CONSUMER PSYCHOLOGY AND PRICING

-KARTIK BHARGAVA

REFERENCE PRICES

“Fair Price” (what consumers feel the product should cost)

Typical Price

Historical Competitor Prices

Expected Future Price

Upper-Bound Price (reservation price or the maximum most consumers will pay)

Lower-Bound Price (lower threshold price or the minimum most consumers will pay)

Usual Discounted Price

PRICE-QUALITY INFERENCES

Many consumers use price as an indicator of quality

Exclusivity and scarcity signify uniqueness and justify premium-pricing

PRICE ENDINGS

Consumer tend to process the price “left-to-right” hence, $499 falls in $400 rather than $500 range

“Sale” signs next to prices spur demand, but only if not overused