The effects of individual internal versus external reference prices on consumer decisions for pay-what-you-want payments

We empirically investigate the interaction between internal and external reference prices on stated payments in a Pay-What-You-Want (PWYW) scheme. Using results of a vignette experiment with e-books, we show that when an external reference price provided is lower than respondents’ internal reference prices, the average of PWYW payments significantly decreases compared with a situation in which the external reference price is not provided. The relationship is the opposite when the external reference price provided to respondents is higher than their internal reference prices. In such a case, upward pressure is created, thus the average of PWYW payments increases. These results remain true when we control for expected quality of e-books. Additionally, we find that when the external reference price is not provided, the size of PWYW payments depends positively on individual factors such as risk-taking propensity and perceived costs of e-book production.

The Effects of Internal and External Reference Prices on Travelers’ Price Evaluations

The relative use of an internal reference price (IRP) versus an external reference price (ERP) becomes an important issue in the travel and lodging contexts as the increased promotional activity by destinations and hotels is likely to be based on price-comparison advertisements. However, there is little guidance on how tourism and hospitality organizations can use pricing structure to influence reference price, which is cardinal to travelers’ evaluation of price acceptability. Thus, the current research examines how pricing characteristics of the lodging services shift travelers’ sensitivity to two different types of reference prices, and therefore, influence their price evaluations. Compared with IRP, our findings indicate that individuals are more sensitive to and affected by ERP. The results also demonstrate that information accessibility and perceived diagnosticity are key mechanisms that lead to the differential effect of IRP versus ERP on travelers’ price evaluations. Relevant managerial implications are drawn regarding price and promotion strategies.

Reference Price and Its Asymmetric Effects on Price Evaluations: The Moderating Role of Gender

Empirical research shows that customers form price evaluations by comparing the actual price with a reference price. The relative use of an internal reference price (IRP) versus an external reference price (ERP) is an important issue in the lodging industry due to the popularity of price-comparison–based advertising. Although prior literature shows that demographic factors influence the relative use of IRP and ERP, the impact of gender on the relationship between reference prices and price evaluations has received scant attention in both hospitality and marketing contexts. Drawing on the agency-communal theory, the current research examines the effect of gender on the use of IRP and ERP in price evaluations. The findings indicate that males are more susceptible to IRP than to ERP, whereas females are only influenced by ERP. Relevant managerial implications are drawn in terms of pricing and promotional strategies.

Exploring the interactions among external reference price, social visibility and purchase motivation in pay-what-you-want pricing

Purpose The purpose of this paper is to investigate the direct and indirect effects of social visibility (private vs public), purchase motivation (intrinsic vs extrinsic vs altruistic) and external reference price (ERP) (absent vs present) on consumers’ pricing decisions in pay-what-you-want (PWYW) context. Design/methodology/approach Two empirical studies with a fitness gym as the research setting were used to test all the hypotheses; first, a lab experiment with undergraduate student participants and, the second, an online experiment with a consumer panel. Findings Both studies show that consumers allocate a higher share (RATIO) of their internal reference prices (IRPs) to the prices to be paid (PTP) in PWYW context, in private under intrinsic purchase motivation and in public under extrinsic or altruistic motivation and this effect is more pronounced in the absence of ERP. Research limitations/implications Future research may validate and extend the findings of this paper with other product or service categories, different manipulations for the key variables, other research methods such as field experiments and expand our model by including other relevant variables. Practical implications The findings of this paper will help managers understand how individual customers’ purchase motivation and the social visibility in the PWYW setting affect their pricing decisions and how providing external pricing cues may moderate these effects. Originality/value Prior research on PWYW shows mixed findings about the direct effects of many variables on consumers’ pricing decisions, but it ignores the differences in consumers’ purchase motivations and offers mixed evidence about the influence of social visibility and ERPs on payment decisions. The authors address all these gaps in this paper.