The Role of Brand Familiarity in Internal Reference Price Formation: An Accessibility-Diagnosticity Perspective

Very little research focused on the process by which internal reference prices are formed and used by consumers making price judgments. The accessibility-diagnosticity model is proposed as a parsimonious theoretical framework that resolves some conflicts in prior research and provides a foundation for future research on internal reference prices. This model is used to evaluate the role of brand familiarity and involvement on the formation and use of internal reference price standards. Empirical results show that (1) involvement is a better predictor of confidence in internal reference prices than brand familiarity, and (2) in forming internal reference price estimates, the offering price is discounted more for unfamiliar brands than familiar brands, but only when involvement is low. When involvement is high, the effect of brand familiarity on reference price estimates disappears. Implications for future research on internal reference price effects and for promotion practice are discussed.