6

Question 1

goal of psychological pricing =

Answer 1

use understanding of human behavior to make price seem smaller in eyes of consumers

Question 2

trade-off aversion =

Answer 2

people are not sure if they value price or quality more –> they choose middle option

Question 3

How do marketers use the sunk cost effect?

Answer 3

Get people to make a number of small and easy commitments, when they try to pull out, remind them of the total commitment they have already made

Question 4

definition of price framing and 6 forms it can take

Answer 4

= how the offer is communicated to the consumer with no or minor changes to actual price

• discounts - left digit effect -partitioned pricing
• precision -anchoring -small numbers

Question 5

2 causes of pain of paying:

Answer 5

1. method of payment - credit card reduces pain

2. time of payment - payment in advance causes them to focus on benefits

Question 6

3 core features of prospect theory are:

Answer 6

1. value is relative to a reference point - perception of value is dependent on relative change
2. loss aversion - value function is steeper for losses than gains
3. diminishing sensitivity for losses and gains - leads to risk aversion for gains and risk seeking for losses