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L 7-8: Behavioural Approaches to Pricing (Judgement (Absolute: '…
L 7-8: Behavioural Approaches to Pricing
Judgement
Absolute: 'Cheap'
Relative 'Affordable'
Adequacy-Importance-Portfolio
Align performance metrics to consumer's preferences: e.g. washing machine noise not so important as quality of cleansing
Influence of contextual information
Price as quality indicator or price-quality inference or expectancy-disconfirmation: 'Blind tasting' wine and quality adjustment after price disclosure
Reasons
Consumers may assume cost-plus logic
Reduction of cognitive dissonance which would result from overpaying for low quality
Complexity reduction: It's easy to assume price reflects quality
Feedback effects: Higher priced products with higher prices are more positive
Prospect theory
Humans value losses more strongly than gains and feel small gains/losses more than bigger ones (diminishing sensitivity)
Mental Accounting (Thaler)
Categorization of money and spending e.g. movie experiment loosing money or loosing movie ticket
Asymmetric dominance
Choose dominant alternative between three choices
e.g. economist subscription
Price fairness (Equity theory) and Reference prices/ Anchor prices
e.g. getting used to anchor prices: Starbuck coffee, Gasoline, putting 2000 dollar watch next to 10000 watch,
Price thresholds
A price point where consumer's price response changes disproportionally: e.g. 2.99 vs. 3.00 pounds
Price (un)bundling
e.g. Car: Bundling all features into one upgrade instead of paying individually for heater, power, leather etc.
Price unbundling: E.g. Airline (Offer cheap core product with additional pricing of items such as food, specific seats, luggage etc.)
Simulation Game Car Rental
Take-Aways
Focus on critical segments and location
Consistency in approach
Understanding of competitors pricing behaviour and intelligent reaction (Don't assume their strategy is rational)
Context matters