PSYCHOLOGICAL INFLUENCES ON PROCE SENSITIVITY Flashcards
(32 cards)
It refers to how consumers perceive prices and make purchasing decisions which can significantly impact their willingness to pay and how they react to price changes in the marketplace.
PSYCHOLOGICAL INFLUENCES
4 Influences and Consumer Behavioral Effects
TRUE ECONOMIC COST
SHARED COST EFFECT
SWITCHING COSTS
EXPENDITURE EFFECTS
It is derived from implicit economic costs that come in form of opportunity costs or hidden costs.
TRUE ECONOMIC COST
It denotes the reduction of price sensitivity found when customers use other people’s money to pay for a product.
SHARED COST EFFECT
When customers change brands or adapt a new technology.
SWITCHING COST
Customers are more price-sensitive at higher prices due to economic incentive to identify savings.
EXPENDITURE EFFECT
Firms can, at times, alter customer’s perceptions of competing offers in their favor by making it difficult for them to compare prices or compare benefits.
DIFFICULT COMPARISON EFFECT
3 MAIN AREAS
INCUMBENT
GENERICS VS. BRANDS
SIZE CHANGES
It is often used by incumbents as a means of defending market share against new entrants.
INCUMBENT
A nationally branded product and a generic or store brand product may be identical in every physical dimension except name and label.
GENERICS VS. BRANDS
Obfuscating parity relationships by changing the size related to offers.
SIZE CHANGES
The acceptance of prices arise from more purely psychological issues, such as the adherence to social norms or the misapplication of decision-making rules.
PERCEPTUAL CHALLENGES
One of the best understood influences in pricing is the tendency to end prices in the digit 9.
PRICES ENDING IN 9
Customers expect to be treated fairly. Customers tend to feel as though they have been treated unfairly when the price that they are charged is different from the price that someone else may have to pay.
THE FAIRNESS EFFECT
Customers purchase many products with the expectation of modifying their behavior in conjunction with the use of the product.
OVERCONFIDENCE OF CONTROL ON FUTURE BEHAVIOR
Both parties to a transaction believe they are making a decision regarding the size of the slice they will gain from a small pie, rather than understanding that the pie may be quite large, allowing for a much better deal.
SMALL PIE BIAS
The ability to capture prices that reflects the value that it is delivering to customers, if a firm fails to communicate the value that it delivers to customers, the firm will find the task of capturing a decent price difficult.
PROMOTIONAL INFLUENCES
It describes how people make decisions between alternatives that involve risk and uncertainty.
PROSPECT THEORY
When making purchase decisions, customers tend to be more fearful of potentially losing through the transaction than they are happy about potentially gaining through the transaction.
LOSSES WEIGH HEAVIER THAN GAINS
Also called the perceived status quo where customers will compare offer against their point of reference.
INFLECTION AT THE POINT OF REFERENCE
As gains or losses increase away from the point of reference, people become less sensitive to the absolute magnitude of these gains or losses.
DIMINISHING SENSITIVITY
Offers imply that the person will, in some sense, gain from the transaction
POSITIVE FRAME PROPOSAL
Offers imply that the person will, in some sense, lose from the transaction.
NEGATIVE FRAME PROPOSAL
It incorporates the decision biases of people when confronted with alternative offers.
UTILITY FUNCTION FROM PROSPECT THEORY
