Customers Evaluate Prices Through Comparisons

You compare prices to past prices, competing prices, and adjacent numbers.

Shopper holding two packages of a product: One is $19, and the other is $20


You see a carton of eggs for $3.

Is $3 a good deal? How can you tell? What’s happening in your brain?

Answer: Reference prices.

You compare $3 to a “standard” price that you derive from:

  • Previous Prices. How much were eggs last time?
  • Advertised Prices. What price were you promised?
  • Estimated Price. What price were you expecting?
  • Adjacent Prices. How much are competing eggs?
  • Nearby Numbers. Any numbers in the vicinity?

You merge those sources into a single magnitude called a “reference price.” You then compare this reference price to the current product (see Briesch, Krishnamurthi, Mazumdar, & Raj, 1997; Mazumdar, Raj, & Sinha, 2005).

  • Briesch, R. A., Krishnamurthi, L., Mazumdar, T., & Raj, S. P. (1997). A comparative analysis of reference price models. Journal of Consumer Research, 24(2), 202-214.
  • Mazumdar, T., Raj, S. P., & Sinha, I. (2005). Reference price research: Review and propositions. Journal of marketing, 69(4), 84-102.