Pricing
Marketing
Baseball bat and ball cost 11 €.
Bat cost 10 € more than ball.
How much the ball costs?
1 € ?1 + 11 = 12 0,5 + 10,5 = 11
Relativity principle
The Economist Subscription problem
• Of the original high interest in the $ 125 (84%) printed and online
subscription, the only version of interest-only version dropped to just
32%.
• An anchor in the form of unnecessary options in the middle affected
the overall perception of the offer.
• An attractive third option (online + print) not only compared to the
other (printed version only), but also with the first variation of online
subscription.
Where do you want to travel?
Paris or Barcelona?
• Your choice
1. Trip to Barcelona All-inclusive, free transportation, you have to pay
for your morning coffee,
2. Trip to Barcelona All-inclusive, free transportation,
3. Trip to Paris All-inclusive, free transportation,
• 2nd choice becomes more attractive compared to 1st choice and
even compared to the 3rd one.
• Ariely on irationality:
• https://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_o
ur_own_decisions/transcript#t-816260
Anchoring
People lack preexisting subjective probability
distributions over unknown quantities
Removing currency denomination increases sales
15,-
vs
15,- €
Birthday number price effect
•Implicit egotism resulting from consumers' positive
self-associations affects their evaluations of product
prices.
•Increased preference for prices with endings equaling
to one’s own birthday date.
•Coulter and Grewal (2014)
Housemann-Kopetzky and Köcher (2017)
Commas in price
1345 vs 1,345
11% difference in price perceptions
Fonts in pricing – how to promote price reduction?
Before 100 $ Now 79 $
vs
Before 100 $ Now 79 $
Consolidated surcharges
584 £
+ 10% tax
+ 3% shipping
584 £
+ 13% tax +
shipping
Time and price
• Research shows that people are willing to spend more if they pay by
card compared to cash.
• Recently, contactless payment has also become more widespread and
this increases this willingness even more compared to paying by credit
card.
• Merchant fees for these payment methods are likely to cover the
difference in people's greater willingness to spend.
Impact of payment method on willingness to spend
< <
https://web.mit.edu/simester/Public/Papers/Alwaysleavehome.pdf
• When people were asked how much they spent outside the café, their
success rate compared to what was on their receipt varied by payment
method.
• 87% of people paying with cash recalled exactly how much they paid
• 50% of those paying by card recalled exactly how much they paid
• 33% of those paying by contactless recalled exactly how much they paid
• The payment method affects how the price is perceived and
remembered after the purchase, which is extremely important for the
next purchase.
Impact of payment method on willingness to spend
https://medium.com/@rshotton/how-contactless-cards-encourage-more-spending-c7dfd97b15aa
< <
• Substitution effect
• Increase in price = reduction in demand
• Veblen effect
• Increase in price = Increase in demand
• Conspicuous consumption is the act of
displaying ostentatious wealth to gain
status and reputation in society.
• Guttenberg effect
• Small increase in price = no change
• Radical increase in price = hectic changes
Price effects
Thorstein Veblen 1857 - 1929
•B2B - Business to Business
• The price is usually determined for each contract in
particular.
• Part of hard business bargaining.
•B2C - Business to customer
• Fixed prices for all within the market.
• Prices are public and information accessible.
•B2G - Business to Government
• The price is set in tenders and public contracts.
Types of the market and pricing process
• Cost-Oriented Methods
• In practice, they are often used.
• Costs determine the lower price limit.
• It leads to a mismatch between the interests of the customer and the company.
• Pricing adjusted to cost.
• Competitive methods
• Concentration on monitoring and adjustment of competition prices.
• Frequent in price leader markets.
• Demand-oriented methods
• Based on psychological and behavioral processes in consumer decision making.
• The price is perceived as part of the customer's decision at the time of purchase.
How to create a pricing strategy
Demand-oriented methods
Demand-oriented methods
• One day in the mining business costs a
company
• 100.000 $
• One hour
• 4.160 $
• The price of the plug, which, thanks to its
shape, saves one hour of work when
drilling:
• 3.000 $
• Costs:
• 500 $
} Penetration or go to market strategy.
} It is based on a very low price.
} Fast market penetration and market share
control.
• In a short period.
• High price on a fairly small market.
• New customers adapt to the price.
• In a long period.
• High profits are likely to attract competition.
• The price cut will keep sales at the desired values.
• Branded and fashionable goods, technological novelties (gaming consoles,
tablets, smartphones).
Skimming strategy
•High price throughout the product life cycle.
•Decreasing the price would be perceived by customers
as a loss of prestige.
•Luxury brands (fashion, cars, jewelry, watches).
•Premium price assumptions:
• The customer believes the goods are good quality.
• The product will allow it to reflect the social status of luxury.
• The cost of product failure is too high.
Premium pricing
• They are a strategy of high prices.
• The use of a high price carries certain assumptions:
• The product is unique, patent-protected
• Production is difficult
• The high price does repels certain customer segments
• The market is too small to attract competition
• The product requires highly qualified staff
Skimming and premium pricing
• Consumers perceive mostly the first digit of the price and how many
numbers it has. They do not care much about halter items. The
meaning of the penny (cent) parts of the price increases with the
strength of the currency.
• This effect is magnified by the price tags where these items are
printed in smaller font (3.98 €).
• Prices down to the last cents indicate to the consumer that the goods
are sold at the lowest possible price.
• The importance of setting the right price increases with the
development of Internet servers to compare goods (Heureka.cz,
Zbozi.cz).
Psychological price development
Price tactics
•Using 1.99 instead of 2
•All for XX, •Monthly
payments instead of the total price
•Free stuff (X + 1 action)
•Deploying high prizes and subsequent "drastic"
DISCOUNT
Psychological price development
Thank you