Why are discounted prices presented with full prices? The role of external price information on consumers' likelihood to purchase

Apart from being a cost, prices inform consumers on the quality of goods. To retain informative power, discounted prices are often presented together with their original value as an External Reference Price (ERP). Observing the impact of the ERP on consumer preferences using two contingent valuation surveys to wine consumers, the paper observes that the presence of both prices and ERPs guide consumer choices. In particular, ERPs shift the attention of consumers towards expensive products and high discounts, by providing information on quality and allowing for time-efficient decisions. Results show that ERPs: (a) have a positive impact on preferences, but less (in absolute value) than prices; (b) stimulate the choice of items with high price and large discounts; (c) make consumers revise their choices. The presence of an ERP can, in certain conditions, lead to a positive response to high prices. Crown Copyright (C) 2013 Published by Elsevier Ltd. All rights reserved.