1. The Effect of the Reference Price on Consumer Decision: A Natural Field Experiment
Antonio Filippin
University of Milan
Daniela Grieco
Bocconi University

2. Research question and motivation
Does Standard Consumer Theory (reservation price p’ > price actually paid p) succeed in predicting consumers’ purchases?
Thaler (1985)’s concept of Transaction Utility based on the Reference Price (p*)
Role of the Reference Price

3. Definition and determinants of the Reference Price
Latent construct, representing a standard the purchasing price is compared to.
IRP (Internal: consumer’s anchoring point) vs.
ARP (Advertised: directly provided by the retailer)
Sellers can only affect ARP
Role of promotion signals

4. Method
Natural experiment in the field  consumers take their decisions in their “natural” environment
7 points of purchase of a local chain store (almost a monopolist in the selected area) with a centralized management.
Description of the points of purchase: located in the outskirt of a town, with a hard discount nearby. 2 subgroups (big vs. medium) homogeneous in size, sales volume and pattern.

5. Testable implications of consumer behavior
Exogenously shock the internal reference price (IRP) in different ways.
3 treatments when price is discounted:
- no ARP (only the lowered price, no signal)
- mixed (only the lowered price + signal)
- explicit ARP (both old and lowered prices + signal)
2 treatments when price is not discounted:
- control (price displayed in the usual way)
- Pavlov (price displayed on the shelf tag used for promotion)
 Which manipulation has the larger effect on sales?

6. noARP

7. expARP

8. mixed

9. Pavlov

10. Experimental design I 3 variables are manipulated:
Selling price (baseline vs. 25% discounted)
Price display (only the selling price vs. both baseline and discounted)
Promotion signal

11. Experimental design II

12. Criteria to select products
With at least one close substitute (but not too many)
Frequently purchased and characterized by a standard quality (i.e. quality is known and not inferred from the selling price. We want to rule out that a change in the reservation price could be a confounding factor)
Not subject to promotions (if possible…)

13. List of products and distribution of treatments

14. Regression of sales on key variables

15. Results I ExpARP treatment significant for 2 out of 6 products
Mixed treatment never significant!
Pavlov treatment significant for 2 out of 6 products

16. Results II

17. Results III

18. Usual promotional means
Central track
Leaflets

19. Conclusions Weak reaction to indirect IRP manipulations
The promotion signal seems to be more effective than comparison to the previous price
Are consumers addicted by massive leaflets promotions?
Are consumers too influenced by products position?