Description
We have discussed a variety of psychological effects that influence price sensitivity including prospect theory. There are a variety of effects relating to prospect theory (see chapter 2,3,4 slide 52-62). Please pick one of these effects, explain it and come up with a recent example of this effect you have witnessed recently or have been subject to.
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MKTG 673: Pricing
Value Creation, Pricing Structure, and
Value Communication
Professor Jim Salas, PhD
Agenda
• Team Updates
• Everyone on a team
• Due Today:
• Pricing Journal #1
• Questions about:
• Group Presentations
• Hot Topic
• Lecture: Value Creation, Pricing Structure, and
Pricing
• Group Project
• Group Formation
• Case: Medicines Co.
• Recap
Pricing a New Product
• There are multiple ways to approach pricing for a new
product:
• Cost-plus
• Competition-driven pricing
• Customer-driven pricing
• Minimum Return on Investment (ROI)
• Cost in use analysis
• Value in use analysis
• Need to move way from cost-based pricing to valuebased pricing!!!
The Strategic Pricing Pyramid
Value Co-Creation
• Co-creation not only describes a trend of jointly creating products or
services but describes a movement away from customers buying
products and services via transactions, to those purchases being
made as part of an overall experience-value in use.
• Value is co-created with customers when a customer is able to
personalize his/her experience using a firm’s product-service
proposition to a level that is best suited to get his/her job(s) or tasks
done.
Creating value for ugly?
• https://www.youtube.com/watch?v=qQQMygivn0g
Class Exercise
Value Pricing : Sales Training
Questions
• What would be the minimum you could charge to cover
costs?
• What could be the income/profit you would receive if your
firm did the full training for the client (like your firm
normally does)?
• Do you need to be concerned with what price potential
competitors might charge?
• Therefore, given your responses to the above questions,
what might be an appropriate licensing fee?
Price Variability in Autos
• Large variation of prices for a similar good within the
same category
• Tata Nano $2500
• Chevrolet Malibu $28,000
• Bentley Flying Spur $170,000
• a factor of 68 between the lowest price production car and
the highest price product auto
• What justifies the price difference: Benefits
• Benefits based pricing is a direct extension of the
economics of pricing
Price to Benefits Map
Bentley Flying Spur
BMW 7 Series
Perceived Price
• Price Boundary Theory
• Identify relevant competing alternatives
• Define the value differential
• Pricing accordingly
• The price to benefits map plots the position
of products in terms of perceived price and
perceived benefits….
• Visual representation of how customers
perceive the value trade off.
Lexus LS
Chevrolet Malibu
Tata Nano
Perceived Benefits
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pricing Areas
• Value Equivalence Line
• Where price increases proportional to
benefits increases
• Value Disadvantaged
• Priced higher than what would be
justified based on the measure of
benefits alone
Value
Disadvantaged
Perceived Price
• Value Advantaged
• Excess benefits beyond what is
captured in price
Value Equivalence
Line
Zone of Indifference
Value
Advantaged
Perceived Benefits
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Class Exercise: Price/Benefit Maps
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Benefit Sources
• Functional benefits
• physical nature or performance characteristics of the product
• Examples: Cars, jewel clarity and size, square footage &
neighborhood,
• Process benefits
• lowering transactional costs
• quicker, safer, easier, reduced search costs, etc
• Relationship benefits
• accrue to the customer from a mutually beneficial relationship
with the seller
• emotional connection to the brand or sales representative, loyalty
rewards, information provisions, – lower search costs or design costs.
New Product Positioning or Repositioning
• Key Pricing issue in Product Launch/Repositioning is where on the Price to
Benefits map should the product fit?
• Where is the customer addressable horizon?
• Customers from a higher price / higher benefit region?
• Customers from a lower price / lower benefits region?
• Where are the adjacencies from which the new product will take market share or
grow the market?
• What is the likely response of the nearest competitor?
• Is the new position defensible?
• Choices:
• Value Equivalence
• Value Advantaged
• Value Disadvantaged
• For Each, why would you take one stance vs. another?
Price Neutral
• Occurs when there is a opening in the Price to
Benefits map that is currently un-served
• From whom will you see a response, those
closest to you in the Price to Benefits map.
• Somewhat unlikely to have a strong
competitive response
• Will capture profits in proportion to benefits
• Safest from a pricing perspective. Puts
pressure on other marketing levers,
distribution and promotion, in driving volume
Perceived Price
• Pricing along the Zone of indifference
New Product
Perceived Benefits
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Penetration Pricing
• Pricing at a low level compared to level of benefits offered
• Using price as a means to gain market share
• Can come from increasing the level of benefits of a
product, but leaving the price unchanged, thus driving the
product into the value advantaged zone
• Potential competitive response
• Most likely direct response is a price decrease by
competitors,
• Less likely is a benefits increase, as these take time
through re-engineering the product
• Show who is most affected.
Perceived Price
• Easy from a promotion perspective, but can be deleterious
for the firm
• Substantial loss of potential profit
• Can incur a negative competitive response
Likely Competitive
Response is a Price
Decrease
New Product Priced
to Penetrate the
Market
Perceived Benefits
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Skim Pricing
New Product Priced to
Skim the Market
Perceived Price
• Pricing high with respect to competitors
comparable price to benefits offer
• Price in the value disadvantaged zone
• Skim profits from early customers with the
expectation of lowering prices later
• Perceived as a Safe move from a competitive
response perspective, however
• Can be a pricing error in terms of forgone
profits from missing volume target
• Provides insufficient motivation for the
market to purchase the product at the
higher price point, given the alternatives
• Use only if offer taps into a metric of benefits
not foreseen by most competitors
Perceived Benefits
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Psychological Influences on Price Sensitivity
• The Role of Non-Physical Influences on the
Perceptions of Alternatives, Value, and Prices
Quantitative Methods Alone are Insufficient for Pricing
Decisions
Value Pricing is hard: Subjective
• Value Based Pricing Techniques all suffer from an
inability to fully include subjective behavior
• Convincing customers of the value shifts the pricing
challenge to marketing communication and sales
professionals, who must confront certain decision
making biases of customers.
• Customer beliefs are under the influence of the firm
Influencing Price Acceptance
• There are numerous factors that influence how customers perceive
value and price.
• Many of these factors arise from deeper, psychological influences,
and perhaps even biologically evolutionary influences in their
development and expression in human behavior
• Rather than attempting to correct human behavior and make
people somehow more logical in our purchase decision making, it is
more usually efficient to
• Understand decision biases in purchasing behavior
• Uncover approaches to reducing psychological dissonance,
• Understand the limitations to pricing power
• And thus facilitate customer decisions to purchase
Brain as a Predictive Machine
• Current research in neuroeconomics is revealing many
intriguing insights into how humans think
• In one model, the human brain continuously generates predictions
about what to expect in the environment.
• For example, if you see a chair that you have never seen before, you
can still determine what it is, its function, approximate weight,
approximate price, and other such characteristics.
• To derive these expectations rapidly we rely on surprisingly little
information.
• Consider us as COGNATIVE MISERS relying on
HURISTICS to make decisions faster
Behavioral Effects that
Influence Price Sensitivity
•
True Economic Costs
1.
2.
3.
4.
•
• Prospect Theory
Shared Cost Effect
Switching Costs
Expenditure Effect
Difficult Comparison Effect
1.
2.
3.
4.
5.
6.
Perceptual Challenges
5.
6.
7.
8.
9.
Price Endings in 9s
Fairness Effect
Overconfidence in Future Economic Efficiency
Small Pie Bias
Promotional Influence
•
Losses Weigh Heavier than Gains
Inflection at the Point of Reference
Diminishing Sensitivity
Risk Aversion in the Positive Frame and Risk Seeking in
the Negative Frame
Utility Function from Prospect Theory
Prescriptions
Effects Related to Prospect Theory
11. Reference Price Effects
12. Endowment Effect
13. Anchoring
14. Comparison Set Effect
15. Framing Effect
16. Order Bias
17. End-benefit Effect
Shared Cost Effect
• Price sensitivity is reduced when customers use other people’s money
to pay for a product
• For instance, business travelers often receive full reimbursement for
travel expenses.
• Airline loyalty programs enable airlines to marginally increase prices
because the price is paid by the business but the choice of airline is
influenced by the traveler
• To a lesser degree, rebates to lower price sensitivity due to the partial
payment of the product through the rebate.
Switching Costs
• Economic Switching costs are any costs (opportunity
and direct) related to switch between suppliers.
• They arise from product-specific investments buyers
make, which may come derive from in monetary or
psychological factors.
• Product specific investments decrease price
sensitivity for existing customers
Switching Costs from
Product Specific Investments
• Complimentary goods
• A customer purchases an iPod and later purchases an iPod
docking station to listen to their music in the home. The docking
station is a complimentary good, and purchasing the docking
station makes the customer more likely to repurchase an iPod
upon the next purchase occasion.
• Learning
• A customer purchases Dreamweaver and learns how to make
websites. Switching to Pagemaker requires relearning.
• Engineering Costs
• A customer learns how to implement a specific chip for a specific
application. Changing the chip requires re-engineering, recertification, and other direct costs. (Product Yields / TQM)
• Brand Loyalty
Expenditure Effect
• The expenditure effect refers to the relationship
between the price tag and the willingness of
customers to shop around
• With large expenditure products, customers have an
incentive to search for alternatives and price compare in
order to reduce their expenditure.
• With products that are associated with smaller
expenditures, the financial incentive to price compare is
reduced while the search costs remain.
Difficult Comparison Influence
• By making product and price comparisons difficult,
marketers can increase search costs and the decision
making uncertainty of customers, thus discouraging
product switching and reducing price sensitivity.
Branded Commodities
• Aspirin
• Branded pain relief medicine and unbranded generic medicine contain the
chemically identical active ingredients.
• However consumers are reluctant to trust an unbranded supplier and tend to
have a higher willingness to pay for pain relief medicine.
• Branding itself makes inter-product comparisons more difficult and enables
higher prices.
• Whole Foods Pricing
• Quaker Oats: $3.49
• 365 Whole Foods Store Brand: $2.99
New Entrants vs. Incumbents
Market Share Fights
• Vonage vs. AT&T
• Incumbents like to make the price comparison more
challenging between offers, obfuscate the benefits and
price, thus increasing the information gathering challenge
for potential switchers and discouraging brand switching
• New Entrants / Attacker like to make the price comparison
explicit to enable decision making and brand switching
Behavioral Effects that
Influence Price Sensitivity
•
True Economic Costs
1.
2.
3.
4.
•
• Prospect Theory
Shared Cost Effect
Switching Costs
Expenditure Effect
Difficult Comparison Effect
•
•
•
•
•
•
Perceptual Challenges
5.
6.
7.
8.
9.
Price Endings in 9s
Fairness Effect
Overconfidence in Future Economic Efficiency
Small Pie Bias
Promotional Influence
•
Losses Weigh Heavier than Gains
Inflection at the Point of Reference
Diminishing Sensitivity
Risk Aversion in the Positive Frame and Risk Seeking in
the Negative Frame
Utility Function from Prospect Theory
Prescriptions
Effects Related to Prospect Theory
11. Reference Price Effects
12. Endowment Effect
13. Anchoring
14. Comparison Set Effect
15. Framing Effect
16. Order Bias
17. End-benefit Effect
Measured Behavioral Effects of Nine Endings
• Meaning
• Prices ending in nines tends to imply discounts.
• Prices ending in zeros are suspected to imply quality
• Poster shops vs. art galleries
• Cognitive Accessibility.
• Round numbers such as zero and five are easily perceived, remembered, and compared.
• Thus, zeros and fives may facilitate price comparison and lead to increased price sensitivity
• Underestimation effect by Left Right encoding
• With the Arabic numeral system, consumers encode numbers from left to right. Furthermore, the most
important digits are always on the left.
• Time pressed and cognitively busy consumers attempting to make decisions regarding value,
alternatives, and tradeoffs, and are encouraged to read only the leftmost digit and discard the
remaining digits as a means to save on mental energy and time.
• The result is an illusion is created which makes the $9.99 product appear much cheaper than $10,00
Measured Behavioral Effects of Nine Endings
• Framing effect.
• Pricing just below the round ending price can be framed as a round number with a
small gain
• The small gain may mildly encourages a purchase on a psychological basis
• It invokes “wins” in a mental bargaining with the vendor
• Pricing endings effects are culturally dependent.
• Price endings in fives were observed to be over represented in Poland shortly after
perestroika liberalized much of the soviet block countries. The Polish tendency for
fives has been attributed to the confrontational bargaining position of an ex-soviet
Poland that led Polish consumers to perceive the 9-ending prices as a loss above the
lower round number rather than as a gain from a higher round number
• In contrast, price endings in eights were found over represented in Asian and
Japanese countries, where the number eight represents luck and prosperity
Fairness & The Brain
• Findings in brain physiology, especially evolutionary neuroscience,
show that the transactional commercial market evolved from the
interplay of our self-preservational (egoistic) and affectional
(empathetic) neural circuitries.
• Thus, sharing within families, gift giving, and commercial activities are all
reliant upon an overlapping set of cognitive functions.
• The presence of sharing motives in commercial transactions drives
expectations with respect to price and benefits.
• Consumers expect that the price represents a sharing of the surplus benefits
between the company and the customer.
• When prices are out of line with these expectations, customers can call foul
and the fairness effect will dampen consumer willingness to pay.
Fairness Perceptions
• Customers perceive prices as fair when they are within expectations
based on past interaction with the category
• Large price increases can be misperceived as “profit taking” on behalf of
suppliers and producers, or as taking advantage of less powerful customers.
• Customers perceive prices as unfair when they vary randomly
between customers
• This latter effect plagued Amazon in 2005 when customers uncovered price
experimentation and discrimination at their website.
• The issue of fairness is not spread equally among all products. It has
a larger role in necessity goods than those related to discretionary
purchase.
Small Pie Bias
• The Small pie bias is found from research on
negotiations
• Negotiators consistently underestimate the
size of the bargaining zone, or in other
words, believe they are negotiating over a
smaller pie than truly exists.
• By implication, they over estimate the
share of the surplus they capture in the
negotiation.
• In other words, the small pie bias leads
sellers to settle for too little of a price.
Overcoming the Small Pie Bias
• To overcome the small pie bias, it is suggested that sellers make price
expectations of the buyers reservation price, and use the negotiation
to seek disconfirming information that updates their beliefs of the
buyer’s reservation price.
• The disconfirming information is elicited from buyers by sellers when sellers
make initial offers that are outside of their expected buyer reservation price.
• In the negotiation, they can use buyer reactions to update their expectations
of they buyers reservation price, and thus price the transaction closer to the
buyers reservation price.
Case Study: Pricing at the Taj Mahal
• Price Discrimination
• Happy Hour
• Broadway Show
• Books
Case Study: Pricing at the Taj Mahal
• Taj Mahal entrance
tickets works as follows:
• Foreign tourists pay one
thousand rupees
(approximately $15)
• citizens of neighboring
SAARC countries pay 530
rupees (approx. $8)
• Indian citizens pay 40
rupees ($.70).
Case Study: Pricing at the Taj Mahal
• This is how an Indian enters the Taj Mahal compound:
• Buys ticket after standing in a non-existent queue for
at least 10 minutes, buys water after paying Rs. 20
from shops near the entrance, haggles for shoe cover
price, after a few minutes of back-and-forth
argument pays Rs. 10 for the shoe cover (or does not
buy at all ), stands in line to go through security
check for at least 30 mins — not counting the Sunday
rush, shows ID card at security check, goes through
security check, and (finally) walks in.”
https://www.psychologytoday.com/blog/the-science-behind-behavior/201604/why-dual-ticket-pricing-india-s-taj-mahal-is-wrong
Promotional Sensitivity
• Promotions influence price optimization through
two key paths:
1. The message communicated affects price sensitivity.
2. The market attracted through promotions holds a
different price sensitivity than the market overall
What You Say Influences their
Willingness to Pay
• Price oriented promotions leads towards both lower prices and increased
consumer price sensitivity.
• One form of price oriented promotions are those that focus on the brand and the
price alone. Value oriented promotions, tend to lead to lower price sensitivity of
consumers.
• Value oriented promotions are those which focus on the brand and the
features or benefits of the product.
• They are commonly found in national advertising efforts which are driven by the
original producing firm.
• The effect of promotional messages has also been found in negotiations
research.
• Using key selling points enables sellers to achieve a higher final transaction prices in
a negotiation.
Behavioral Effects that
Influence Price Sensitivity
• True Economic Costs
1.
2.
3.
4.
Shared Cost Effect
Switching Costs
Expenditure Effect
Difficult Comparison Effect
• Perceptual Challenges
5.
6.
7.
8.
9.
Price Endings in 9s
Fairness Effect
Overconfidence in Future Economic Efficiency
Small Pie Bias
Promotional Influence
• Prospect Theory
• Losses Weigh Heavier than Gains
• Inflection at the Point of Reference
• Diminishing Sensitivity
• Risk Aversion in the Positive Frame and Risk
Seeking in the Negative Frame
• Utility Function from Prospect Theory
• Prescriptions
• Effects Related to Prospect Theory
11.
12.
13.
14.
15.
16.
17.
Reference Price Effects
Endowment Effect
Anchoring
Comparison Set Effect
Framing Effect
Order Bias
End-benefit Effect
Prospect Theory
• The research question asked: How are people systematically nonutility maximizing?
• Basic tenet of economics is that people seek to maximize their utility in a
transaction
• Numerous studies have found aberrations to this basic tenet, ways in which
humans are predictably irrational
• Prospect Theory attempts to define fundamental heuristics to predict how
humans are predictably irrational
• It does so by asking: How do people choose among risky prospects
Prospect Theory
• Prospect Theory examines predictable manners in which human
beings (customers) reliably make choices which fail to maximize their
utility, all else held equal
• Prospect Theory explains many consumer behavioral effects, and
therefore, strategic pricing opportunities
• More recent research is uncovering neural links which explain
prospect theory with respect to evolutionary pressures
Losses loom larger than gains
• The aggravation that one experiences in losing a sum
of money appears to be greater than the pleasure
associated with gaining the same amount.
• Utility functions for losses are considerably steeper
than those for gains.
More Loss Averse than Gain Seeking
• A $10 loss causes more pain
than a $10 gain causes pleasure
A
Perceived
Value +
(Pleasure)
Real
Losses
Gains
B
Value –
(Pain)
Minimize Pain
Highlight Gain
Declining Sensitivity
• Two $5 losses cause more pain than
one $10 loss
• Two $5 gains cause more pleasure
than one $10 gain
A
Perceived
Value +
Value Function
Real
Losses
Gains
B
• Both losses and gains suffer from
declining perceived impact
Bundle Pain
Value –
Unbundle Gain
Certainty and Pricing
• Price Guarantees
• Guarantees to match or better the lowest price accelerate customer purchases
• Consumers are uncertain of their ability to attain the lowest price at any particular retail outlet
• Promises to ensure the lowest price or reimbursing with a check for the difference enables customers
to purchase with greater confidence
• Uses
• Infrequently purchased consumer goods
• Matches lowest price in the market (Orbitz), matches lowest advertised price (electronics), or redeems
competitors coupons (grocers)
• Result
• Higher volumes
• Potential to reduce competitive price pressure and shift the pressure to other dimensions of
competition (costs, customer experience, distribution, promotion, etc.)
Reference Point Sensitivity
Value +
• People are more averse to a 5%
chance of not receiving $50
than a 95% chance of gaining
$50
Value Function
A
Losses
Gains
B
Value –
Reframe Pains as Gains
Reference Point Management and Sales
• Placing the product in customers’ hands at bazaars
• Increases the “instant endowment effect”, thus increasing their willingness to
pay
• Asking customers to imagine the positive implications of using the
product
• If you had $5,000 more to invest in your company, what would you do with it?
• Our offer will save you that $5,000 in the next 12 months so you can achieve
your goal.
Overarching Insights from Prospect Theory
• Organisms habituate to
steady states
• The marginal response to
changes is diminishing
• Pain is more urgent than
pleasure
Value +
Value Function
A
Losses
Gains
B
Value –
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Prospect Theory
It’s Real. It’s Human. It’s Usable.
• Utility theory in economics assumes humans are
“rational”.
• We aren’t, or at least not rational in the sense that
utility theory predicts.
• Behavioral economics, from evolutionary, neural
activity, and experimental studies, better describes
how customers make purchasing decisions.
• Sales and Marketing Executives can use these insights
to influence price acceptance and deal flow.
Behavioral Effects that Influence Price
Sensitivity
•
True Economic Costs
1.
2.
3.
4.
•
10. Prospect Theory
Shared Cost Effect
Switching Costs
Expenditure Effect
Difficult Comparison Effect
•
•
•
•
•
•
Perceptual Challenges
5.
6.
7.
8.
9.
Price Endings in 9s
Fairness Effect
Overconfidence in Future Economic Efficiency
Small Pie Bias
Promotional Influence
•
Losses Weigh Heavier than Gains
Inflection at the Point of Reference
Diminishing Sensitivity
Risk Aversion in the Positive Frame and Risk Seeking in
the Negative Frame
Utility Function from Prospect Theory
Prescriptions
Effects Related to Prospect Theory
11. Reference Price Effects
12. Endowment Effect
13. Anchoring
14. Comparison Set Effect
15. Framing Effect
16. Order Bias
17. End-benefit Effect
Reference Price Effect
• The reference price effect refers to the influence that past prices
observed by customers within a category have on the expectation
prices they hold
• Buyers often are not able to remember the prices of items they had recently
purchased.
• Even though consumers don’t have perfect recall of past observed prices,
what recall they do hold influences their willingness to pay, or reference price.
• The reference price effect has been studied largely in frequently purchased
consumer goods markets and can be expected to hold in other markets as
well.
Reference Price Effect and Promotions
• Firms cycling between periods of sales promotions and regular price
periods are therefore exasperating the sharp increase in demand
during the sales promotion and sharp decline in demand following
the sales promotion.
• If that firm is using a profit sensitivity analysis alone to guide their use of sales
promotions, they may be misled into constantly holding sales promotion, and
furthermore increasing the size of the discount, in order to continue
stimulating demand.
• The result would be a disastrous implosion of price and destruction of profits.
• To prevent this, the reference price effect is one of many reasons pricing
professionals must go beyond purely quantitative analysis in managing price
promotions.
Endowment Effect
• According to the endowment effect, people place
more value in something once they possess it than
they otherwise would.
Anchoring
• People anchor price expectations based upon information gathered
early in the decision making process.
• Once they have anchored on the initial information, changing
expectations can be difficult as it involves relearning or uncovering
new evidence that demonstrates the fallacy of applying earlier
formed expectations in the current situation.
• Anchoring strongly sets consumer reservation prices.
Comparison Set Influence
• Customer’s price expectations are influenced by the alternatives under
consideration when making a purchase decision
• When lower priced goods are in the comparison set, customers tend to have lower
price expectations.
• When higher priced goods are in the comparison set, customers tend to have higher
price expectations.
• Adjust the comparison set towards a more favorable group.
• For instance, comparing a the price of a small car to that of a larger, more expensive
car rather than the price of a motorcycle or alternative means of transportation.
• Include other factors
• For instance, consider a product that has a lower overall cost of ownership than its
next nearest competitor, but a higher upfront cost.
• Sellers can expand the price comparison to include total lifetime costs rather than
simply purchase price.
Framing Effect
• Research into the framing effect shows that how a transaction is
framed can affect the customers willingness to pay.
Order Bias
• Order Bias, an effect related to anchoring, is found in the selection of
acceptable prices and products.
• The order of presentation of prices effects the selection of customers of
products and acceptable prices.
• With fast moving consumer good, the highest average price was obtained
when prices were presented in descending order.
• The order bias was not statistically observed for household appliances in
some studies, yet it is still suspected to hold outside of the FMCG market.
Loss Aversion
and Order Bias
• Loss aversion: In comparison to a reference point, consumers are
more averse to losses than they are seeking of gains to that
reference point.
Ascending
Descending
NAV at $39
N360 at $79
NIS at $69
NIS at $69
N360 at $79
NAV at $39
• On average, consumers tend to select a higher priced product when
presented in descending order rather than ascending order.
End-Benefit Influence
• Price sensitivity is influenced by the amount the product
contributes to the end benefits sought by a customer
• Products that contribute a high portion of the end-benefit
sought by a customer are associated with lower price sensitivity
than those which are ancillary to the end-benefit sought.
• The end-benefit effect has implications for promotional
messages.
• In promoting a product, marketers are wise to stress relation of
product to goal attainment rather than simply focus on its
features and attributes.
• Position offerings as tightly related to the full end-benefit can
make customers less cost sensitive.
Summary
• Price cannot be quantitative optimized in the absence of considering
qualitative influences.
• There are many psychological, decision bias, neurological, and
behavioral effects that influence how customers perceive prices,
make evaluations, and select between competing offers.
• Sales and marketing executives can use the effects to influence price
acceptance and improve profit capture.
Wrap Up
• Next Time:
• Chapter 6 & 7: Pricing over the Product Life Cycle
• Case: Atlantic Computer
• Pricing Journal #2
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