Reference prices— prices that buyers carry in their minds and refer to when looking at a given product. The reference price might be formed by nothing current prices, remembering past prices, or assessing the buying situation. Sellers can influence or use these consumers’ reference prices when setting price. For example a grocery retailer might place its store of bran flakes and raisins cereal priced at $1.89 next to Kellogg’s Raisin Gran priced at $3.20. Or a company might offer more expensive models that don’t sell very well to make their less expensive but still high-priced models look more affordable by comparison.
Definition