, given the slim profits and intense competition. The report suggested that lately manufacturers had started using poor quality material in the jeans to cut down costs. Further, tests ostensibly conducted by Consumer Reports revealed problems with construction quality and tailoring of jeans. In the positive information condition, the same excerpt was modified to suggest that the industry was mature and that tests revealed that the quality of jeans was generally good.

Then, a second measure of the subjects' acceptable price ranges (the dependent variable) was taken via a sorting task. Subjects were asked to sort through numerous price tags ranging from $5 to $75 and to create piles that were acceptable and not acceptable. Finally a brief manipulation check was taken. The entire procedure took an hour to complete.

RESULTS AND ANALYSES

Manipulation Checks

To measure the effectiveness of the instructions and the information that was provided, two manipulation checks were performed. First, subjects indicated how much they concentrated on each type of information by reporting their agreement on a 7 point scale (1=agree, 7=disagree) in response to the following statements (a) "When I was given the booklet, I concentrated on the movie reviews," and (b) "When I was given the booklet, I concentrated on the product information." Subjects reported concentrating less on movie reviews under intentional price learning conditions than under incidental price learning conditions (3.7 vs. 2.7), t(50)=1.86, p <0.1.

However, they did not differ significantly in the attention they reported paying to product information in the intentional condition relative to the incidental condition (4.2 vs. 4.3), t(49)=0.22, p>0.1. Although subjects in the intentional learning condition agreed that they paid more attention to the product information, the results should be interpreted cautiously since the manipulation check did not show a significant difference between groups. One factor to be kept in mind is that the time allocated for the task was the same for all subjects and if subjects differed in the amount of attention they devoted to the film reviews, it is likely that they had differed in the amount of attention or time they were able to spend on the product information.

The impact of different information types was confirmed by subjects' agreement with the statement, "After reading the excerpt, I felt that one has to be more careful when purchasing jeans." These judgments, along a scale from 1 (agree) to 7 (disagree), were greater when the information presented was negative (3.9) than when it was positive (5.0), t(50)=-2.62, p<0.05.

Effects on the Limits of the Acceptable Price Range

Analyses of subjects' pre-manipulation estimates of the upper and lower limits of the acceptable price range yielded no significant effects of either information type (p<0.1) or learning goals (p<0.1). Thus, subjects assigned to various experimental conditions did not systematically differ before being exposed to the manipulations. Consequently, only post-manipulation judgments were considered in the analyses.

Since a measure of prior knowledge was taken at the outset, it was treated as a covariate. The analysis of covariance revealed that it did not have a significant effect on the lower limit of the acceptable price range F(1,51)=0.005, p>0.1 or the upper limit of the acceptable price range F(1,51)=1.809, p>0.1. It was therefore dropped from the following analyses.

In intentional learning conditions, subjects exposed to negative product information, were not expected to use price as a diagnostic cue of quality and therefore would have lower upper and lower price limits than subjects exposed to positive product category information. In the incidental learning conditions, subjects exposed to negative product category information were expected to use higher prices to infer quality and therefore would have higher upper and lower price limits than subjects exposed to positive product category information. Table 1, which indicates the upper and lower limits of the acceptable price range under each condition, provides support for the hypotheses.

When subjects were explicitly instructed to pay attention to price, their highest and lowest acceptable prices were lower when negative information was conveyed about the general quality of jeans than when positive information was conveyed. In contrast, when subjects' attention was diverted to product-irrelevant aspects of the information booklet (movie reviews), their upper and lower price limits were higher when they were provided with negative information. Although the interactive effects of information type (positive vs. negative) and learning goals (intentional vs. incidental) was significant only in the analyses of the upper limit (or the highest acceptable price), F(1,51)=4.528, p<0.05, the effects of these variables on the lower limit (or the lowest acceptable price) were similar in direction, F(1,51) =1.619, p>0.1. Moreover, an overall analysis of variance involving information type, learning goals and type of limits (upper vs. lower) yielded an interaction of the first two variables, F(1,51)=4.396, p<0.05, that was not contingent on the third, F(1,51)=1.265, p>0.1. Therefore, the hypothesized effects of these variables on perceptions of price acceptability were confirmed.

TABLE 1

UPPER AND LOWER PRICE LIMITS

DISCUSSION

The results of this study suggest that the impact of pricing information is likely to depend on both the information subjects have available about the overall quality of the product (positive or negative) and the attention they have paid to the prices of the specific products they have encountered. When subjects were explicitly instructed to pay attention to the prices of specific products, the prices they considered acceptable decreased with negative product category information. Subjects in such conditions may have refrained from using the positive price-quality inference rule when the diagnosticity of this rule became suspect. These subjects might also have focused more on the perceived risk associated with purchasing the product at a high price. As a result, the prices they were willing to pay decreased.

In the incidental learning conditions, where prices were not the focus of subjects' attention at the time they perused the information booklet, subjects presumably did not extract information about specific brands and market prices leading to relatively low knowledge. When negative information was encountered about the overall product category, it may have led to the use of the positive price-quality inference rule. The diagnosticity of high price as a predictor of high quality was not questioned since knowledge levels were low. More specifically, when jeans were of inferior quality (as suggested by the negative information), subjects might be willing to accept higher prices in order to get a product of better quality.

Perhaps the most interesting aspect of this study surrounds the processing implications of contextual variables on the way in which people categorize prices as acceptable or not. The impact of positive and negative product category information on prices that consumers are willing to pay is important as is the identification of variables that could influence price acceptability. Consumers often focus differentially on price information (depending of different learning goals). The limits of the acceptable price range may increase only under conditions when this increase in market price knowledge is accompanied by positive product information supporting consumers' beliefs about the positive price-quality relationship. However in the absence of any self-reported measures, the assumption that subjects make price-quality inferences was not tested. Nevertheless, the present study paves the way for future research that examines more directly the process by which the phenomena identified here might occur.

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