As mentioned in prior introduction, this research investigated the impact of product-line advertisement on reference price. Considering different kinds of advertisements would bring varied effects, it is better to classify advertisements and compare their impact on reference price. Researchers subdivided advertising into thinking/feeling ads (Cohen and Archi 1991; Friestad and Thorson 1993) or informational/ transformational ads (Puto and Wells 1984). Basically, they defined thinking/informational ads as an advertisement giving consumers information about benefits to tell them the reasons of purchase. Comparatively, feeling/transformational advertisement is defined as an advertisement let consumers perceive the image after they use the product.
FIGURE 1. Conceptual Framework
Distinguishing each advertisement into informational or transformational type is not easy while nowadays advertisements often include both elements. In this research, the advertisement which mainly describes the product functions was used to represent the informational advertisement and the brand advertisement which emphasizes brand personality and image was used to represented transformational advertisement.
Hypotheses and conceptual model were developed toward brand advertisement and informational advertisement relatively.
2.1 Brand Advertisement and reference price
Brand image is defined as “the set of beliefs held about a particular brand,”
(Kotler 1988) and Keller (1993) described when customers react more favorably to marketing activities the same with other competitors, it is said to have positive customer-based brand equity. It is attributed to a fictitiously named or unnamed version of the product or service. When brand equity enhances, it may result in at least three forms: price premium, increased market share, and less costs of introducing new products (Aaker 1991). Therefore, this research argued that if price premium which causes by brand equity manifests, it may increase the consumers’ evaluation of product and result in the increase of reference price.
FIGURE 2. Conceptual Model of the Impact of Brand Advertisement on Reference Price
Figure 2 shows the conception of the impact of brand advertisement on reference price. Brand advertisement is usually designed to deepen audiences’ impressions on brand and convey a specific image. Sucessful brand advertisement may let consumer have (more) positive affections and brand images. Through an brand advertisement, the positive evulation of brand could be usually built and spread to those products underlying the same brnad name. Sequentially, the perceived vaule of products is enhanced. Since there were rich studying discussing brand (product) extensions and their brand associations(Aaker and Keller 1990, Loken and Roedder 1993), the strong association between brand equity and perceived value of products is especially expected within internal the product line. Besides, reference price is constructed by prior purchase experience and may be moderated by current purchase environment or context (Thaler 1985); we predicted reference price may increase while perceived value is created through brand advertisement within both vertical and horizontal
Brand Ads Brand Equity Perceived Value Reference Price
product line.
As discussed, the presence of a brand advertisement may give rise to positive brand equity, be spread to other product through their relationship of product line, and then result in the increase of reference price. On the basis of this model, following hypotheses regarding the main impact of brand advertisement on reference price are offered.
H1a：Within vertical product line, brand advertisement with high-end product (low-end product) will result in higher reference price toward low-end (high-end) product buyer.
H1b：Within horizontal product line, brand advertisement with one certain product will result in higher reference price toward the buyers who would like to buy another product belonging to the same product line.
Despite the reason of brand association supporting that a brand advertisement may raise the reference price of product within product line simultaneously, some moderating factors still should be concerned. First, Yovovich (1988) pointed out the introduction of the low-end Cadillac diminished whole Cadillac brand equity. Some studies also found that consumers perceive less brand equality when a low-end product is put into the product line (Loken and Roedder 1993, Sullivan 1990). On the other hand, high-end product is usually thought as a signal of the quality of whole product line or high brand equity. Considering some mutual effects between high-end and low-end product, this research assumed the influence of the brand advertisement with high-end or with low-end on reference price should be different.
Prior research revealed that brand price premium is significantly positively correlated with the quality of the “lowest-quality product” in the product line of lower quality segments, and correlated with the quality of the “highest-quality product” in the product line of upper quality segments. However, the positive relationship would be moderated if the products in product line are greatly different in quality (Taylor, Karl and David 1998). Therefore, this research indicated the impact of brand advertisement with low-end product will result in less increase of reference price than the ads with high-end product. In other words, the high-end product buyer who sees the brand advertisement with “low-end” product may increase his reference price, but the range of increase of reference will be relatively less than that of the low-end product buyer who sees the brand advertisement with “high-end” product. The second hypothesis is that:
H2：The impact of brand advertisement with low-end product will result in less increase of reference price than the ads with high-end product.
2.2 Informational Advertisement and reference price
Informational advertisement mainly provides the information about product attributes and benefits in relatively rational way while transformational advertisement offers a personality, an image and tries to reflect consumers’ needs. Attitude theory was applied in this research to investigate the relationship between informational product-line advertisement and reference price.
Attitude theory
Fishbein and Ajzen (1975) defined a person’s attitude as a function of his salient beliefs at a given point of time and given situation. Salient beliefs were mainly concerned as attributes of a brand or a product for marketing researchers. In Fishbein’s attitude model, overall evaluation or attitude of a concept/product/brand is described as the sum of a set of evaluation of salient beliefs with individual weight.
beliefs.
However, the set of salient beliefs Fishbein’s attitude model is not always the same, even for the specific concept (Fishbein and Ajzen 1975). The construct of salient beliefs or the strength of a salient belief may modify and change the whole evaluation. Beliefs can be modified in three ways: altering the evaluation of belief (ei), changing the strength of a salient belief (bi), or creating a new or delete an original salient belief.
FIGURE 3. Conceptual Model of the Impact of Informational Advertisement on Reference Price Informational Ads Salient Beliefs
of Product
Perceived Evaluation
Reference Price
Since informational advertisement emphasizes some specific product attributes toward consumers, it may influence the construct of salient beliefs, according to the view of attitude theory. In other words, if an advertisement strongly promotes the internet function of cellular phone, the part of audience, who identify themselves with ads, will add the internet function as their new salient belief(s) or enhance the strength of their original salient belief in internet function. Figure3 shows the relationship between informational ads and reference price.
Therefore, when a low-end product buyer sees the informational advertisement of high-end product within the same product line, he may be influenced to add more salient beliefs or increase the weight of salient beliefs, which is emphasized in high-end product ads, into his own attitude/evaluation model. This research suggested that the final evaluation of low-end product may decrease in the new attitude model, because the strength of some salient beliefs may increase, but the evaluation of salient belief may apparently decrease or become negative after comparing with high-end product. The same situation was also predicted in horizontal product line. On the contrary, the informational advertisement of low-end product will raise the high-end product buyers’ appreciation of high-end product, due to the increase of evaluation of salient beliefs in the model caused by compared the conditions with low-end product in ads. As the change of product evaluation will reflect on reference price, there hypotheses are summarized as follows:
H3a：The informational advertisement with low-end product increases the reference price toward high-end product buyers.
H3b： The informational advertisement with high-end product decreases the reference price toward low-end product buyers.
H3c：The informational advertisement with one certain product in horizontal product line decreases the reference price toward consumers who would like to buy another product belonging to the same product line.
Evaluability of Attribute
Hess (1996) classified the product attribute into two types. One type of product attribute is hard to evaluate the performance of quality for consumers when they do not have comparable information, called “hard-to-evaluate attribute”; another type is easy to evaluate the performance of quality even when consumers evaluate without related comparable information, called “easy-to-evaluate attribute”. Hess(1996) explained the effect of preference reversal with evaluability hypothesis and suggested that if the target product owns a better hard-to-evaluate attribute than others, letting consumers compare target product with other products may highlight the advantage of
target product and let consumers notice it. On the contrary, if the target product equips a better easy-to-evaluate attribute, the better way of exploring the information of product attribute is letting consumers judge the product attribute singly, rather than giving them comparable information.
It is common to use hard-to-evaluate and easy-to-evaluate attribute in informational product line advertisement. By the literature of evaluability hypothesis, this research proposed the type of product attribute may a moderator of relationship between informational advertisement and reference price.
H4：Informational advertisement with hard-to-evaluate product attributes results in more change of reference price than that with easy-to-evaluate product attributes, no matter within vertical or horizontal product line.