External Reference Prices List prices/sale prices a Price Signaling
11-6 External Reference Prices List prices/ sale prices List prices/ sale prices Price Signaling Price Signaling
Internal Reference prices One that is recorded in consumer's memory Memory of price may not be accurate If brand is frequently promoted, consumers tend to lower their internal reference point
11-7 Internal Reference Prices One that is recorded in consumer’s One that is recorded in consumer’s memory Memory of price may not be accurate Memory of price may not be accurate If brand is frequently promoted, If brand is frequently promoted, consumers tend to lower their internal consumers tend to lower their internal reference point reference point
Internal Reference Price (cont. consumers have a notion of“ fair price” acquisition utility a transaction utility Asymmetric response to price changes
11-8 Internal Reference Price (cont.) consumers have a notion of “fair price” consumers have a notion of “fair price” acquisition utility acquisition utility transaction utility transaction utility Asymmetric response to price changes Asymmetric response to price changes
l. Consumer's Response to Price Promotions temporary price promotions cause significant short-term sales spike for brand being promoted a Retailers question: do price promotions increase overall sales for the product category
11-9 II. Consumer’s Response to Price Promotions temporary price promotions cause temporary price promotions cause significant short significant short-term sales spike for term sales spike for brand being promoted brand being promoted Retailer’s question: do price promotions Retailer’s question: do price promotions increase overall sales for the product increase overall sales for the product category? category?
Product category sales can increases as a result of price promotions a deeper discounts increased variability in total category sales very frequent promotions did not affect overall category sales as much a THErEFORE: overall category sales most likely to increase if brand promotions are deep but infrequent
11-10 Product category sales can increases as a result Product category sales can increases as a result of price promotions of price promotions deeper discounts increased variability in deeper discounts increased variability in total category sales total category sales very frequent promotions did not affect very frequent promotions did not affect overall category sales as much overall category sales as much THEREFORE: overall category sales THEREFORE: overall category sales most likely to increase if brand most likely to increase if brand promotions are deep but infrequent. promotions are deep but infrequent