A Brand Choice Model Considering Consumers' Reference Price

Abstract

This empirical research is focusing on how consumers use their internal reference price when they make a brand choice. Past research in grocery store showed that consumers' price knowledge depends on in-store marketing activities like a special price. Author tried to build a price memory based brand choice model and compared with other brand choice models using scanner panel data. As a consequence, the fitness of the price memory based brand choice model is better than the other models. This is because this model considered consumers' price knowledge as a stochastic model and consumers' asymmetric response to price. This empirical research shows that consumers do not change their internal reference price if they buy the brand with normal price. But when they purchase the brand with a reduced price, they will replace their old internal reference price by a new reduced internal reference price. This finding will beuseful for managers when they try to plan price promotions or price settings.