Role of Reference Price on Price and Quantity: Insights from Business-to-Business Markets

Abstract

The authors study the role of reference price in a setting in which both the price and the quantity are set through personal interaction during the transaction process, such as in business-to-business markets. Most studies on reference price in the marketing research literature focus on consumer packaged goods, for which prices are typically fixed during the shopping trip and the transaction does not involve personal interaction with a salesperson. In this study, the authors study the effect of reference price on the quantity purchased and also on the pricing outcome of the transaction. They estimate a simultaneous equation system of both pricing and quantity purchased. The findings are as follows: (1) Reference price effects exist on quantity purchased and on the transaction pricing outcome in business-to-business market transactions, (2) business customers react asymmetrically to price increases and price decreases, and (3) salespeople have their own reference prices that affect the transaction price. The authors also find that customer experience with the salesperson might exacerbate the loss aversion effect. They conclude by discussing the underlying reasons behind these findings and their managerial implications.

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