EM 6 Psychology of pricing Flashcards
What are relative prices?
How much something is worth is always relative
Relative to needs and context (of course!!)
Relative to consideration set (compromise effect)
Relative to what came before (price changes)
Relative to ownership (endowment effect)
What is compromise effect?
An increase in the choice share of a focal option after it becomes intermediate following addition of a new extreme option to a set.
Price Changes?
Changing the price just a little so the customer doesn’t notice. 80 –> 85 –> 90
Give an example of sunk cost fallacy?
I might as well keep eating because I already bought the food.
How to use the sunk cost fallacy?
Get people to make a number of small and easy commitments
What is price framing?
How the price is communicated to the customer without any change or minor change to the price.
What is the rule of 100?
If the price of something is under 100 use discounts displayed as % and vice versa
What is the left digit effect?
The difference between $19.99 and $20 feels bigger than the difference between $20 and $20.01
What is partitioned pricing?
When the price is split in components. I.e. product + shipping, instead of product + free shipping.
What is price precision?
Price like 341.69, which gives of a sense of authenticity and careful consideration.
Remove cents from emotional purchases
Add cents to rational purchases
What is numerical anchoring?
A cognitive bias where people rely too heavy on initial numbers
When pricing as a cue is effective?
Infrequent purchases
New customers
