The Role of Internal Reference Points in the Category Purchase Decision

Abstract

The authors study the role that reference effects play in the category purchase decision for consumer nondurable products. Category purchase behavior is represented by a nested logit model that is estimated on purchase records of shoppers in two Universal Product Code (UPC) scanner panels. A series of hypotheses are developed, modeled, and tested regarding the effects that internal reference points for product category attractiveness are likely to have on the decision to buy in a product category on a store visit. The authors hypothesize that the difference between a shopper's reference point for category attractiveness and the current level of category attractiveness will affect the purchase decision. In particular, the extent of purchase postponement caused by a loss (i.e., a negative discrepancy) should exceed the acceleration caused by a gain (i.e., a positive discrepancy). Reference effects on the category purchase decision are also hypothesized to interact with the shopper's familiarity with the store visited on a given trip. In particular, the impact of losses is predicted to be higher in unfamiliar than in familiar stores. The authors present model estimates and test results from two product categories (saltine crackers and liquid laundry detergent) and find all hypotheses to be supported.