Consumer reaction to price is partially governed by whether that price is close to the “expected” price for the consumer. Yet consumers can override their internal reference prices (IRPs) and accept a higher-than-expected price. To better understand how they do so, it is necessary to first look at research on both IRPs and external reference prices (ERPs) – as well as what happens when those two are substantially different.
Cognitive dissonance theory (Festinger, 1957) is an “unpleasant state of tension” that results when the outside world doesn’t conform to our internal expectations. Festinger postulated that when cognitive dissonance is strong enough, people will use one of three different tactics to reduce their dissonance: seeking consonant information, changing attitude, or trivialization.
Lindsey-Mullikin (2003), in a descriptive study, questioned whether those same three dissonance-reduction methods are used by consumers when faced with an unexpectedly high price. Trivialization can be defined, for pricing, as the consumer trivializing the high price due to some other element of the offer. For example, a consumer may decide that his/her time is too important to waste shopping around for a better price. A guarantee may also cause the consumer to trivialize the money required because a full refund may be easily obtained.
This paper will describe an experimental approach to the same question looking at HDTVs. Subjects were exposed through a CBC (Choice-Based Conjoint) study to 4 different levels of guarantees and four levels of bonuses (including no bonus). Some of the guarantee levels were unusually small (90 days) given the high price, as were some of the bonuses (“no bonuses” or 6 DVDs).
Subjects were randomly assigned to two different groups and each group was exposed to current prices for HDTVs. A following pretest asked subjects what their expected price range is for the product, and those whose IRPs were outside the normal range were dropped from the study. One group then saw offers for HDTVs priced within their IRPs. The other group saw a price higher than their IRPs. If trivialization occurs, it would be expected that the group seeing the higher price would react more positively to the lower levels of “add-ons” as justification for intent-to-buy.
This expected difference was found for the lower levels of guarantees, where 90-day and 180-day guarantees were more appealing to the group that saw the higher-than-expected price than to the expected-price group.
Bonuses, however, did not exhibit this expected difference. The high-priced group found higher utility in the no-bonus offer and lower utility in the poor bonus offer (just 6 DVDs). See Figure 1.
Differences by age and group
Even when segmented by age and gender, we still could not confirm the trivialization hypothesis through the use of different bonus levels. There were no significant differences between males and females in this study. The age by group (medium, high reference price) analysis supported the overall findings for trivialization of the guarantees. But it continued the confusion about bonuses: The 30+ age group showed significantly higher utility for the no-bonus offer and significantly less for the home-theatre-system offer. See Figure 2.
Effect of brand on higher-than-expected prices
Biswas & Blair (1991) found consumers more likely to discount an implausibly high ERP for a familiar brand than for an unfamiliar one, and that perceived savings were higher for an unfamiliar brand, given an implausibly high reference price. They also found a higher intent-to-buy for unfamiliar than for familiar brands at the implausibly high ERP.
These findings were confirmed by our study, which also found a significant difference between brand and acceptance of the higher price. Here the group seeing the higher-than-expected price had a more positive intent-to-buy with a fictitious brand than did the group seeing a price within their IRP.
Discussion and applications
This study shows support for the trivialization hypothesis in the two lower levels of guarantees, but not in the bonuses. It is possible that trivialization does occur, but it is narrowly limited to only certain rationales.
To further investigate that possibility, we are planning a further study that looks at a number of other potential trivialization factors, including a desire to save time by accepting the higher price and the use of a retail store’s quality image to justify price acceptance.
Alternatively, it may be that subject perception of quality became an extraneous variable in this study. The group seeing the higher-than-expected-price HGTV may have assumed it to be of higher quality than the “norm” and that assumption may have affected choices. If one assumes a higher quality product, that could well change the importance of guarantees and the need for or attractiveness of bonuses with purchase. In fact, such bonuses may be perceived as evidencing lower quality of the item to which they are attached. Our further study will control for any difference in quality perceptions.Marketers are often faced with the need to increase prices and the desire to make those price increases palatable to consumers. A better understanding of trivialization, and the circumstances in which it may be found, could expand marketer knowledge and aid practitioners.