How Do Price Range Shoppers Differ from Reference Price Shoppers?

Customers form different price perceptions according to how they process price information. Existing research demonstrates that the internal reference price (IRP) model and the external reference price (ERP) model explain a significant amount of the variation in customers' price perceptions and purchase behaviors. This study extends the reference price literature by introducing the Price Range (PR) model, which is based on Range Theory. According to the PR model, price judgments are based on a comparison of the focal price to the entire range of currently available prices. Our results demonstrate that the fit of a structural heterogeneity finite mixture model improves when the PR model is included along with the IRP and ERP models and that the PR model explains a substantial proportion (26%) of customers in the toilet tissue category. We also conduct analyses to infer how the three price perception segments respond to promotional efforts. The profile analysis indicates that the IRP segment is composed of "brand shoppers" who remember explicit price information for their preferred brand(s) and switch brands much less frequently than the other two segments. The ERP segment is composed of "effort-minimizing shoppers" who do not remember past prices, respond significantly less than the other two segments to feature and display information, and have a modest level of brand preference. The PR segment is composed of deal-prone "price shoppers" who have the lowest brand loyalty and who respond significantly to both featured and displayed alternatives. We combine these insights to develop a simulation, which demonstrates that a multi-segment promotion strategy can be more effective than any blanket promotion. The multi-segment promotion strategy uses a combination of promotion tools, each of which targets a specific price perception segment. The response to a multi-segment strategy is greater than the response to a blanket promotion strategy that treats all customers uniformly