The Leading eBooks Store Online

for Kindle Fire, Apple, Android, Nook, Kobo, PC, Mac, BlackBerry ...

New to eBooks.com?

Learn more

Behavioral Pricing

Behavioral Pricing
Add to cart
US$ 199.00
In his book on Pricing, Kent Monroe (2003) opens with an old Russian proverb: “There are two fools in any market: One does not charge enough. The other charges too much.” That adage continues to be true. Sellers are unsure of how high a price is high enough. How much is too much. As a result, many companies still use simplistic formulae to determine their pricing structures rather than struggle with the problem of getting the price right. Getting the price right is, however, crucial to profitability. Just a small price increase can have a dramatic effect. In their book, Power Pricing, Dolan and Simon (1996) point out that a 1 percent price increase would boost net income by 6.4 percent at Coca-Cola, by 16.7 percent at Fuji Photo, by 17.5 percent at Nestle, by 26 percent at Ford and by 28.7 percent at Philips. These numbers indicate the critical need for astute price management. Fortunately, we see signs that price management is becoming more sophisticated. In executive MBA courses, we now have students with “Pricing manager” titles. Business education is now including pricing courses, and there are at least five pricing textbooks on the market. Professional groups like Informa hold pricing workshops. And academic researchers spend more time investigating pricing problems. In 2004, ABI-Inform cited 475 marketing articles on pricing research compared to 354 in 1994. A major change in pricing research has been the shift away from the economic assumption of a rational buyer, the selfinterested profit maximizer who searches out all the necessary information to make an informed price choice. The new researchers recognize that consumers have difficulty processing prices accurately. They rely on cues to signal additional information and utilize heuristics to evaluate prices offered in the marketplace. They make comparative rather than absolute judgments and are influenced by subjective emotions as well as rational analysis. These new pricing researchers, following the lead of Kent Monroe, have founded a new field of behavioral pricing. Their approach is based on the psychological principles of human perception and information processing as well as on sociological principles of human relations and social norms. In this special pricing issue of the Journal of Product & Brand Management, we feature several researchers who have contributed to this new field of behavioral pricing. Their research demonstrates the international scope of this emerging field and was conducted across the globe in countries such as Australia, France, Greece, and the USA. In the first article, Donald Lichtenstein, reviews how sellers can take advantage of consumers’ misperceptions. Based on his 2004 acceptance speech for the “Lifetime achievement in pricing research” at the Fordham Pricing Conference, in this paper he shows that, despite what your mother told you, you do not always get what you pay for. In addition, consumers’ evaluation of a reasonable price is influenced by advertised reference prices even when these prices are outside believable ranges. The second article is an analysis of the differences between the marketing and economics approaches to price. Skouras, Avlonitis and Indounas compare the all-embracing approach of marketing to the narrow approach of traditional economics. Whereas marketing draws on psychology, sociology and anthropology, as well as economics, traditional economics has focused primarily on its own theoretical constructs. Traditional economics assumes that the consumer is rational, whereas marketing assumes anything but. Although the authors recognize the contribution of the new behavioral economists, they conclude it doubtful they will “make an impression beyond the fringe of the discipline.” In an invited response to Skouras, Avlonitis and Indounas, Donald Cox, himself a behavioral economist, spreads the good news that behavioral economics is not going away anytime soon. He cites the many interesting new questions that behavioral economists are posing and shows how they are using sound scientific methods to support their conclusions, as well as to challenge and refute them. From our viewpoint as Associate Editors of the Journal of Product & Brand Management, it seems that both marketing and behavioral economics have a lot to contribute to the difficult task of understanding consumers’ pricing decisions. One aspect of consumers’ irrationality is investigated in the third article by Barat and Paswan. They research how coupons influence purchase intentions and find that a higher face value of a coupon results in higher purchase intention, but subject to a threshold. At that coupon face value threshold point, it appears that the high face value of the coupon acts as a cue for the price of the good and makes it appear expensive. Hence, purchase intentions level off. In addition, they have found that a higher exposure to coupons results in higher redemption rates, as if consumers learn the benefits of using coupons. The next article demonstrates that consumers can also act rationally with economic self-interest as a primary motivation. The Mather, Knight and Holdsworth article reports research conducted in Australia where genetically modified produce has been highly controversial. The authors find, however, that when given a financial incentive, consumers will overcome their negative attitude and still purchase genetically modified food. The research demonstrates the unique role that price may have in shifting traditional consumer tastes and patterns of behavior. The final article is by Desmet and Le Nagard examines the effects of specific forms of price guarantees on consumers’ price perceptions. The paper extends current research on price-matching guarantees by studying the effect of pricebeating guarantees whereby the retailer not only matches prices of competing stores, but also imposes a form of selfpunishment by providing a refund in excess of the price difference. The authors find the disproportionate effect of price-beating guarantees on consumer post-purchase price perceptions and behavior and provide practical prescriptive directions on the use of price-beating guarantees. The Associate Editors would like to take this opportunity to thank the many people, including our managing editor Richard Whitfield, who have helped us develop the Special Pricing Section of the Journal of Product & Brand Management. Our Editorial Board provides an invaluable service. Over the past few years, they have been instrumental in moving the pricing section of the journal forward, and as Associate Editors we could hardly complete our responsibilities without their daily support. The support of the following reviewers is therefore gratefully acknowledged.
Sarah Maxwell and Hooman Estelami

Previously published in: Journal of Product and Brand Management, Volume 14, Number 6, 2005

Emerald Group Publishing Limited; October 2005
48 pages; ISBN 9781845448189
Read online, or download in secure PDF format