Consumers' Interpretations of the Semantic Phrases Found in Reference Price Advertisements

Consumers are frequently presented with a higher reference price tn compare with a lower advertised selling price. The research on reference prices has traditionally been conducted based on the implicit assumption that consumers' interpretations of a given semantic phrase, e.g., "Regular Price / Sale Price," are consistent across all consumers, but this fundamental assumption has never been tested. Guidelines issued by the Federal Trade Commission and the Council of Better Business Bureaus, as well as regulations enacted by approximately half of all states, appear to be based on a similar assumption. However, given the variability among consumers' perceptions found in other areas of consumer research, it is reasonable tn expect that consumer interpretations of semantic phrases may vary. Given the potential variability, a pricing claim may be deemed informative or deceptive depending on the meaning the particular consumer attaches to the claim. This article presents a discussion of the vagueness in pricing claims as a step toward evaluating deception. ********** Advertisers often present consumers with commonly used semantic phrases such as "Regular Price," Manufacturer's Suggested List Price," and "Compare At" to label price offerings (Biswas and Blair 1991; Compeau and Grewal 1998; Lichtenstein, Burton, and Karson 1991). These reference price ads attempt to provide consumers with a higher price as a point of reference to enhance consumers' perceptions of value (Grewal, Monroe, and Krishnan 1998). An advertiser uses a semantic phrase to provide additional information by which the consumer can judge the price offer. For example, an advertisement with a "Regular Price/Sale Price" semantic phrase provides more information than an advertisement that presents just "Sale Price." Ideally, the consumer is better informed and makes a better purchase decision. However, there is also the possibility of misinformation from the added information. If the added information is vague in nature it may mislead the consumer. Vagueness can allow so many interpretations that it creates an inaccurate understanding in the mind of some consumers. Preston and Richards (1986, 605) talk about this in terms of "miscomprehension" which results in deceptiveness. Thus, it is unlikely that all consumers evaluate or interpret price comparisons the same. First, different semantic phrases may invoke different meanings resulting in between-phrase differences. For example, "Compare At" may not have the same meaning for consumers as "Manufacturer's Suggested Price." Secondly, within-phrase differences may occur between two consumers interpreting the same semantic phrase. Given the variability among consumers' perceptions found in other areas of consumer research, we would not expect consumers' interpretations of semantic phrases to be any different. This manuscript presents a discussion of the vagueness in pricing claims as a step toward evaluating deception. In the following section a discussion of the current state of the regulation of reference price advertising is provided. It is argued that variation among consumers' interpretations is an important issue for public policy makers to consider in developing guidelines for consumer fairness. An examination of consumers' interpretations of semantic cues tests the assumption that consumer's interpretations do not vary. We demonstrate that semantic cues do indeed hold different meanings for different consumers. PUBLIC POLICY BACKGROUND Semantic cues may inform or deceive the consumer depending on how consumers interpret them. The "courts have determined that if a statement in an ad lends itself to more than one interpretation by the ordinary recipient of the ad, and one of those interpretations is deceptive, the representation will be construed to be deceptive" (Thompson Medical Co. v. FTC 1986). The FTC over the years has increasingly examined consumer studies, like those presented here, to interpret implied claims (Petty 1992; Petty and Kopp 1995). …