Podcast
Questions and Answers
What pricing method is based on determining the direct costs of production plus a markup?
What pricing method is based on determining the direct costs of production plus a markup?
Consumers are more likely to consider prices as fair rather than unfair.
Consumers are more likely to consider prices as fair rather than unfair.
False
List one reason why consumers might underbid in value elicitation tasks.
List one reason why consumers might underbid in value elicitation tasks.
They can't fully appreciate value.
The process of determining consumers' reservation price is called __________.
The process of determining consumers' reservation price is called __________.
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Match the pricing methods to their descriptions:
Match the pricing methods to their descriptions:
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Which of the following is an input consumers consider when determining their willingness to pay?
Which of the following is an input consumers consider when determining their willingness to pay?
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Pricing signals are particularly effective for frequently purchased goods.
Pricing signals are particularly effective for frequently purchased goods.
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What is one reason why consumers might overbid in value elicitation tasks?
What is one reason why consumers might overbid in value elicitation tasks?
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The principle that explains consumers' shifting perceptions of value is called __________ arbitrariness.
The principle that explains consumers' shifting perceptions of value is called __________ arbitrariness.
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What is one method used for value elicitation?
What is one method used for value elicitation?
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What is the primary benefit of using SALE & PROMO signs in marketing?
What is the primary benefit of using SALE & PROMO signs in marketing?
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Prices ending in 9 are generally perceived as less expensive than their rounded counterparts.
Prices ending in 9 are generally perceived as less expensive than their rounded counterparts.
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What is the purpose of introductory pricing?
What is the purpose of introductory pricing?
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The _____ effect refers to consumer choices influenced by the presence of other options.
The _____ effect refers to consumer choices influenced by the presence of other options.
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Match the following pricing strategies with their definitions:
Match the following pricing strategies with their definitions:
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What effect does precision in prices (unrounded numbers) have on consumer perception?
What effect does precision in prices (unrounded numbers) have on consumer perception?
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The 30% rule is a widely recognized strategy to determine optimal discount percentages.
The 30% rule is a widely recognized strategy to determine optimal discount percentages.
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Name one proactive approach to price guarantees.
Name one proactive approach to price guarantees.
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Consumers may question the reason behind a lower price due to their _____ theory.
Consumers may question the reason behind a lower price due to their _____ theory.
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Which pricing strategy is often used to attract consumers but can also raise questions about product popularity?
Which pricing strategy is often used to attract consumers but can also raise questions about product popularity?
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Study Notes
Pricing New Products
- Firms use four pricing methods for new products: cost-plus, target return, value-based, and consumer-based (psychological) pricing.
- Value is driven by a combination of net benefits, production cost, substitutes, and complements.
Pricing Challenges
- Pricing ambiguity stems from the subjective nature of value, impacting price fairness perceptions.
- Consumers tend to view prices as unfair more often than fair.
- To promote fairness, firms should make hidden production costs apparent and encourage buyers to think like sellers.
Value Elicitation
- Value elicitation aims to determine consumers' maximum willingness to pay (WTP) for new products.
- Methods include surveys, bidding tasks, and experiments.
- Overbidding and underbidding in value elicitation tasks can occur due to various factors, including misjudging value, budgetary considerations, and strategic behavior.
Psychological Pricing
- Consumers utilize pricing cues to evaluate price appropriateness, particularly for new products.
- Signals and heuristics significantly influence perceptions of fair pricing.
Common Heuristics
- Price-quality heuristic: consumers associate higher prices with higher quality.
- Compromise effect: consumers prefer an average price option over a lower price option within a set range.
Pricing Signals
- Signals are especially impactful for new products and services as they provide clarity when value ambiguity persists.
- Signals are most effective for infrequently bought goods, new or novice consumers, products with frequent design changes, and products with varying quality or sizes.
Sale and Promo Signs
- Sale and promotion signs can increase demand by 50%.
- The "30% rule: applies to discounting, highlighting significant discounts and encouraging purchases.
- Introductory pricing aims to build a large user base by offering deep discounts at launch.
Prices Ending in 9
- Prices ending in 9 might suggest a better deal and lead to more purchases.
Price Guarantees
- Price matching guarantees, both proactive and retroactive, can incentivize purchases.
Sharp Numbers
- Precision in pricing (unrounded numbers) signals careful evaluation and perceived fairness.
Attribution Theory
- Consumers generate reasons for unexpected information or experiences.
- Unexpected low prices might lead to negative attributions, such as product unpopularity, overestimated demand, or quality issues.
- Companies can control attributions by separating discounts from specific products.
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Description
Explore the complexities of pricing new products through various methods including cost-plus and value-based pricing. Understand consumer perceptions of price fairness and the role of psychological pricing strategies in value elicitation. This quiz delves into how firms can navigate pricing challenges effectively.
