Psychological Strategies in Pricing (10)

Question 1

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

Answer 1

psychology, perceive

Question 2

What is odd-even pricing?

Answer 2

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

Question 3

What is the psychology behind odd-even pricing?

Answer 3

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.

Question 4

Reference pricing is also called….

Answer 4

anchor pricing

Question 5

Reference pricing is…

Answer 5

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

Question 6

What are the three options of reference pricing?

Answer 6

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

Question 7

How is original price reference pricing used?

Answer 7

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

Question 8

What is the psychology behind original price reference pricing?

Answer 8

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.

Question 9

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

Answer 9

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. Overstock.com was recently fined $6.8 million for false advertising in California for inflating the reference price of products to exaggerate price savings.

Question 10

Industry reference pricing is…

Answer 10

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

Question 11

Define internal reference point...

Answer 11

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

Question 12

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

Answer 12

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

Question 13

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…

Answer 13

provide an external reference point

Question 14

What is an external reference point?

Answer 14

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

Question 15

How does random incidental reference pricing influence a consumer?

Answer 15

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.

Question 16

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

Answer 16

the “decoy” option.

Question 17

What is the “decoy” option?

Answer 17

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.

Question 18

What does the “decoy” option look like?

Answer 18

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.

Question 19

The extremity aversion theory in price setting states that…

Answer 19

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

Question 20

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

Answer 20

middle

Question 21

How does extremity aversion/avoidance relate to reference pricing?

Answer 21

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.

Question 22

How can a marketer use extremity aversion?

Answer 22

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.”

Question 23

What is prestige pricing?

Answer 23

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.

Question 24

What is an example of prestige pricing?

Answer 24

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

Question 25

what is positive elasticity?

Answer 25

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

Question 26

_______ elasticity in demand can occur with prestige pricing.

Answer 26

Positive

Question 27

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

Answer 27

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.

Question 28

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

Answer 28

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.

Question 29

What is bundle pricing?

Answer 29

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

Question 30

What is bundle pricing in contrast to?

Answer 30

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

Question 31

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

Answer 31

a la carte

Question 32

In bundle pricing is the bundle package priced below or above what a customer would pay to buy each item individually?

Answer 32

The bundled package is usually priced below what a customer would pay to buy each item individually

Question 33

What is an everyday example of bundle pricing?

Answer 33

An everyday example of bundle pricing is the meal option offered at most restaurants. A customer orders a meal and receives a main dish, sides, and a drink. This meal option saves the customer money per item and simplifies the ordering process for both the customer and the restaurant employees.

Question 34

When can bundle pricing be negative?

Answer 34

downside is that customers can view bundle pricing negatively when the bundled price is the only option and the customer does not need all items in the bundle. Take cable television providers. They have historically offered cable television channels in bundles and not individually. Wanting one or two of the channels but having to pay for twenty or thirty isn’t as appealing to the consumer.

Question 36

With multiple-unit pricing, a marketer offers a price

_________ for purchasing multiple units of a product.

Answer 36

break

Question 37

Bundle pricing encourages customers to…

Answer 37

This encourages customers to buy more products than they might have otherwise. Stores often offer multiple-unit pricing deals such as buy one item for $1 or three items for $2.

Question 38

When does a company use loss leader pricing?

Answer 38

A company uses the loss leader pricing strategy when it sells a popular item at an artificially low price, often below the company’s product cost, to attract people to the store.

Question 39

What is the low priced item called in loss leader pricing?

Answer 39

the loss leader

Question 40

what is the strategy behind loss leader pricing?

Answer 40

the strategy is that the overall sales from the customer’s purchases will offset the loss in profit from that loss leader’s sale.

Question 41

What is the 3C’s Model, which is based on the industry model developed by Japanese organizational theorist Kenichi Ohmae.

Answer 41

The framework is a good overview and combined application of pricing principles that have already been discussed throughout this chapter.

The Company (What is the product cost to the company?)

The Customers (What do customers value?)

The Competitors (What else is offered in the market?)

Question 42

Matching

Answer 42

1, 3

2, 5

3, 1

4,7

5, 6

6, 2

7, 4