Behavioral response to price: Data-based insights and future research for retailing

An important area of pricing research is behavioral response to price. Researchers have studied topics such as the psychophysics of price (the relationship between stimulus and response), willingness-to-pay, the price-quality relationship, and other topics. In this paper, an integrated review, critical analysis, and synthesis of the extensive extant research in four critical areas of behavioral response to price are examined: reference price, latitude of price acceptance, asymmetric price response, and perception of fairness in pricing. As an integral part of the review and analysis, the theoretical underpinnings of these four concepts are presented. Retailing decisions and strategies are directly related to consumer behavioral response to pricing policies: managers want to know what the width of latitude of price acceptance might be, or if there is heterogeneity in the loss aversion effect, and what the moderators of this effect could be. Our review, analysis, and synthesis yield a rich set of data-based insights. For instance, the width of latitude of price acceptance is 1.5 times the price variability, and the width is larger below the reference price. Additionally, loss aversion is robust across businesses, as well as categories and methods of study, but the specific estimates of the effect range from a low of 1.31 to a high of 3.5. Where applicable, the antecedents and moderators of these insights are investigated, such as: loss aversion is moderated by product knowledge (with greater knowledge, the effect is more attenuated), and, in revenue management retail businesses such as hotels and restaurants, by familiarity of pricing practices (greater familiarity, lower loss aversion effect).