1. Pricing II Professor S.J. Grant Spring 2007 BUYER BEHAVIOR, MARKETING 3250

2. Outline Psychological approaches used to understand, determine pricing Perceptual factors Reference prices Strategic issues Competition Price discrimination

3. $.99, $1.99, $9.99 Price endings have significance Elasticity when price changes from $2 to $1.99 may be greater than elasticity when price changes from $1.99 to $1.98

4. Contrast Effects Buying $525 pair of shoes May seem very expensive and unreasonable May seem very affordable and reasonable

5. Price Savings Which is more compelling? Savings of $25 on a DVD collection that costs $50 OR Savings of $25 on a television set that costs $600 Utility of $25 savings depends on reference price

6. Reference Prices Stimulus-based reference price WAS $130, NOW $75! Memory-based reference price Gas price history

7. Reference Prices Would it make a difference if the sale price was expressed as versus 30% OFF PAY 70%

8. Reference Prices Consumers are more likely to buy more units when pricing is 4 for $1 than when pricing is $0.25 each Consumers are more likely to buy more yogurt when there is a limit on the quantity they can buy Yogurt on sale (limit 8)

9. Effect on Competition Parity pricing induces direct quality comparison Gillette Mach III at $6.29 vs. Schick Xtreme 3 at $6.29 Undercutting competition induces competitive response, price competition Pricing above competition induces loss of market share

10. Price Discrimination Price can be used to acquire different consumers, elicit different behaviors $500 initiation fee and $50 monthly fee vs. $150 initiation fee and $75 monthly fee

11. Price Discrimination Delivery of price savings can also be used to acquire different consumers, elicit different behaviors Using $1 off coupon for frozen pizza vs. Supermarket offers $1 off at shelf