Ambiguity and Exaggeration in Price Promotion: Perceptions of the Elder and Nonelder Consumer

INTRODUCTION The FTC regulations entitled Part 233 of the Code of Federal Regulations, "Guides Against Deceptive Pricing," were developed to ensure that consumers would not be misled by price advertising (FTC 1986). The regulations specifically address strategies for reference and/or objective price claims and suggest appropriate ways to communicate discount price information to consumers. Opposing viewpoints regarding reference price advertising were discussed as early as 1981 (Blair and Landon 1981). Opponents have argued that such pricing practices can mislead the consumer, whereas defenders argued that consumers will not be misled because they have learned to discount reference price claims. Researchers have found that, while consumers are skeptical of advertised sale offers, they are nevertheless influenced by exaggerated savings claims (Biswas and Blair 1991; Lichtenstein, Burton, and Karson 1991; Urbany, Bearden, and Weilbaker 1988). Although reference pricing is still used by many marketers, a more ambiguous type of price advertising, tensile price advertising, has been increasing in popularity. While reference price advertising usually offers concrete savings, tensile price advertising's use of semantic cues, such as "Save up to X%," or "Save X% or More," or "Save X% to Y%," makes the stated savings or discount ambiguous. Mobley, Bearden, and Teel (1988) and Friedmann and Haynes (1990) found 22.7 percent to 32.9 percent of newspaper advertisements claimed discounts using tensile price advertising. We surveyed a local newspaper for a month in 1995 and found that 45.1 percent of display discount advertising used an ambiguous, tensile price format. These results indicate that the proportion of tensile price advertising is increasing without appropriate regulations or rules. The focus of this research is to examine the influence of plausible and implausible or exaggerated tensile price claims on consumer perceptions and behavioral intentions. To our knowledge this is the first time this promotional technique has been examined from a public policy perspective. Responses from two consumer segments, nonelder and elder, were compared separately for a product and a service offer. The elder segment was included in light of research indicating that elder consumers may be more susceptible to ambiguous advertisements due to their cognitive processing skills (Gaeth and Heath 1987). With population projections for the over 64-year-old consumer set at 29.9 percent between 1996 and 2020 (Statistical Abstract of the United States 1996), and "real-world" evidence that indicates the elder segment may be less price-discriminating and more likely to be "taken," it would seem necessary to understand how ambiguity and exaggeration in discount advertisements affect elder and nonelder perceptions of the deal offered and behavioral intentions toward the deal. Results may determine if a need exists to update current pricing rules to include tensile price advertising forms. The groundwork for this examination begins with an overview of the current research on tensile price claims. To present a complete picture, we examine the theoretical process of anchoring and adjustment (Kahneman and Tversky 1979; Slovic, Fischoff, and Lichtenstein 1982; Tversky and Kahneman 1974) and its influence on perceptions of tensile price cues. Literature on perceptions of advertising and price by elder consumers is briefly reviewed as well as the sparse information on pricing of services. The results of the two studies are then presented with a discussion of the results and their implications for public policy formation. CONCEPTUAL BACKGROUND Price Discount Claims Tensile price claims. A tensile, price cue or claim is used when an advertiser has merchandise available for sale at varying levels of savings. The claim, although founded on factual savings available, uses vague wording, often with no mention of specific models or merchandise or reference price, thus limiting the specificity and usefulness of the information (Mobley, Bearden, and Teel 1988). …