Pricing Wang Yusong School of Management Fudan University l1-1
11-1 Wang Yusong School of Management Fudan University Pricing Pricing
. Consumers' Reactions to rIce a Price awareness Mindless shopping a Ave time between arriving and departing from product category 12 seconds in 85% of purchases only the chosen brand was handled, and 90%o of shoppers inspected only one size a 21% could not offer a price estimate when asked
11-2 I. Consumers’ Reactions to Price Price Awareness Price Awareness Mindless Shopping: Mindless Shopping: Ave. time between arriving and departing from Ave. time between arriving and departing from product category = 12 seconds product category = 12 seconds in 85% of purchases only the chosen brand was in 85% of purchases only the chosen brand was handled, and 90% of shoppers inspected only one handled, and 90% of shoppers inspected only one size 21% could not offer a price estimate when asked 21% could not offer a price estimate when asked
Price Awareness(cont a only 50% were able to state correct price 93% did know relative price(i. e, higher lower or the same as other brands in category
11-3 Price Awareness (cont.) only 50% were able to state correct price only 50% were able to state correct price 93% did know relative price (i.e., higher, 93% did know relative price (i.e., higher, lower or the same as other brands in lower or the same as other brands in category) category)
Prices ending in“9 common pricing strategy a assumes that consumer will underestimate true price experiment designed to test this assumption: actually consumers do not underestimate the 9-ending price but rather overestimate the price of goods that do not end in 9 11-4
11-4 Prices ending in “9” common pricing strategy common pricing strategy assumes that consumer will assumes that consumer will underestimate true price underestimate true price experiment designed to test this experiment designed to test this assumption: assumption: actually consumers do not underestimate the actually consumers do not underestimate the 9 -ending price but rather overestimate the ending price but rather overestimate the price of goods that do not end in 9 price of goods that do not end in 9
Reference Prices Consumers do not evaluate price absolutely, but rather relatively Context matters! Two kinds of reference prices a External reference price a Internal Reference price
11-5 Reference Prices Consumers do not evaluate price Consumers do not evaluate price absolutely, but rather relatively absolutely, but rather relatively -- Context Matters! Context Matters! Two kinds of reference prices Two kinds of reference prices External Reference price External Reference price Internal Reference price Internal Reference price
External Reference Prices List prices/sale prices a Price Signaling
11-6 External Reference Prices List prices/ sale prices List prices/ sale prices Price Signaling Price Signaling
Internal Reference prices One that is recorded in consumer's memory Memory of price may not be accurate If brand is frequently promoted, consumers tend to lower their internal reference point
11-7 Internal Reference Prices One that is recorded in consumer’s One that is recorded in consumer’s memory Memory of price may not be accurate Memory of price may not be accurate If brand is frequently promoted, If brand is frequently promoted, consumers tend to lower their internal consumers tend to lower their internal reference point reference point
Internal Reference Price (cont. consumers have a notion of“ fair price” acquisition utility a transaction utility Asymmetric response to price changes
11-8 Internal Reference Price (cont.) consumers have a notion of “fair price” consumers have a notion of “fair price” acquisition utility acquisition utility transaction utility transaction utility Asymmetric response to price changes Asymmetric response to price changes
l. Consumer's Response to Price Promotions temporary price promotions cause significant short-term sales spike for brand being promoted a Retailers question: do price promotions increase overall sales for the product category
11-9 II. Consumer’s Response to Price Promotions temporary price promotions cause temporary price promotions cause significant short significant short-term sales spike for term sales spike for brand being promoted brand being promoted Retailer’s question: do price promotions Retailer’s question: do price promotions increase overall sales for the product increase overall sales for the product category? category?
Product category sales can increases as a result of price promotions a deeper discounts increased variability in total category sales very frequent promotions did not affect overall category sales as much a THErEFORE: overall category sales most likely to increase if brand promotions are deep but infrequent
11-10 Product category sales can increases as a result Product category sales can increases as a result of price promotions of price promotions deeper discounts increased variability in deeper discounts increased variability in total category sales total category sales very frequent promotions did not affect very frequent promotions did not affect overall category sales as much overall category sales as much THEREFORE: overall category sales THEREFORE: overall category sales most likely to increase if brand most likely to increase if brand promotions are deep but infrequent. promotions are deep but infrequent