The Relative Influence of Pioneer and Follower Pricing Strategy on Reference Price and Value Perceptions of Pioneer and Follower Brands

Purpose – The purpose of this paper is to integrate literature in the pioneer brand advantage area with the literature on reference prices to examine how reference prices work in a pioneer and follower brand context. There is evidence to suggest that pioneers have a psychological advantage over follower brands, yet how that manifests in terms of reference price effects is not fully understood. The study tests whether the pioneer price and follower price have equal influence on reference prices, or whether the pioneer has a stronger influence.

Design/methodology/approach – This research uses a longitudinal experiment to simulate a market of a pioneer brand followed by follower brand, and measures the relative effects of pioneer and follower prices on reference price, value perceptions and purchase intentions. This approach allows greater confidence in the causal nature of the findings.

Findings – The results indicate a clear and strong causal effect for the pioneer’s price on price and value perceptions of the pioneer and follower, whereas the follower’s price only seems to influence perceptions of the follower, not the pioneer. This suggests that consumers overweight the price of the pioneer brand (as exemplar) in the category, and reference price perceptions are systematically biased in its direction. However, these effects were stronger for the more innovative product category being examined. For a less innovative pioneer this effect was not so strong. These findings imply that reference price is brand specific but the more innovative the pioneer brand the more influence it has on reference prices.

Research implications – These findings are consistent with and extend the literature on pioneer advantage by suggesting that the pioneer can define ideal levels of objective attributes such as price, rather than just defining the ideal attribute combination of subjective, less discernible attributes. This highlights and presents a more complete picture of the natural advantages to product innovation. It also implies the need to consider the multi-faceted nature of reference price in measurement and research.

Originality/value – A number of studies have examined reference price effects in existing and established product categories. Yet few studies have examined reference price effects in new product categories despite calls in the literature to do so. This study is one of the first studies to examine reference price effects in new product categories and contributes by integrating the literature on pioneer brand advantage with the literature on reference price by examining asymmetric pricing effects between pioneer and follower brands in new product categories.