Advertising and Pricing Decisions with Reference Price Effect

This study examines the formation and evolution of reference price perceptions in new product categories. It contributes to our understanding of pricing new products by integrating two important research streams in marketing—reference price theory and the theory of pioneer brand advantage. Prior research has focused solely on products in existing or incrementally new categories, and has typically examined fast-moving consumer goods. Using a cross-sectional experiment to study the formation of reference price perceptions, and a separate, but related, longitudinal experiment to study the evolution of reference price perceptions, the findings suggest that the pioneer brand's initial price defines a consumer's initial reference price, whether the pioneer is following a skimming or a penetration strategy. This effect endures in later time periods where the initial price affects consumer perceptions of value and purchase intention. The study also finds that the pioneer, due to its prototypicality, has a stronger influence on reference price perceptions than the follower, creating a systematic bias to both the formation and evolution of reference price perceptions in new product categories. Thus, reference price perceptions are shaped by what the pioneer does, rather than what the follower does. Furthermore, category-level reference prices exist and explain purchase intention, but do not improve over brand-specific measures in this regard. These findings have implications for pricing strategy and the theory of reference prices. ©2010 Wiley Periodicals, Inc.

Optimal dynamic pricing for deteriorating items with reference price effects when inventories stimulate demand

A well-known concept in the marketing literature is that consumers use prices paid in the past or the current market price as a reference point to assess the value of the current price of an item. These 'reference prices' have been shown to have a significant impact on a consumer's purchase decision and a resulting influence on the selling firm's demand of the item. Recently, considerable research has been conducted on coordinated pricing and inventory decisions; however, very little has recognised the existence of reference prices. Thus, a single-period model is developed that incorporates the effects of reference prices, demand uncertainty and price elasticity on the solution. Numeric analysis indicates that accounting for reference prices can have a substantial impact on the pricing and inventory decisions and the resultant profitability, made by a firm.

Pharmaceutical policies: effects of reference pricing, other pricing, and purchasing policies.

Reference price effect of partially similar online products in the consideration stage

A firm that accounts for consumer behavior sets the selling price of a product considering the reference price of consumers. In the literature, a reference price is usually modeled as depending on past selling prices. That is, past selling prices implicitly constrain the current selling price of a product. In this article, the author explicitly measures this constraint with an optimal control framework. He works on the structural properties of a general demand function, which depends on both selling and reference prices. Analytical results prove the following claims. Adjusting reference prices effects increase the price elasticity of demand, the demand function becoming flatter. Thus, the reference price effect weakens the market power of the firm. Also, the reference price effect constitutes a main driver of the dynamics of the selling price. But contrary to intuition, selling price dynamics does not systematically imitate reference price dynamics.

Reference pricing with endogenous generic entry

Accepted by: M. Zied Babai To investigate the pricing decisions in a dual-channel supply chain consisting of a manufacturer’s online sales channel and a retailer’s traditional offline channel, we establish fundamental models incorporating consumers’ reference price effect and the free-riding effect, and then, we design a two-part pricing coordination mechanism. The results indicate that as the proportion of consumers with a high reference price increases, supply chain members achieve higher profitability, and a continuous increase in the retailer’s promotional effort enables consumers to gain product knowledge more quickly and enhance overall market efficiency.

Given the high costs of innovative new drugs, most countries have introduced policies for price control. Two policies have become popular in recent years: international reference pricing (IRP) and value-based pricing (VBP). Another policy that was recently introduced in Germany consists of price negotiations between payers and manufacturers followed by IRP and VBP in case of no agreement. These policies are usually preceded by an assessment of medical benefits against current standards (e.g. in France [3] and Germany [1]) and thus are only applied in case evidence for medical benefits exists. IRP is ‘‘the practice of using the price(s) of a medicine in one or several countries in order to derive a benchmark or reference price for the purposes of setting or negotiating the price of the product in a given country’’ [4]. In some countries, the referencing pricing system is applied rigidly, while in other countries, it is simply one of many elements of information used to inform the pricing decision [4]. By taking comparison prices from other countries, the regulation of drug prices in one country can directly affect prices in another. A recent review [5] showed that among the 27 European Union (EU) Member States only four countries did not use IRP in 2010 (Denmark, Germany, Sweden and the UK). Among the EU countries using IRP, the most commonly used method was to take the average of the country basket [5]. Bulgaria, Greece and Norway took the average of the three lowest countries [5]. In contrast, VBP sets drug prices based on the value they provide. The fundamental principle of the VBP approach is that the costs of drugs (including savings from avoiding morbidity) should not exceed their health benefits. VBP thus is also applied in pay-for-performance agreements when performance is measured based on value. VBP is based on an implicit or explicit decision rule, which compares the incremental cost-effectiveness ratio of a drug with a threshold willingness to pay, e.g. £20,000 to £30,000 per QALY gained in England and Wales [6]. This threshold willingness to pay is sensitive to ethical values and may increase with unmet need (e.g. in England and Wales for patients with a short life expectancy [7]). The purpose of this paper is to show that IRP (possibly followed by price negotiations) or price negotiations followed by IRP and VBP in case of no agreement are not sustainable in the long run and will lead to VBP. As a word of caution, the argument is only made with respect to innovative new drugs and not me-too drugs with no

We analyze a finite-horizon dynamic pricing model in which demand at each period depends on not only the current price but also past prices through reference prices. A unique feature but also a significant challenge in this model is the asymmetry in reference price effect, which implies that the underlying optimization problem is nonsmooth and no standard optimization methods can be applied. We identify a few key structural properties of the problem, which enable us to develop strongly polynomial-time algorithms to compute the optimal prices for several plausible scenarios. We complement our exact algorithms by proposing an approximation heuristic and provide an upper bound on the optimal objective value. Finally, we conduct numerical experiments to study the optimal price path and demonstrate the value of dynamic pricing when demands are seasonal. We further compare numerically one of the exact algorithms with the heuristic and offer managerial suggestions. This paper was accepted by Yinyu Ye, optimization.

Environmental concern has been an important issue for a few decades, and the extent of consumer demand for eco-friendly consumption has been increased. This study seeks to investigate consumers` willingness to pay (WTP) a premium for eco-friendly cosmetics. This study evaluates how much more a consumer is willing to pay for eco-friendly cosmetics and examines significant factors influencing consumers` WTP for eco-friendly cosmetics. Consumers` WTP is measured using four different ecofriendly cosmetics: low-priced skin care cosmetics, low-priced makeup cosmetics, high-priced skin care cosmetics, and high-priced makeup cosmetics. This study uses the contingent valuation method (CVM) to estimate consumer`s WTP for eco-friendly cosmetics. Survey questions were designed using both dichotomous choice and payment card method of CVM. Through face to face interviews and on-line surveys, the data were collected from women between 20 and 49 years old residing in Seoul and Kyeonggi area, Korea, in May 2010. A total of 226 questionnaires (132 from interviews and 94 from on-line) were included for the analytical sample in this study. The data were analyzed using descriptive analysis, T-test and Log-Logit analysis. The findings are as follows: First, the WTP measured by dichotomous choice method was estimated using the Log-Logit analysis. The results showed that the estimated WTP for low-priced skin care cosmetics was 19,152 won, which was 27.7% higher than the reference price, 15,000 won. For low-priced makeup cosmetics, the estimated WTP was 18,524 won, and its green premium was 21.0%. The estimated WTP for high-priced skin care cosmetics was 59,128 won, which was 18.3% higher than the reference price, 50,000 won. For high-priced makeup cosmetics was 57,666 won, and its green premium was 15.3%. Second, the WTP measure by payment card method was estimated using descriptive analysis. The results showed that the respondents were willing to pay 17,955 won for low-priced skin care cosmetics, which was 19.7% higher than the reference price, 15,000 won and 17,595 won for low-priced makeup cosmetics, which was 17.3% higher than the reference price. For high-priced skin care cosmetics, the average WTP was 56,950 won which was 13.9% higher than the reference price, 50,000 won. For high-priced makeup cosmetics, the average WTP was 55,650 won, which was 11.3% higher than the reference price. Overall, the WTP was higher in order of low-priced skin care, low-priced makeup, high-priced skin care, and high-priced makeup. It means that consumers decide degree of premium based on the price and the attributes

This study aimed to identify warning thresholds that can guide sellers in achieving reasonable profits while reducing buyer payment costs. Monthly price data from January 2009 to June 2023 and the two-regime threshold regression model were used for an empirical analysis of the asymmetric effects of the changes in household consumption under different pork price fluctuation levels to verify that the changes in household consumption have significant pork price fluctuation thresholds and threshold effects. It was found that as the fluctuation of pork prices approached the threshold, the temporary price-intervention policy (e.g., reference price) effect of adjusting prices diminished. An empirical analysis was conducted from the perspective of asymmetric effects of the upstream (feed and piglets), midstream (live pigs), and downstream (pork) of price transmission. The impacts of the products in the upstream and midstream of the industry chain on pork prices declined gradually, and among the products, the impact of the prices of feeds for fattening pigs on pork prices was found to be the weakest. Thus, the price intervention policy (e.g., reference price) based on the pork price threshold suggests that strengthening the supervision of the price fluctuations of midstream products (e.g., controlling the profit margin) when the pork price fluctuation is near the threshold (8.24%) would have more significant effects on all sides.

With the rise of e-commerce platforms, the omni-channel supply chain has become a significant trend in business development. This paper aims to explore the impact of platform fees on pricing decisions within the omni-channel supply chain and how these decisions affect the profits of supply chain members. By constructing a Stackelberg game model, this paper analyzes the relationships among manufacturers, retailers, and e-commerce platforms, and thereby determines the optimal wholesale prices, retail prices, and platform fees. The study's findings reveal that an increase in the manufacturer's online channel supply ratio reduces wholesale and retail prices while increasing the profits of manufacturers and e-commerce platforms, but adversely affects the profits of retailers. Moreover, an increase in e-commerce platform fees has complex effects on the profits of supply chain members and poses challenges to the sustainable development of the supply chain. Therefore, setting platform fees reasonably is crucial for maintaining the healthy development of the omni-channel supply chain and balancing profits among members.

In order to reduce the carbon emissions of manufacturers and retailers in their business activities, carbon emission limits must be set for manufacturers and retailers respectively, and they must make favorable decisions within the limits. This paper will focus on a two-level supply chain system composed of a single manufacturer and a single retailer, and explore the optimal wholesale price, optimal retail price, and optimal profit under four scenarios: neither is constrained by carbon quotas, only the manufacturer is constrained by carbon quotas, only the retailer is constrained by carbon quotas, and both are constrained by carbon quotas, by constructing Lagrange functions. Comparative analysis will be conducted. Research has shown that only when manufacturers are subject to carbon quotas, the optimal wholesale and retail prices will rise, and the optimal profits of both manufacturers and retailers will decrease; When retailers are constrained by carbon quotas, whether manufacturers are constrained by carbon quotas does not affect the optimal price and profit; When both are subject to carbon emission restrictions and retailers increase their carbon emission quotas, manufacturers will lower wholesale prices and retailers will lower retail prices.

Introduction: European Union member states are free to develop their national and regional pharmaceutical pricing and reimbursement policies, as long as they comply with the Transparency Directive. External reference pricing (ERP), also called `External price referencing` has become one of the most common cost-containment tools to reduce prices for medicines. The objective of the study is to provide an overview of the ERP system in Bulgaria and to analyze the potential issues related to criticism of the entire process. Materials and Methods: A systematic structured legislation review as well as a consultation with representatives from the competent national authority were conducted to identify and characterize the use of ERP in Bulgaria. All the collected data were processed in figures and tables. A PEST analyses was also performed to evaluate the impact political, economic, social, and technological factors might have on the ERP system. Results: In Bulgaria, the use of ERP for setting the price of pharmaceuticals is based on legislated special pricing rules. The National Council on Prices and Reimbursement of Medicinal Products is the state body under the Minister of Health, which endorses and registers the prices for medicinal products. The number of reference countries included in the basket is 17. Twelve of them are primary and five are complementary. The lowest price among all reference countries is used in Bulgaria. Prices are re-evaluated on a monthly basis after the initial price has been set. We describe also the ERP impacts on the prices of pharmaceuticals and discuss some possible cross-country coordination issues in EU and Member States. Conclusions: ERP is actively used in Bulgaria to achieve cost-containment of prescription medicines included in the positive drug list. Its application and potential impacts remain highly debated, but are still considered to be the most effective action for keeping the prices of pharmaceuticals low.