How social comparison influences reference price formation in a service context

Viglia, Giampaolo; Abrate, Graziano

doi:10.1016/j.joep.2014.09.003

Cited by 29 publications

(17 citation statements)

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“…Kahneman et al (1993) introduced the magnitude of past peaks as part of the evaluation of a price sequence. The lowest price seems to be an important cue for reference prices (Viglia and Abrate, 2014), although high prices matter too, due to loss aversion (Novemsky and Kahneman, 2005). Cowley (2008) shows that people tend to evaluate past experiences by performing a retrospective evaluation through "rose-colored" glasses, suggesting that good news (such as paying a low price) is given much more weight than other information.…”

Section: The Temporal Component: Reference Prices and Sequences Of Himentioning

confidence: 99%

“…We also isolate other possible contextual factors such as the location of the hotel, which appears of paramount importance in terms of the attractiveness and density of the area (Rigall-I Torrent et al, 2011), and the impact of social comparison, which was shown to have a tremendous effect on the reference price (Viglia and Abrate, 2014).…”

Section: The Contextual Component: Reference Prices and Competitionmentioning

confidence: 99%

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The exploration of hotel reference prices under dynamic pricing scenarios and different forms of competition

Viglia

Mauri

Carricano

2016

International Journal of Hospitality Management

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The reference price, used by consumers to evaluate market prices, has tremendous relevance in dynamic pricing. Reconciling current heterogeneous theories and studies on reference prices, this paper analyzes the impact of hotel price sequences on consumers' reference prices through a lab and a field experiment. Experiment 1 tests the importance of retrospective price evaluations, while Experiment 2 evaluates the impact of three forms of competition: (i) simultaneous behavior, where firms adjust prices simultaneously; (ii) leader-follower behavior, where one firm acts as the leader; and (iii) independent behavior, where each player takes its rival's strategy as given and seeks to maximize its own profits. The results show that consumers decrease their reference price when competing hotels adjust their prices simultaneously. Relevant managerial implications are drawn for the hospitality industry, which is affected by the presence of online travel agencies that announce the daily rates offered by each competitor. Keywords IntroductionSuppose that Carol wants to book a hotel room and begins checking prices (hotel rates) over the Internet. After several searches, she realizes that there is a certain degree of price variability each time she checks. To judge the prices she is offered, she can recall the prices she may have seen in the past, the prices paid for rooms at the same hotel, and/or the prices charged by similar competing hotels. What she has seen or paid in the past, along with the prices of comparable hotels, will influence her price evaluation.The issue of customers' price evaluations-how customers perceive prices and their variations-has become an important topic in hospitality management, particularly due to the widespread adoption of revenue management techniques by the lodging and travel industry.Dynamic pricing practices are now common and have become more feasible as Internet purchasing behavior has increased (Abrate et al., 2012). The widespread use of dynamic pricing is partly attributable to online tools, by which hotels can easily adjust prices in real time depending on the number of available rooms, the inventory and prices of close competitors, and other contextual indicators. However, though these pricing practices may benefit both sellers and buyers, consumers may perceive dynamic pricing as unfair because it produces a variety of rates for what appear to be identical products, such as the same hotel room (Choi and Mattila, 2005).The reference price is the standard against which consumers evaluate current product prices to assess their attractiveness (Monroe, 1973). Reference price has been the subject of a large body of research by both economists and marketing scholars. It can be conceptualized as a price expectation based on customers' memories of previous information (Mazumdar et al., 2005) or 2 as the normative price-the price considered a "fair" charge for the product (Bolton et al., 2003;Campbell, 1999).Several studies have underlined the importance of including customers' refe...

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Section: The Temporal Component: Reference Prices and Sequences Of Himentioning

confidence: 99%

Section: The Contextual Component: Reference Prices and Competitionmentioning

confidence: 99%

The exploration of hotel reference prices under dynamic pricing scenarios and different forms of competition

Viglia

Mauri

Carricano

2016

International Journal of Hospitality Management

Self Cite

View full text Add to dashboard Cite

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“…colleagues) or anonymous (e.g. internet) (Viglia and Abrate 2014). The fact that eWOM most often are anonymous may also indicate a lower credibility than traditional WOM (Huete-Alcocer 2017).…”

Section: Introductionmentioning

confidence: 99%

The impact of word of mouth when booking a hotel: could a good friend’s opinion outweigh the online majority?

Gellerstedt

Arvemo

2019

Inf Technol Tourism

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Online user generated reviews are transforming business and customer behavior and could have a major impact on sales. The primary aim of this study was to measure the impact of online reviews in comparison with the impact of a good friend's opinion. The question in focus was: to what extent could a single review made by a good friend compensate the opinion of the online majority? Subjects were randomly allocated to different versions of guest reviews of a fictive hotel: either constituting a positive or a negative online majority. After reading the reviews, respondents were asked about their booking intention. The respondents were also asked to reevaluate booking intention given the additional information that a good friend has given a recommendation or an advice against booking the hotel. The study design was experimental and based on a survey which included 1319 respondents who were randomized to the different versions of guest reviews. The results showed that the overall valence of reviews is crucial for booking intention, also the latest two reviews were important even though the effect was much smaller. If the overall valence was negative the latest two reviews had no importance, no matter if these were positive or negative. But, if the overall valence was positive, then the booking intention could be diluted if the two latest reviews were negative. Concerning the primary aim of the study, it is concluded that a good friend's word of mouth could outweigh the online majority. This means that a negative online majority could be outweigh by a good friend's recommendation and that a positive online majority could be outweigh by a goods friend's recommendation against booking the hotel.

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“…In the hospitality domain, recent studies have shown the relevant role of IRP in price evaluation (Choi & Mattila, 2017;Choi et al, 2017;Viglia & Abrate, 2014). Research is still limited in terms of understanding how psychological traits shape travelers' WTP.…”

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confidence: 99%

The More the Merrier? Understanding How Travel Frequency Shapes Willingness to Pay

Nieto-Garcia

Gallego

González‐Benito

2020

Cornell Hospitality Quarterly

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Customers’ evaluation of hotel prices has received increasing attention in hospitality research. Beyond the specific attributes of the offer, internal norms related to prior experiences affect customers’ response to price. Drawing on the behavioral price literature, this study investigates the effect of travel frequency and reference price on the formation of travelers’ willingness to pay (WTP) for accommodation. The study presents a novel methodological approach introducing the concept of instantaneous indirect effect. Results offer support for an inverted U-shaped relationship between travel frequency and WTP, mediated by the internal reference price. WTP reaches its peak when the customer has booked an accommodation 6 times in the past 2-year period. The findings provide clear implications for practitioners. Monitoring customers’ travel frequency and integrating it into dynamic pricing models will create a better alignment of room rates with travelers’ WTP, which will make revenue management techniques more customer centric and, ultimately, enhance profitability.

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How social comparison influences reference price formation in a service context

Cited by 29 publications

References 45 publications

The exploration of hotel reference prices under dynamic pricing scenarios and different forms of competition

The exploration of hotel reference prices under dynamic pricing scenarios and different forms of competition

The impact of word of mouth when booking a hotel: could a good friend’s opinion outweigh the online majority?

The More the Merrier? Understanding How Travel Frequency Shapes Willingness to Pay

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