First Faculty Advisor
Reference; Prices; Outliers; Consumer; Choice; Marketing
This research investigates the effects of an extreme value (outlier) on a consumer’s reference price, and ultimately, the consumer’s choice. In a controlled experiment two hundred Bryant University students were presented with a choice task to select a cell phone plan from a set of plans described by price and six other features. Some choice sets contained a moderate outlier, an extreme outlier, or both a moderate and extreme outlier. Students who saw any of the outliers expected to pay an average of $4.40 more and ultimately chose a higher priced plan. However, there was no significant difference between reference price change or plan choice and the type of outlier seen. In addition, even students who recognized that the outlier was an inferior choice were still influenced by its presence in the choice set. The results of the study display two major outcomes useful to marketers. First, consumers will be willing to pay more for a product or will choose a product that costs more, if they see any type of outlier when making a choice. Second, irrelevant information is encoded, processed and used in decision making even when consumers recognize that it should not be used.