Lecture 8 Pricing Flashcards
bargaining settings
when you can change the price, don’t have to take the first offer
first offers in bargaining
- first offer extremity
- precision
- ranges
- rationales
- transparancy
- framing
first offer extremity
idea that first offer in settings where bargaining is possible has a big influence on the final price.
This occurs in a lot of literature, lot of evidence.
first mover advantage
person that makes first offer ends up with higher size of pie in bargaining/negotiating setting.
anchoring effect
idea that numbers have a strong effect on our judgement
first mover advantage is driven by this
study on anchoring effect
asked people simple questions with random number (higher or lower than 10/65%).
people did not adjust enough from the given number.
we also do this in negotiation; counteroffer is not adjusted sufficiently
meta-analysis on first offer effects
- correlation between first offer with negotiation outcome (r = .60)
- sequence: first mover recieved more favorable outcomes than second movers
- magnitude: extreme first offers led to higher outcomes than moderate ones
conclusion: first movers commonly claim more value and the first offer functions as anchor.
what lessens anchoring effect
experts, having relevant useful information you can use to make a decision?
studied with real estate.
-> both students and experts are affected by anchoring effects.
-> amateurs realise they are affected, experts think they aren’t.
LOC and sensitivity to first prices
Locus of control
- People with external LOC are influenced by first offer
- people with internal LOC are less (not) influenced by first offer
Study had participants fill in LOC survey and do a negotiation task.
first mover disadvantages?
- When information assymetry is extreme
- When revealing too much information
- When the first offer is too extreme resulting in impasse
Price precision
number of values that are not zero at the end of the price
difference in price precision study?
had people estimate a price based on given prices varying in roundness.
- when anchor is round, adjustment away from anchor is high
- when it is precise, adjustment is much smaller.
underlying mechanisms of anchor adjustment
from the study on price precision
- scale granularity (cognitive) = because the scale has more points you adjust less.
- attribution of competence (social) = precise price makes it looks like the person that set it really thought about it
is there such a thing as too much precision?
study
field study with experts and amateurs that had to give counteroffers and willingness to pay based on different levels of precision.
- amateurs: higher precision leads to even less adjustment
- experts: there is a sweet spot
Why do experts have a precision sweet spot
because for experts the attribution of competence disappears. too much precision no longer reflects confidence, but a lack of it.
when should precise prices be avoided
- when dealing with experts
- sellers’s market
sellers’s market
market where there are more buyers than sellers. because of this buyers bid above the asking price.
Funda analysis by lecturer?
- number of zero’s predicts actual selling price (positive correlation)
- effect remained when controlled for other things
- also occured when properties sold below the asking price where put in.
every additional zero you increase selling price with .6%
what is the idea behind prices that end with .99
that we want low prices and read from left to right. we pay less attention to the end versus the beginning.
especially effective when changing the number of digits.
paper on .99 prices outcomes?
price image
- prices that end with .99 are percieved as lower
- percieved as on sale
quality
- prices that end with .99 make the item quality be percieved as lower than average
- make the quality of items in the store be perceived as below average
- make the store seem less classy
so cheaper but lower quality percieved
Pay what you want?
situaties in which you can decide yourself what you pay.
not common
what determines how much we pay
in a pay what you want context
- identity: self-signaling
- valuation
- image
- social norms
- social preferences
- mindset
identity: self-signaling
prices can serve as self-signaling devices
- a bad person pays less/little
- a good person pays a lot/enough
it shapes both our private and public image concerns
disney study in self-signaling method
people could pay what they wanted for picture under different consequences
- CSR: fixed 12,5 or 12,5 and 50% goes to charity
- SSR: PWYW or PWYW and 50% goes to charity
results of disney PWYW study
- at fixed prices the profits are low and only small increase when charity is added
- In PWYW without charity people pay little, but with charity profit strongly increases
- percentage of buying decreases when charity is added in PWYW because the cost of sending a bad signal is high and people with low value for the picture then would rather not buy it at all.
CSR: corporate social responsibility
- customers might assume the company has ulterior motives
- CSR purchases are a weak signal about the buyers intentions
SSR: shared social responsibility
- SSR exposes the company to financial risk; unlikely to have ulterior motives
- PWYW enhances identification with the cause. money spent directly reflects self-identification
allows customers to directly express social welfare concerns through the purchasing of material goods
