TITLE:
Effect of Adjacent Product Price on Customer’s Willingness to Pay of Focal Brand: A Bayesian Approach
AUTHORS:
Atanu Adhikari
KEYWORDS:
Brand-Choice Decision, Willingness to Pay, Internal Reference Price, Consumer Heterogeneity, Hierarchical Bayes
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.7,
November
27,
2017
ABSTRACT: Psychological researchers, while studying internal
reference price, have dealt with different types of psychological effects like
attraction effect and compromise effect. While studying
consumer reference price and willingness to pay, marketing researchers have
focused on consumers’ perception about a brand by evaluating several attributes
of that brand. Our research investigates the incremental effect on consumers’
willingness to pay in a context where an adjacent price is present, for
instance, when a medium priced brand is associated with a high price brand than
a moderately high priced brand. Unlike other pricing research, this research
deals with consumer’s individual level heterogeneity as price sensitivity and
consumers’ willingness to pay for a particular brand since they vary among
individual. Hierarchical Bayes methodology is used to incorporate such
heterogeneity. The study shows significant difference in consumers’ utility and
her willingness to pay when a medium priced brand is compared with a high priced brand as against a moderately high priced brand.