Reference prices in an E-commerce context - An experiment with changing consumer prices

Abstract: A cognitive process is activated when consumers encounter a price in a purchase situation. The price is evaluated relative to a reference price, which represents a mixture of factors such as previously encountered price levels, competing price levels and prices paid by others. In this study an economic experiment investigates how E-commerce price levels affect reference prices already established in conventional stores, and the attitudinal and behavioural effects deviations from the reference price have in E-commerce. The findings reveal that low prices encountered in E-commerce lower reference prices formed in conventional stores, and that a price increase in E-commerce causes unfairness perceptions, dissatisfaction, negative word-of-mouth communication and switching intentions, even when the new price level is lower than the initial reference in the conventional store. The theoretical implications support the applicability of established reference price theories in E-commerce, and emphasises the importance of including both online and offline price levels in future research. The managerial implications suggest that low prices in E-commerce can make prices in conventional stores change from fair to unfair instantaneously and highlights the importance of balancing prices online and offline.