Paying a Price to Get a Value: Choose Wisely

Abstract

Of the traditional marketing mixes that are used to influence consumer purchase decisions, the development of a pricing strategy that retains a loyal customer base without harming profitability remains the most elusive. Advancements in behavioural economics have demonstrated that the economic choices of human beings may not always be necessarily rational. In fact, previous studies have shown that the assumption of rationality is overstated in economic theories. Even under normal circumstances, the consumers tend to confuse price and value, often ending up purchasing high-priced products on the pretext that higher price is associated with a higher value. The inherent elements of irrationality that persist in consumer behaviour offer opportunities for the sellers to develop and apply new heuristics and priming techniques for setting prices that may coax the consumers to make a purchase. Everyone gets influenced by one or another cognitive distortion at some point. On this account, understanding the cognitive biases in consumer decision-making process is key to developing an effective pricing strategy. This chapter gives a detailed account of how well the consumers respond to subtle nuances in price offers and other price-related priming strategies through the lens of behavioural economics.