Role of Reference Price on Price and Quantity: Insights from Business-to-Business Markets

Abstract

The authors study the role of reference price in a setting in which both the price and the quantity are set through personal interaction during the transaction process, such as in business-to-business markets. Most studies on reference price in the marketing research literature focus on consumer packaged goods, for which prices are typically fixed during the shopping trip and the transaction does not involve personal interaction with a salesperson. In this study, the authors study the effect of reference price on the quantity purchased and also on the pricing outcome of the transaction. They estimate a simultaneous equation system of both pricing and quantity purchased. The findings are as follows: (1) Reference price effects exist on quantity purchased and on the transaction pricing outcome in business-to-business market transactions, (2) business customers react asymmetrically to price increases and price decreases, and (3) salespeople have their own reference prices that affect the transaction price. The authors also find that customer experience with the salesperson might exacerbate the loss aversion effect. They conclude by discussing the underlying reasons behind these findings and their managerial implications.

Violations of rational choice principles in pricing decisions

“…Frequently, the status quo is represented by reference prices, that is, price expectations based on past prices. Recent research confirms the presence of reference price effects also in business markets, where loss-averse buyers adjust purchase quantities more strongly for price increases than for price reductions and where prices paid in previous periods have strong effects on reference prices in subsequent periods (Bruno, Che, & Dutta, 2012).…”

“…Reference price effects are powerful also in industrial markets (Bruno et al, 2012) Price-precision effect Precise prices are perceived to be smaller than round prices. Increasing prices to a precise number increases purchase likelihood.…”

Which types of multi-stage marketing increase direct customers' willingness-to-pay? Evidence from a scenario-based experiment in a B2B setting

“…In particular, the hypothesized effects of selective MSM and multi-stage awareness on WTP and relationship value perception were not significant although most observed effects were in the anticipated direction (except H2c). Five potential explanations for these findings come to mind: First, the direct customers' preferences in B2B markets are dependent upon the behavior and attitudes of various downstream customers (Bruno, Che, & Dutta, 2012). Such an influence may have overruled the influence of selective MSM or multi-stage awareness by the supplier.…”

Sales Force Behavior, Pricing Information, and Pricing Decisions

“…To the best of our knowledge, the only other papers that investigate the role of reference pricing in the salesperson pricing process in B2B markets are Elmaghraby et al (2012), Bruno et al (2012), and Zhang et al (2014). Bruno et al (2012) develop a parsimonious theoretical model to describe and evaluate B2B transactions in which industrial buyers (e.g., furniture manufacturers) contact salespeople for timber products. The final quantities and prices are determined endogenously and are influenced by reference prices and corresponding perceived loss and gain effects in utility.…”

“…As in Bruno et al (2012), we adopt a reference price framework to model salespeople's pricing decisions: we posit that the last price at which a salesperson sold a product to a customer serves as the salesperson's internal reference price (Winer 1986) for the current transaction and that current pricing decisions are evaluated vis-à-vis this reference point. We further posit that the recommended price from the pricing tool, and hence the recommended price change from the last transaction price, serves as an external reference price and influences the final transaction price change.…”