Special Session Summary How and Why Consumers Remember Price Information

Citation:

Marc Vanhuele (2002) ,"Special Session Summary How and Why Consumers Remember Price Information", in NA - Advances in Consumer Research Volume 29, eds. Susan M. Broniarczyk and Kent Nakamoto, Valdosta, GA : Association for Consumer Research, Pages: 142-144.

Advances in Consumer Research Volume 29, 2002     Pages 142-144

SPECIAL SESSION SUMMARY

HOW AND WHY CONSUMERS REMEMBER PRICE INFORMATION

Marc Vanhuele, HEC School of Management

SESSION OVERVIEW

In 1990 Dickson and Sawyer published their now classic study on consumers’ knowledge of prices for frequently purchased consumer goods. It received a lot of attention because the level of price knowledge observed was unexpectedly low in light of previous modeling work of price effects and especially compared to what reference price research (Kalyanaram and Winer 1995) had suggested (see Monroe and Lee 1999 for a comparison). In reaction, several authors raised the question of how reference price models can "significantly predict brand choice if actual market prices are often not noticed or remembered by consumers" (Urbany and Dickson 1991, p. 51). The importance and relevance of Dickson and Sawyer’s work motivated several replication studies that all confirmed the original results (e.g. Le Boutillier, Le Boutillier, and Neslin 1994; Wakefield and Inman 1993). Thus, the debate between reference price researchers and knowledge survey researchers remains unresolved. The first group took the glass half full perspective and focused on those consumers that do exhibit accurate performance in the in-the-aisle surveys, while the second group looked at the empty half of the glass and stressed the importance of the consumer segment that does not know prices.

The past decade saw a number of developments that incited the authors of the present session to take a new and different look at how reference price and price knowledge can be measured.

$ In the field of numerical cognition, a consensus started to emerge on the way the human cognitive system treats number information (see the summary articles by Ashcraft 1992 and Dehaene 1992, and a brilliant popularization of this stream of research in Dehaene 1997). The implications of the advances in numerical cognition for research on price knowledge have not yet been examined and one objective of the proposed session was to present and discuss initial attempts in this direction.

$ A second developmet of the past decade is that memory research has moved its attention from the learning of knowledge that can be remembered (referred to as explicit memory) to the learning of knowledge that influences behavior even though it often cannot be remembered (referred to as implicit memory). A procedure such as the one used by Dickson and Sawyer taps into explicit memory and may underestimate the actual knowledge present in memory. Part of the session was dedicated to a discussion of implicit memory.

$ A third new development is that we have gained new insights into the drivers of memory performance as observed in prices surveys. The effects of, for instance, the data collection method, the products studied, the characteristics of the consumer and the shopping context are now much better understood. The latest developments in this area were discussed in our session.

 

"REMEMBERING VS. KNOWING: HOW CONSUMERS PROCESS PRICING INFORMATION"

Angela Y. Lee, Northwestern University

Kent B. Monroe, University of Illinois, Champaign

A traditional assumption concerning how prices influence the consumer’s purchasing behaviors has been that consumers know the prices of the products and services that they are considering for purchase. However, empirical findings over the past four decades repeatedly suggest that shoppers often are not able to remember the prices of items they have just purchased (e.g., Dickson and Sawyer 1990). One conclusion that has been drawn from these findings is that consumers often do not attend to price information in purchase decisions. In the current research, we argue that consumers often make purchase decisions based on what they know, rather than what they can remember. Thus a consumer may have processed the price information when walking down the aisle and made a buy/not buy decision, even though she could not recollect the prices later. Drawing on the methodology in implicit memory research, we conducted a series of studies that examine participants’ performance on explicit and implicit memory measures. The results show that participants do have memory of prices they have previously encountered, even though they may not be able to recall them.

Whereas explicit memory is demonstrated by the conscious recollection of what happened during a prior exposure event, implicit memory is inferred by an improvement in some task performance as the result of having experienced the event. In Study 1, we first presented participants with some product and price descriptions. In the test phase, participants were presented with a series of degraded versions of numbers, the clarity of which improved progressively. The results showed that participants could identify those numbers that they have seen previously as prices much faster than those numbers that they have not seen before. The data suggest that prices that are "old" have become perceptually more fluent, and thus can be more readily identified in a perceptually degraded format. This better performance on the number recognition task for numbers that have been encountered previously is an indication that participants do have memory of the prices that they saw earlier.

In Study 2, we examined the effects of involvement on participants’ recall and identification of previously encountered prices. The results showed that participants recalled more prices under high involvement versus low involvement. However, involement had no effect on number identification. These data show that whereas explicit memory benefits from high involvement, perceptually-driven implicit memory is not sensitive to an involvement manipulation. The findings suggest that prior exposure results in a perceptual representation of the prices even when participants could not recall the prices.

Ongoing research is currently underway to examine if prior exposure may also result in a magnitude representation of the prices even when participants may not be able to recall the prices they have previously encountered.

 

"A META-ANALYSIS OF ECONOMIC DRIVERS OF CONSUMER PRICE AWARENESS"

Hooman Estelami, Fordham University

Donald R. Lehmann, Columbia University

Alfred C. Holden, Fordham University

Ever since the pioneering studies of Gabor and Granger (1961), dozens of researchers have examined consumers’ knowledge of prices for a wide array of products and services. Most of these studies report disturbingly low levels of consumer price knowledge. In addition, many studies disagree on the extent of this shortcoming. While emerging research suggests that much of these variations can be attributed to researchers’ choice of data collection methods (e.g., Estelami and Lehmann 2001; Monroe and Lee 1999), no study to date has examined the role of the economic environment on consumer price knowledge scores. Nevertheless, much of modern thinking in economic theory assumes that consumers’ motivation to learn price information is influenced by economic forces such as inflation, unemployment and interest rates (e.g., Van Raaij and Antonides 199, Warr 1984). In general economic forces are expected to present opportunities and risks to a household’s welfare. At the same time, variations in macro-economic variables such as inflation may reflect instability in market prices and create a more difficult environment for consumers to learn price information.

Based on information processing theories of price, five hypotheses are presented. Inflation is hypothesized to negatively influence consumer price knowledge (H1). This is because inflation is often associated with increased price variation in markets. This increased price instability is expected to reduce the diagnostic value of prices to consumers (Grewal and Marmorstein 1994), and thereby hinder consumer price knowledge.

Economic growth is also hypothesized to hinder consumer price knowledge (H2). Economic growth as reflected in such key indicators as growth the gross domestic product (GDP) is often associated with increased wages and disposable income (Fisher and Dornbusch 1983). This increased prosperity reduces the value of price information in consumer decision making. In contrast, economic slowdowns are expected to threaten consumer welfare and increase motivation to learn price information.

Increased interest rates are expected to positively influence consumer price knowledge (H3). Considering that interest rates are a key regulatory control for economic development, it is often assumed that they have an immediate impact on consumer confidence, spending, and price sensitivity (Van Raaij and Gianoten 1990). Higher interest rates increase consumers’ debt payment obligations and reduce discretionary budgets, thereby increasing consumer motivation to learn price information. Unemployment rate is also considered to be positively related to consumer price knowledge (H4). Higher unemployment rates threaten consumers’ economic well being and therefore signal a need for careful spending.

Two additional hypotheses relate to the environment in which price knowledge tudies are conducted. The first relates to the time of the study. Since evidence in consumer research suggests that consumer behavior and price information utilization has changed over the decades (e.g., Leeflang and Van Raaij 1995; Firat and Venkatesh 1993), it is likely that consumer price knowledge would also change as a function of time. For example, evidence from financial markets suggests a growing dependence on credit in consumer purchases, and reduced importance being placed on the one-time payment of prices (e.g., Hershey 1998). We therefore predict decreasing consumer price knowledge over time. The final hypothesis studied in this paper relates to the country in which the study was conducted. In particular, prior studies of consumer behavior suggest systematic differences in the consumption behavior of American versus non-American households, and it is therefore expected that consumer price knowledge measures will vary as function of the country in which the study was conducted:

A total of 297 price knowledge studies published since the early 1960’s are then utilized. The relationship between price knowledge scores reported in these studies and the economic indicators outlined above at the time of the study is then determined through a meta-analysis. The meta-analysis also incorporates the potential impact of research design variations by including them as co-variates in the analyses (e.g., Estelami and Lehmann 2001).

The results from the meta-analysis, both at the individual variable level, and the combined analysis, using a Least Squares estimation method reveal the significant impact of selected economic variables on consumer price knowledge. In particular, economic growth is found to have the largest impact on price knowledge, followed by inflation and the passage of time. All three factors negatively influence consumer price knowledge. Moreover, the impact of interest rates on consumer price knowledge is found to be positive. Unemployment and country of study are found to have no impact on consumer price knowledge.

 

"CONSUMERS’ NUMBER SENSE FOR PRICES OF CONSUMER GOODS"

Marc Vanhuele, HEC School of Management

Gilles Laurent, HEC School of Management

Xavier DrFze, UCLA

Researchers interested in memory for prices will find little inspiration in the specialized memory literature. Most of this literature focuses on whether and under which conditions study items are recalled (or recognized) or not. The criterion for the performance on a given item is usually binary: it is remembered or not. This approach has direct relevance for certain types of numerical information (e.g., remembering a phone number is only useful if it can be completely remembered) but not for other types (e.g., the distance between two cities, one’s weight a year ago, the price of an item) where remembering only the approximate numbers remains useful. Although increases in accuracy for the latter type are functional, they may not be justified by the cognitive costs involved. In addition, a lack of memory performance for this type of numerical information can be compensated by an ability to estimate the approximate numbers in question.

Recent work in numerical cognition provides strong evidence for the existence of a cognitive subsystem that is specialized in dealing with numbers. The basic role of this system is to allow humans to count, but its functioning is also reflected in the way they deal with numbers that indicate quantities. Numerical cognition may therefore give us new insights into the processes of storage and retrieval of consumer price knowledge and we examined this potential.

In two store surveys in a French supermarket, one at the entrance of a store with 400 consumers and another using the in-the-aisle procedure of Dickson and Sawyer with 200 consumers we found confirmation for the following predictions from numerical cognition:

$ Upon encountering price information a magnitude code is automatically activated. This code is like a mental ruler with decreasing precision when prices get higher. Higher prices are therefore less accurately represented which is reflected in recall performance.

$ Numerical fact retrieval depends on the spoken and written language-processing system. We show that the particularities of the French language are reflected in price recall performance. Numbers with more syllables, that therefore take longer to pronounce, are less likely to be recalled than numbers with fewer syllables. This effect may be due to the capacity restrictions of the articulatory loop in short-term memory, but also to conscious editing to simplify the information that is to be retained.

In addition we gained insights on the dynamics of learning and forgetting of price information. Recall performance was not different in the in-the-aisle and store-entrance surveys. In addition, the structure of the recalled prices was similar in both surveys. This suggests that consumers who perform well in an in-the-aisle survey acquired their knowledge at previous learning occasions and not at the moment of the interview.

We also examined the difference between remembered and estimated price information and showed that estimating a price is subject to a social norm that dictates that estimates should be given in rounded numbers.

Overall we found a number of interesting regularities in memory performance that seem to reflect the characteristics of the cognitive numerical processing system. These regularities now have to be examined in a more controlled context.

REFERENCES

Ashcraft, Mark H. (1992), "Cognitive Arithmetic. A Review of Data and Theory," Cognition, 44, 75-106.

Dehaene, Stanislas(1992), "Varieties of Numerical Abilities." Cognition 44:1-42.

Dehaene, Stanislas (1997), The Number Sense. Oxford University Press.

Dickson, Peter R. and Alan G. Sawyer (1990), "The Price Knowledge and Search of Supermarket Shoppers," Journal of Marketing, 54, July, 42-53.

Kalyanaram, Gurumurthy and Russel S. Winer (1995), "Empirical Generalizations from Reference Price Research," Marketing Science, 14 (No. 3, Pt. 2), G161-G169.

Le Boutillier, John, Susanne Shore Le Boutillier and Scott A. Neslin (1994), "A Replication and Extension of the Dickson and Sawyer Price-Awareness Study," Marketing Letters, 5, 1, 31-42.

McCloskey, Michael and Paul Macaruso (1995), "Representing and Using Numerical Information," American Psychologist, 50 (May), 351-363.

Monroe, Kent B. and Angela Y. Lee (1999), "Remembering Versus Knowing: Issues in Buyers’ Processing of Price Information," Journal of the Academy of Marketing Science, 27, 2, 207-255.

Urbany, Joel E. and Peter R. Dickson (1991), "Consumer Normal Price Estimation: Market Versus Personal Standards." Journal of Consumer Research, 18 (June), 45-51.

Wakefield, Kirk L. and J. Jeffrey Inman (1993), "Who are the Price Vigilantes? An Investigation of Differentiating Characteristics Influencing Price Information Processing." Journal of Retailing, 69 (Summer), 216-233.

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