Incorporating Perceived Risk into Models of Consumer Deal Assessment and Purchase Intent Charles M. Wood, University of Missouri-Columbia Lisa K. Scheer, University of Missouri-Columbia ABSTRACT This paper attempts to integrate two streams of pricing re- search dealing with perceived risk and assessments of "the deal" within the context of an expanded model based on the Dodds and Monroe (1985) model of perceived vatue. A sampte of 245 consumers recorded their assessments of the value of the deal offered in a print advertisement, the perceived risk associated with the purchase, and their purchase intentions. The results indicate support for the basic expanded model. INTRODUCTION The marketing literature on pricing has been developing for over 20 years, beginning with Monroe's (1973) classic piece which established price as an important focus for both marketing practice and research. Since that time, much effort has been put into understanding consumer perceptions and response to pricing in a variety of contexts (e.g. Berkowitz and Walton 1980; Delta Bitta, Monroe, and McGinnis 1981; Shimp and Bearden 1982; Burton and Lichtenstein 1988; Urbany, Bearden, and Weltbaker 1988; Mobley, Bearden, and Teel 1988; Lichtenstein, Burton, and Karson 1991; Grewal, Gotlieb, and Marmorstein 1994). This paper inte- grates two streams of pricingresearch regarding perceived risk and assessments of "the deal" within the context of the Dodds and Monroe (1985) model of perceived value. It also attempts to bring coherence to the numerous measures currently being used in pricing research. Finally, it offers a model for future testing and research. THEORY Model and Relationship to Previous Research Much effort has been placed in the marketing titerature on defining, measuring, and predicting consumer assessment of mar- keting communications. Dodds and Monroe (1985) propose a modet of consumer evatuation of price, perceived quality, and perceived value. They suggest that consumer willingness to buy is affected by perceived value, and that perceived value is affected by both perceived quality and perceived monetary sacrifice. This model can be viewed, however, as including specific examples of broader concepts. We take a broader view in which perceived value results from an assessment ofthe tradeoff between: 1) the benefits the consumer receives in the deal at hand (one of which is product quality); and 2) the costs the consumer incurs to obtain those benefits (one of which is perceived monetary sacrifice). This perspective of benefits versus costs could potentialty encompass many aspects retevant to the consumer evaluation process. Figure 1 depicts a general model of perceived value and purchase inten- tion, an enhancement of the original Dodds and Monroe (1985) model. An examination of previous pricing studies suggests several possible "expected benefits" and "expected costs." Various potential benefits could be examined, such as per- ceived quality (Dodds and Monroe 1985). Other benefits previ- ously examined include product features (Wheatly, Walton, and Chiul977)and"desirabitity"(BerkowitzandWattonl980). Allof these benefits are part of the overall product evaluation the con- sumer makes; in this study we examine overall product evaluation. There are also a variety of potential costs, both tangible and intangible, that are associated with a product purchase. As for tangible costs, one coutd adopt the Dodds and Monroe (1985) approach and measure perceived monetary sacrifice, that is, the amount that must be paid to acquire the product. Altematively, we chose to examine the monetary outlay relative to expectations, that is, the actual selling price minus the expected selling price. Pros- pect theory (Kahneman and Tversky 1979) argues that consumer evaluation and buying behavior could be impacted greatly by the extent to which the ultimate monetary outlay differs from the expected basis point. In addition, the work on perceived risk in marketing (Shimp and Bearden 1982; Grewal, Gotlieb, and Marmorstein 1994) suggests that a consumer forms perceptions regarding the intangibte costs such as "psychic costs" in the form of anxiety, frustration, downtime, etc. as well as the performance and financial risk associated with a given product-price deal. Unlike the price, which is known with certainty and immediately paid, risk represents an uncertain, probabilistic potential future financial outlay. We therefore propose to examine how a broad expected benefit, product evaluation, and three cost factors — the monetary outlay retatlve to expectations, performance risk, and financiat risk —affect consumer evaluation of the deal and tiketihood of purchas- ing the product. Measures A variety of measures have addressed aspects regarding the assessment of the deat. However, there seems to be no consensus on the proper measures to use, and some scales appear to be measuring the same underlying construct. Numerous studies have examined how various presentations of price and product informa- tion impact consumer assessments of value and attitude toward the deal. For exampte, scates assessing the value of a deat have been used by a number of researchers under a number of names: "Value for the Money" (Berkowitz and Walton 1980); "Vatue of the Offer" (Delia Bitta, Monroe, and McGinnis 1981); "Perceived Value of the Deal" (Burton and Lichtenstein 1988; Lichtenstein, Burton, and Karson 1991); "Perceived Offer Value" (Urbany, Bearden, and Weilbaker 1988; Mobley, Bearden, and Teel 1988). Other measures focusing on consumer attitude regarding an advertised offer have also tieen developed: "Perceived Savings" (Berkowitz and Walton 1980); "Attitude toward the Deal" (Burton and Lichtensteln 1988; Lichtenstein, Burton, and Karson 1991). The measures developed by Burton and Lichtenstein (1988) make a distinction between the cognitive and the affective dimensionsof attitude toward the deal. We propose that these various scales alt tap the same underlying construct: Overalt evaluation of the deal. Thus, we include Evaluation ofthe deat in our modet, and examine its effect on the consumers' reported purchase intention. The setected measures were not intended to encompass the entire set of constructs relevant to deat evaluation, but to build upon prior research and to sift and ctarify the predominant measures previ- ousty used in pricing research. (See Appendix). To summarize, our hypothesized model operationalizes spe- cific examptes of concepts drawn from the generat modet of perceived vatue and purchase intention. It integrates two streams of research In risk and consumer vatue assessment, incorporating the effects of product evaluation, performance risk, financial risk, and monetary outlay relative to expectations on evatuation of the deat and, uttimately, on purchase intent. 399 Advances In Consumer Research Volume 23,© 1996