Lecture 6: Entrepreneurial Pricing (Part 2) Flashcards
Why does the compromise effect work?
Relative thinking: Once an extreme high-priced option is added, the focal option price seems lower.
Trade-off aversion: People are not certain if they value price or quality more
Customers don’t notice a price variance of …
2%
Why does relative price matters and not the absolute, regarding price changes.
Because customers are comparing the price with a previous price.
What’s the endowment effect?
When customers place a higher value on an object that they already own than the value they would place on the same object if they didn’t own it.
What is the sunk cost effect?
Costs that already have been incurred and which cannot be recovered.
How do marketers use the sunk cost effect?
Get people to make a number of small and easy commitments.
What is the goal of price framing?
To maximize perceived magnitude of discounts
How is the rule of 100 applied?
Give percentage discount on prices under 100
Give absolute discounts on prices above 100
Why does partitioned pricing work?
Because we anchor on the lower price and use that to make comparisons to the other prices.
Explain why price precision works
Precise numbers produce the impression of greater
knowledge and deliberation
Do you add or remove cents from emotional prices? and why?
Remove, because the numbers are easier to process and the consumer buys when the price “just feels right”
How to use numerical anchoring?
Show the original price and add a irrelevant high number to it.
Why is $0.49/daily better than $14.99/monthly?
Because smaller numbers are better.
Why is charging customers before they consume better than after?
Because the pain of paying is less when you can focus on the future benefits
What does pricing as a cue mean?
Higher price -> higher quality
Customers think that you get what you pay for
