Question

500 WORDS PLEASE

Explain what are: (1) Reference prices (2) Internal Reference Prices (3) External Reference Prices –Please give examples of internal and external reference prices.

Answer 1

1) Reference Price - Reference price is the price which the buyer or consumer is willing to pay for buying the product. It is the price which a person expects to pay based on past experience or knowledge. Consumers often establish reference prices by comparing with the competitors prices.

2)Internal reference price- Internal reference price is the price which a consumer is willing to pay based on his past buying experience or his knowledge about the product costs. For eg., A consumer is willing to pay 300$ for a television set based on his previous experience if he has bought a tv above 300$ or if the person knows the product manufacturing costs. So 300$$ becomes his internal reference price.

3)External Reference price - External reference price is the price which a are set by companies in order to influence the buying behaviour of the consumers. For eg. If the price of the dress quoted by a retailer is 300$ but he is giving a discount of 100$, people will feel that they are getting a discounted price and bargain at 200$. The positive feeling stays even if the cost price of the dress is 100$ because one feels that they are paying less than the reference price. External reference prices are often misleading and used by companies by luring consumers with discount.