The Impact of Price Anchoring on Consumers' Valuation of Digital Goods

Abstract

This study examines the role of reference prices as set by different sources in influencing users’ motivation to pay for digital goods. Prior research has shown that a firm can best capture the heterogeneous product valuations of buyers through the implementation of a flexible payment model such as Pay What You Want (PWYW). In the digital goods context, where a user may choose to not pay for a good at all (i.e. pay zero), the use of an external reference price can motivate payment by anchoring one’s decision about the price to pay. This study tests the influence of the source and the level of reference prices on consumers’ willingness to pay in a controlled lab experiment with 868 participants, in the context of purchasing digital songs. We report the results of ANOVA analysis, t-tests and regression analysis and show that a low (high) reference price leads to a lower (higher) willingness to pay than a user’s internal reference price. Interestingly, when the reference price is determined by the site — when it represents the site’s recommended price — it increases one’s willingness to pay as compared to when the price is determined by a social group — when it represents the price paid by other users. Moderation effects are also reported.

Keywords: Digital Goods, Pricing Scheme, PWYW, Reference Price, Normative Behavior