Impact of Reference Prices on Product Positioning and Profits

Mehra, A and Sajeesh, S and Voleti, S (2020) Impact of Reference Prices on Product Positioning and Profits. Production and Operations Management, 29 (4). pp. 882-892.

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The existence of reference price effects in consumer decision making is well documented in prior research, but few studies focus on its implications for firms’ strategic behavior. Using a competitive model, we address this gap by examining how firms’ product positioning and pricing strategies in a non-durable goods market (where consumers repeatedly purchase products from the category) are affected compared with a benchmark situation in which reference price effects are not pertinent. In a model with internal reference price effects, we find that as the salience of reference price effect increases, (a) product differentiation first decreases and then increases; and (b) firm profits first decrease and then increase. Using data from Information Resources, Inc. (IRI) dataset, we empirically validate our findings. We contribute to the product positioning literature by uncovering the role of internal reference price effects on product positioning and profits.

Affiliation: Indian School of Business
ISB Creiators:
ISB Creators
Voleti, S
Item Type: Article
Uncontrolled Keywords: Transaction Utility, Reference Prices, Hotelling Models, Product Positioning
Subjects: Marketing
Depositing User: Gurusrinivasan K
Date Deposited: 24 Sep 2021 12:52
Last Modified: 24 Sep 2021 12:52
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