Impact of Overlapping Price Ranges on Psychological Price Perception: Revisiting The Range Theory of Pricing

Abstract

The context in which a product is seen has an impact on the behavior of consumers. Specifically the impact of the context provided by the most and least extreme values, i.e., the range of stimuli presented has been well documented. In the pricing context, the range theory posits that an individual’s evaluation of a product’s price depends on the range of prices observed. Prior research on range theory has demonstrated the effect of a single price distribution (by varying the range and frequency of values within the distribution) on consumer product and price evaluations. In this research, we examine a more realistic situation in which a consumer has to evaluate a product’s price in the presence of two or more price distributions whose anchors (end points) overlap. A consumer has to take into account two or more end points simultaneously to make judgments. Based on the tenets of ‘Regret Theory’, we develop ‘the overlapping ranges hypotheses’ and design a series of experiments to provide empirical evidence. We propose using the ‘eye-tracking method’ as a tool to illustrate the cognitive process in evaluating the overlapping price ranges. We develop a boundary condition for the ‘overlapping ranges hypotheses’ and argue that goal-directed behavior will inhibit the consumer from considering multiple ranges simultaneously. Finally, we consider multiple attributes of a product and take into account attribute tradeoffs across price ranges. Across five studies we provide experimental evidence supporting our hypotheses. Findings of this study have significant theoretical and managerial implications.