Pricing and the psychology of consumption

This perception is influenced greatly by the manner in which the product is priced. For instance, travel companies could itemize the approximate cost of offerings in vacation packages. The one-to-one relationship between price and benefits in an unbundled transaction makes the cost of that item obvious, creating a strong sunk-cost effect and a high likelihood of consumption.

The one-to-one relationship between price and benefits in an unbundled transaction makes the cost of that item obvious, creating a strong sunk-cost effect and a high likelihood of consumption. For many executives, the idea that they should draw consumers' attention to the price that was paid for a product or service is counterintuitive.

Consumption helps to establish switching costs, e. They can use their pricing policies to actively encourage consumption.

Pricing and the Psychology of Consumption

Consider the manager of a truly scarce resource, such as a private golf course on a beautiful Sunday morning in June. Members who made a single annual payment used the club most frequently in the months immediately following payment, reflecting a strong sunk-cost effect.

Unable to link the costs and benefits of any given play, patrons who purchased tickets to multiple plays increasingly treated their tickets as if they were free.

HKUST Institutional Repository

But as time passed, the sunk-cost effect dissipated. And rightly so- if a company fails to make the initial sale, it won't have to worry about consumption. But our research shows that Mary is much more likely to exercise at the club than her friend.

Where you buy affects how much you spend. Similarly, when vacationers at a ski resort buy a week's worth of lift tickets, the resort has the option of providing them with seven daily tickets or a bundled pass. Test 3 Much better. Placing premium products and services near standard options may help create a clearer sense of value for potential customers, who will view the less expensive options as a bargain in comparison.

However, executives may be discouraging consumption when they apply those pricing practices.

Pricing and the Psychology of Consumption

Thaler asserts that context was the simple explanation here: If the golf course manager charges annual membership fees in January or February, long before the golf season has begun, a member's pain of payment will fade by the time the peak summer months come, reducing the need to get his money's worth.

Stagger payments to smooth consumption. Increasingly, auto-makers and consumer electronics companies advertise "buy now, pay later" schemes. Consumption is no less important for businesses that rely on a two-part revenue stream. Here are a few select methods: After looking at the contract I noticed that, although they bill me monthly throughout a calendar year, I would have to pay cancellation penalty if I decided end the contract before the end of a specific calendar year.

The cheap beer was ignored and it upended the ratio of standard to premium purchases. The results of this as well as several similar surveys show that the immediacy of payment can be critical for the consumption of a paid-for product.

Attendance was highest immediately following payment, only to decline steadily until the next payment.

Pricing Psychology: 10 Timeless Strategies to Increase Sales

The authors, therefore, offer three tips in building long-term relationships with customers: If the fitness center charges an annual fee at the initial registration, it is likely that the customer will use the membership less frequently throughout the year.

You've had three excellent days of skiing, but rain hit the area last night, making a mess of the slopes.Sunk cost increases consumption 6.

Make consumers aware of sunk cost & consumption/ sale will increase 7Link price to consumption, introduce strategies for sunk cost awareness – pay in cash/credit, price bundling, pay before/after consumption, install payments, etc. Pricing & the Psychology of Consumption. The Psychology of Consumption Let’s look more closely at why consumption is important and how pricing affects consumption.

Higher consumption means higher sales. Request PDF on ResearchGate | Pricing and the psychology of consumption | Most executives know how pricing influences the demand for a product, but few of them realize how it affects the.

Harvard Business Review. Pricing and the psychology of consumption. In this article, the authors argue that the relationship between pricing and consumption lies at the core of customer strategy.

The extent to which a. Pricing and the Psychology of Consumption Business’s try to maximize consumption is a variety of different ways. Price bundling can damage the loyalty that a customer has with a particular business.

Pricing and the psychology of consumption
Rated 3/5 based on 8 review