The Effect of Plausible and Exaggerated Reference Prices on Consumer Perceptions and Price Search

Abstract

This article examines whether advertisers' regular price claims affect consumer perceptions and price search behavior. Experiments involving simulated shopping via personal computers indicate that compared to an ad with no reference price, an ad with a plausible reference price raised subjects' estimates of the advertiser's regular price and the perceived offer value. An exaggerated reference price had generally the same positive effects on perception as a plausible reference price, even for the more skeptical subjects. Further, when subjects were presented with an advertised sale price above the lowest expected price, the exaggerated reference price increased the percentage of subjects who purchased the product from the advertiser without checking other stores' prices.