Experiments Testing the Effectiveness of Purposeful Anchoring on Reference Price in the Context of Public Leisure Services

On average, approximately one-third of the operating costs of local park and recreation agencies in the United States are recovered by self-generated revenues (Crompton & Kaczynski, 2003). The primary source of these revenues is user fees. Maximizing revenues from users by raising prices, frequently arouses controversy from two sources: Those who contend leisure services should be viewed as welfare programs and subsidized accordingly, and by users protesting against having to pay more. Nevertheless, informal conversations with managers and the pervasive number of sessions on financing at professional meetings suggest there is continuing political pressure to raise more revenue from fees.Traditionally, the neoclassical economic concepts of supply, demand and utility provided the guiding conceptual framework for pricing decisions. This is a good general framework. If the price of a service goes up, usually fewer people will use the service. However, the framework assumes that when people evaluate a price, (a) their thinking is logical and rational, (b) they invariably seek to maximize utility, and (c) they act independently on the basis of full and relevant information.Over the past three decades, there has been growing recognition that the traditional approach is incomplete. Observations of reactions to pricing decisions regularly contradict the assumption of rationality, suggesting exceptions to it are the norm rather than atypical. People often make decisions which are systematically and substantially different from those predicted by the traditional economic model.Hence, there has been a movement to supplement and enrich the neoclassical model, by embracing a cognitive processing approach that considers the reactions and behavior of individuals to a given price or change in price (McCarville,1990). Cognitive processing is the manipulation, transformation or reorganization of information (Janiszewski & Wyer, 2014). The neoclassical economic principles provide the skeletal structure for making price decisions, but understanding likely cognitive responses to price changes is central to ensuring the changes are consistent with users' expectations, thus avoiding negative reactions.The challenge for managers and elected officials is to establish the "perfect" price as defined by Arnold Meltsner over 40 years ago:The "perfect" price is not one where the payer gets the benefit, or where service levels are determined, or where there are no income distribution effects. For the local official, the perfect user charge may have these features, but of overriding importance to him or her is whether the public will resist paying for the service (Meltsner, 1971, p. 271).The key to accomplishing this revolves around the concept of reference price. The experiments reported here were designed to test whether anchoring can be purposefully used to change people's reference price and, thus, ameliorate resistance to a price that would otherwise be outside their reference price.Over 40 years ago, Monroe (1973) pointed out that users of services acquire, observe, or experience price information, store it in memory, and use it as an internal reference against which a judgment is made regarding the acceptability of a new price. Thus, "New price information is compared to the reference price and this determines an individual's assessment of whether the new price is too low, too high, or about right" (Monroe & Petroshius, 1981, p. 45).Reference price is shaped by the interactions of three classes of stimuli: An individual's residual knowledge; a community's prevailing equity criterion; and the context in which a pricing decision is made (Crompton, 2011). Residual knowledge is the summation of an individual's past experiences. It may accrue from previous use of an agency's service, use of a similar service from another supplier, or from external sources such as the social group or promotional channels. …