Dholakia (2005) Reference points, choice, online bidding

Dholakia (2005) Reference points, choice, online bidding -...

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Vol. 24, No. 2, Spring 2005, pp. 206–217 issn 0732-2399 ± eissn 1526-548X ± 05 ± 2402 ± 0206 inf orms ® doi 10.1287/mksc.1040.0099 © 2005 INFORMS The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior Utpal M. Dholakia Jesse H. Jones Graduate School of Management, Rice University, 6100 Main Street-MS 531, Houston, Texas 77005-1892, [email protected] Itamar Simonson Graduate School of Business, Stanford University, 518 Memorial Way, Stanford, California 94305, [email protected] S ellers often explicitly suggest to buyers that they compare one option to other (reference) options. Building on the notion that loss aversion is more pronounced when comparisons are explicit rather than implicit, we propose that the mere fact that consumers are explicitly told to make particular comparisons induces more risk- averse, cautious choice and bidding behavior. This proposition was supported in a ±eld experiment involving real online auctions, in which comparisons among listings either were done spontaneously by bidders or were encouraged using an explicit instruction to compare the focal auction with adjacent listings. Results showed that explicit reference points (1) diminished the influence of adjacent auction prices on the focal auction’s price; (2) led participants to submit fewer, lower, and later bids; (3) increased the incidence of sniping; (4) decreased bidding frenzy; and (5) decreased the tendency to bid on multiple items simultaneously. The impact of explicit compar- isons on risk-averse behavior was further tested in a very different context using a laboratory choice experiment. In that study, explicit instructions to compare option sets increased the tendency to choose the compromise, low-risk, and all-average alternatives. We discuss the theoretical and practical implications of this research. Key words : explicit reference points; comparisons; consumer choice; online bidding behavior History : This paper was received October 7, 2003, and was with the authors 4 months for 3 revisions; processed by Ravi Dhar. Thousands of promotional messages and persua- sion attempts are aimed at consumers on a daily basis, and consequently, they pay attention to rela- tively few—making it very dif±cult for marketers to break through the clutter. Given these challenges in attracting attention and generating consumer involve- ment with marketers’ persuasion attempts, subtle messages that require consumers to make the “right” comparisons and draw their own conclusions can often be ineffective. Thus, marketers typically sacri- ±ce subtlety for the sake of getting through. In par- ticular, instead of relying on the consumer to select the “right” reference points, marketers often provide explicit reference points that make their own offerings appear more attractive and invite consumers to make comparisons. For example, drugstore shelf signs often encourage consumers to compare the store brand’s price with the corresponding leading national brand’s price. However, what are the consequences of explic-
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This note was uploaded on 03/06/2012 for the course ECONOMIC 203 taught by Professor Veiga during the Spring '12 term at Universidad Complutense de Madrid.

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Dholakia (2005) Reference points, choice, online bidding -...

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