National Clothesline

A reference price advertisement is one in which a lower, current price is compared with a higher price, either previously offered or offered by someone else.

Previous research has

confirmed that when reference and special-offering prices are presented together, they are compared, and this comparison has a favorable effect on consumer deal perceptions relative to a situation in which reference prices are not presented.

With limited-time appeals in advertising, consumers are informed that they have a limited amount of time (e.g., “One week only!”) to act on an offering.

Limited-time availability implies value because people have learned over the course of their lives to associate limited-time events with scarcity and price deals. The evidence that exists suggests that limiting a consumer’s opportunity to obtain a service makes the service more attractive and affects value perceptions.

As consumer shopping behavior changes, we need to change the way we advertise to them. Almost everyone understands that advertising that was effective in the 1950s will not necessarily be effective today. And for that reason, two professors of marketing from Southern Methodist University in Dallas did extensive research into reference pricing as it relates to current advertising practices and shopping behavior.

They analyzed 13,594 newspaper retail advertisements and found that it is uncommon for reference pricing to be used alone in advertisements: 87.2 percent of the advertisements that had reference pricing also included limited-time availability (i.e. “One week only!”) or sale announcements in the headline or copy.

Using dual-process theories of persuasion as a conceptual framework, the researchers conducted three field experiments that compared the conditions under which the use of limited-time availability and sale announcements in advertisements that featured reference prices affected consumer price perceptions and store shopping intentions.

Regularly: $5.99. Now: $3.59.

Sale! One Week Only!

Most of us have used variations of one or both of these headlines in our advertising. The top headline features reference pricing, in which a current lower price is compared with a former, higher price.

The bottom headline features scarcity — specifically, the limited-time availability of the sale offer. The exact wording and arrangement of each headline represents information and value cues that are intended to favorably influence customer price perceptions.

The question then becomes: does this information achieve its intended effect, and is there a difference in the effect when customers are or are not “in the market” for your services?

Also, does the use of multiple value cues improve or have no effect on price perceptions?

Their professors’ research explored these questions and examined why and when commonly used limited-time availability and sale announcements affect customers’ attitudes about your prices and intentions of shopping at stores whose advertising used reference pricing.

The 13,000-plus advertisements examined were from four major U.S. newspapers — The Chicago Tribune, The Dallas Morning News, Los Angeles Times, and The New York Times — over a six-month period.

The research examined the possibility that reference pricing and limited-time availability have inherent differences in their information-processing requirements. Thus, customers who are actively shopping versus those who are not actively shopping for the services featured in an advertisement respond to them differently.

In particular, the full value implications contained in reference price information require more thought and effort and, thus, greater involvement than a limited-time sales cue.

Using the dual-process theory of persuasion, the researchers were able to determine when this technique resulted in more favorable price attitudes and store shopping intentions.

When consumers were not actively shopping for a particular service, a limited-time price reduction or a sale announcement affects price perceptions and shopping intentions, but the size of the reduction, represented by reference prices, does not. When consumers are actively shopping for a service, both reference prices and limited-time offerings favorably affect price perceptions and shopping intentions.

The reference price results can be understood by recognizing that comprehension of the value implications of those prices requires a level of processing effort that exceeds the level that people typically expend when viewing advertisements for services that they do not have an immediate need for.

When used by itself, reference price advertising results in favorable price perceptions and store shopping intentions only among consumers who are shopping for a particular service.

Reference pricing is an effective persuasion strategy among consumers who are of the greatest interest to drycleaners, namely, those with an immediate need for their services.

Consumers who lack an immediate need do not process the implications of reference prices in drycleaning advertisements to the degree necessary to grasp the value implications. However, drycleaners might still consider using reference pricing to appeal to a broader audience.

The value in marketing to consumers without an immediate need for your services is in the likelihood of future, rather than immediate, sales being generated by associating the drycleaner with favorable pricing practices in the minds of consumers.

Reference pricing paired with limited-time availability results in more favorable price perceptions and store shopping intentions than the use of either technique alone among consumers who are shopping for a particular service.

Insight regarding this point is shown by the finding that reference pricing and limited-time availability are used together in retail advertisements more frequently than reference pricing is used alone.

As a general statement, the joint use of reference pricing and limited-time appeals is advisable because the effects of the two techniques appear to compensate for each other under different conditions. Specifically, reference price effects are significant when consumers are shopping for a service.

One important finding of this study was that sales announcements in reference price advertisements appear to have no drawbacks.

The potential value of a sale being presented to disinterested consumers should not be underestimated, especially because it does not lower evaluations of consumers who are currently in the market. Sales actually have the potential to convert non-shoppers into shoppers.