An Integrated Model of Reference Prices and their Impact on

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ASSOCIATION FOR CONSUMER RESEARCH
Labovitz School of Business & Economics, University of Minnesota Duluth, 11 E. Superior Street, Suite 210, Duluth, MN 55802
An Integrated Model of Reference Prices and Their Impact on Satisfaction
Felix Tang, Hang Seng School of Commerce, Hong Kong, China
Jianmin Jia, Chinese University of Hong Kong, Hong Kong, China
This article develops a satisfaction model that incorporates the concepts of types of reference prices, perceived fairness, retrospective
regret, and disappointment. An experiment was conducted to generate the price variations along the consumer, firm, and time
dimensions of reference price. The finding suggested that the influence of reference prices on satisfaction is mediated by fairness,
regret, and disappointment. The influence of across-consumer reference price on customer satisfaction is larger than that of acrosstime or across-firm reference price. The finding also indicated that existing satisfaction models that ignore regret and models that only
measure regret may have inflated estimators.
[to cite]:
Felix Tang and Jianmin Jia (2010) ,"An Integrated Model of Reference Prices and Their Impact on Satisfaction", in NA Advances in Consumer Research Volume 37, eds. Margaret C. Campbell, Jeff Inman, and Rik Pieters, Duluth, MN : Association
for Consumer Research, Pages: 509-510 .
[url]:
http://www.acrwebsite.org/volumes/15047/volumes/v37/NA-37
[copyright notice]:
This work is copyrighted by The Association for Consumer Research. For permission to copy or use this work in whole or in
part, please contact the Copyright Clearance Center at http://www.copyright.com/.
An Integrated Model of Reference Prices and their Impact on Satisfaction
Felix Tang, Hang Seng School of Commerce, Hong Kong
Jianmin Jia, The Chinese University of Hong Kong, Hong Kong
EXTENDED ABSTRACT
The Motivation
This article develops a satisfaction model that incorporates the
concepts of the types of reference prices, perceived fairness, retrospective regret, and disappointment. Previous studies have examined whether reference prices lead to consumer satisfaction (e.g.,
Bolton and Lemon 1999; Fornell et al. 1996; Mittal, Ross, and
Baldasare 1998; Varki and Colgate 2001; Voss et al. 1998);
however, how reference prices lead to satisfaction remains unclear
for two reasons. First, except for Voss et al. (1998), causality cannot
be established when prices are not manipulated directly in the study.
Second, except for Bolton and Lemon (1999), the underlying
mechanism driving the relationship has not been examined.
The exploration of how reference prices influence satisfaction
leads to two research questions. The first question concerns the
relationships between different types of reference prices on the
antecedent of satisfaction (i.e., fairness, regret, and disappointment). Inman, Dyer, and Jia (1997) define regret and disappointment according to the type of comparison. Their findings suggest
that each antecedent is influenced by a specific type of reference
prices. However, Bolton, Warlop, and Alba (2003) find that perceived fairness can be influenced by different types of reference
prices, such as prices comparing across consumers and prices
comparing across time. Their findings suggest that each antecedent
may be influenced by multiple types of reference prices. Clarifying
these contradicting predictions allows a better understanding of
reference prices and satisfaction. The second question concerns the
explanatory power of fairness, regret, and disappointment, and the
robustness of existing model without one or more of these antecedents. Whether satisfaction can be adequately explained by one, two,
or all of the antecedents is both theoretically and practically
important.
The objective of this article is to develop an integrated model
to capture the influence of how different types of reference prices
influence consumer satisfaction. This article adopts Bolton et al.’s
(2003) transaction space framework and proposes that the influence
of reference prices on satisfaction can be separated into three types:
across-time reference price, across-consumer reference price, and
across-firm reference price. The levels of reference price are
manipulated to draw causal inference. Furthermore, disappointment,
fairness, and regret are included in the model to examine if they can
moderate the effect of reference price on satisfaction.
The Conceptual Framework
An integrated model must be able to encompass the influence
of different types of reference prices on satisfaction. This article
transforms Bolton et al.’s (2003) transaction-space framework into
a new reference price typology. Our model adopts the consumer
(across-consumer reference price), firm (across-firm reference
price), and time (across-time reference price) dimensions and
relates them to fairness, regret, and disappointment.
Disappointment is a cognition-laden and psychological reaction
to an outcome that falls below one’s expectation (Bell 1985).
Perceived fairness is a judgment that the distribution of resources is
based on the principle of equity, equality, and needs according to
the distributive justice theory (Deutsch 1975). Regret is an
unpleasant, cognitively determined, backward-looking emotion
experienced when realizing or imagining that the present situation
would have been better if actions had been done differently
(Zeelenberg and Pieters 2007). The effects of disappointment,
perceived fairness, and retrospective regret on consumer satisfaction
have been independently demonstrated in previous studies (Bolton
and Lemon 1999; Darke and Dahl 2003; Taylor 1997).
The relationship between fairness and regret and the relationship
between fairness and disappointment were freed in the model
estimation. The fairness-regret relationship was suggested by Tang
and Jia (2007) that consumers are motivated to accept responsibility
and such cognitive appraisal leads to the experience of regret. The
fairness-disappointment relationship was hinted by Bell (1985) that
one may feel disappointed at receiving such an unexpected, unfair
outcome.
The Experiment
An experiment with a 3 (across-consumer reference price:
favorable, same, unfavorable) x 3 (across-firm reference price:
favorable, same, unfavorable) x 3 (across-time reference price:
favorable, same, unfavorable) between-subjects factorial design
was conducted to generate the price variations along different
dimensions of reference price. The experiment was scenario-based,
describing an Internet shopping experience of a DVD movie. Sixhundred-seventy undergraduate students participated in this study.
All dependent variables were measured on a multi-item, sevenpoint Likert scale. The manipulations were successful.
The Findings
The proposed model is examined using structural equation
modeling. Confirmatory factor analysis indicated excellent fit of
the measurement model (χ2=87.25, df=47, CFI=.99, RMSEA=.038,
SRMR=.020). Reliability of and discriminant validity among the
constructs were also established. The proposed model fit the data
well (χ2=112.62, df=51, CFI=.97, RMSEA=.045, SRMR=.025).
The structural model suggests that perceived fairness, retrospective
regret, and disappointment mediate the effect of reference price on
satisfaction. Several nested models were also examined for model
comparison. The findings in model comparison suggest that the
impact of reference prices on satisfaction is type-dependent. That
is, the influence of across-consumer reference price on customer
satisfaction is larger than that of across-time or across-firm reference price. Our findings support Inman et al. (1997)’s
conceptualization of regret and disappointment; however, the findings do not support their one-to-one mapping assumption from the
types of reference prices to the antecedents of satisfaction.
The findings in the model comparison suggest that the model
with all three antecedents of satisfaction, as well as the model with
fairness and regret and the model with disappointment and regret,
provide a good fit for the data. The other seven alternative models
fit the data significantly worse and the estimators are directionally
larger than the corresponding estimators in the proposed model.
This observation hints that models ignoring one or more antecedents of satisfaction may have inflated the predictive power of other
antecedents on satisfaction. Specifically, satisfaction models that
ignore regret (e.g., Feinberg et al. 2002) and models that only
measure regret (e.g., Tsiros and Mittal 2000) may have inflated
estimators. The paths from regret or fairness to satisfaction in these
models should be interpreted with caution.
509
Advances in Consumer Research
Volume 37, © 2010
510 / An Integrated Model of Reference Prices and their Impact on Satisfaction
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