Is that Deal Worth my Time? The Interactive Effect of Relative and Referent Thinking on Willingness to Seek a Bargain

Abstract

Prior research on relative thinking has suggested that the willingness to seek a bargain depends not only on the absolute value of the bargain but also on the price of the product. For example, a discount of $10 seems more appealing on a product whose regular price is $20 than a product whose regular price is $60. By invoking the interactive role of consumers’ reference prices, the authors delineate the specific conditions under which the same $10 discount can seem less appealing when the price is $20 than when it is $60. They present a formal model that simultaneously incorporates the effects of relative and referent thinking and yields novel predictions, which are supported in four laboratory experiments. Their results reveal that deviation from the reference price determines when relative thinking holds and when it gets reversed. Specifically, the relative-thinking effect holds when the actual price is the same as expected, it reverses when the actual price deviates from the expected price, but it emerges again when deviation from the expected price becomes extreme. The authors conclude with the theoretical and managerial implications of their findings for marketing activities, such as the allocation of sales promotion budgets.