Psychological Strategies in Pricing (10) Flashcards Preview

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There are also pricing strategies based on the _______ of how consumers ______ prices.

psychology, perceive


What is odd-even pricing?

odd-even pricing (sometimes called $0.99 pricing) is when a marketer sets the price of a product a few cents or a few dollars (or sometimes just one cent) under an even number


What is the psychology behind odd-even pricing?

The psychology behind this strategy is that consumers perceive the item as costing less than it actually does. Customers perceive $499 as more closely related to $400 instead of $500 because of the number that the price starts with.


Reference pricing is also called....

anchor pricing


Reference pricing is...

using another price as a reference point to make a product’s price seem more appealing


What are the three options of reference pricing?

- original price as reference point - industry reference point - Random incidental reference points


How is original price reference pricing used?

the product’s original retail value is put on the tag before showing its current sales price.


What is the psychology behind original price reference pricing?

puts a higher reference point in the customer’s mind as to what the item is worth, and the selling price seems cheaper in comparison.


How can original price preference pricing be misused/exploited? (moral question)

However, it’s important that marketers use real, accurate retail prices for this strategy. A company can get into trouble if it uses reference pricing deceptively by listing retail prices that are inflated or falsified. was recently fined $6.8 million for false advertising in California for inflating the reference price of products to exaggerate price savings.


Industry reference pricing is...

is used by providing industry or competitor prices as a reference point.


Define internal reference point...

A consumer often has an internal reference point for a price, which is a price or price range he or she believes is fair or standard based on his or her knowledge or experience. I


If a customer is familiar with a certain product, service, or industry, then... 

e or she probably has somewhat of an idea of what each is worth.


If consumers have no internal reference point for a product’s price or what a fair price is, then it is helpful or a strtegic for a markter to... 

provide an external reference point 


What is an external reference point

a marketer-supplied price to give consumers an idea of what the product is worth.


How does random incidental reference pricing influence a consumer? 

To demonstrate how much of a psychological influence reference pricing can have, consider this situation: some websites show images of very high-priced, unrelated products when customers are shopping on the site or during checkout. Just by surrounding the product with higher-priced items makes it appear to be a better deal in comparison.


an Ariely, author of the book Predictably Irrational, describes a phenomenon that he discovered, called... 

the “decoy” option.


What is the "decoy" option? 

According to Ariely’s research, adding an inferior option will make the original product more attractive. The decoy acts as a sort of reference point.


the inferior option acted as a reference point to make the similar (but superior) option seem more valuable and preferable.


What does the "decoy" option look like? 

In his study, he offered three options for purchasing a newspaper subscription:

Web content for $59

The print edition for $125

Print and web editions for $125


In this scenario, 84 percent chose the third option of the print / web combination, and 16 percent chose the web-only subscription. Not surprisingly, no one chose the second option of a print-only edition, as it was clearly inferior to the third option.


The extremity aversion theory in price setting states that... 

people tend to avoid extreme options, including in price, and they often choose a middle option.


The extremity aversion theory in price setting states that people tend to avoid extreme options, including in price, and they often choose a _____ option. 



How does extremity aversion/avoidance relate to reference pricing?  

it relates to the reference pricing because customers are still using other prices as reference points in extremity aversion. And it also ties into the idea of the decoy option discussed by Ariely. 


How can a marketer use extremity aversion? 

A marketer can use extremity aversion strategically by providing higher or lower-priced options in relation to the target option. For instance, if a marketer wants to increase sales of a premium version of a product by using this strategy, the marketer can create a “super premium” option to sell at a price level above the target option. This is because customers then perceive the middle price as being “safe."




What is prestige pricing

Prestige pricing sets high prices for products to create the perception that they are elite so that status-seeking customers will want to buy them.


What is an example of prestige pricing? 

take the Graf Von Faber-Castell perfect pencil in white gold. Its $10,000 price and limited-edition status show that it is marketed as an elite item. It is a prime example of prestige pricing


what is positive elasticity? 

when a price goes up, instead of demanding decreasing, demand increaes


_______ elasticity in demand can occur with prestige pricing.




What does positive elasticity in demand look like in presitge pricing? 


Positive elasticity in demand can occur with prestige pricing. This means that when a price goes up, instead of demand decreasing, demand actually increases. Customers purchase more of an item because they see the product as more exclusive or valuable when the price increases.


What is a reason why there is positive elasticity in prestige pricing? 

One reason for this is that consumers often use price as an indicator as to a good or service’s quality. If a company is marketing a unique product’s characteristics and high quality as selling points but offering the product at a low price, the price may actually misrepresent the product quality to the customer.


In high-risk purchases, consumers often look for ways to know if a product or service is reliable or of quality. Prices that are too low can raise a consumer’s suspicions about a product’s quality.


What is bundle pricing?


Bundle pricing is packaging two or more goods or services to sell them for a single packaged price.


What is bundle pricing in contrast to? 

Bundle pricing is a contrast to the a la carte pricing strategy wherein consumers choose each item or option individually.