The Psychology of Pricing

Do_Consumers_Make_Too_Much_Effort_to_Save_on_Cheap_Items.pdf Do Consumers Make Too Much Effort to Save on Cheap Items and Too Little to Save on Expensive Items? Experimental Results and Implications for Business Strategy(250KB approx)

Author: Ofar H. Azar
Traditional economic theory would suggest that a consumer will go to the same lengths (for example, drive for 20 minutes) for a discount of $10 off a $50 jacket and the same discount off a $100 jacket: $10 should have the same value in both cases. Ofer H. Azar’s academic paper disproves this theory, and constructs an experiment that shows that we judge prices as relative to one another, not on their absolute values. As a price increases, so does the amount of money that needs to be discounted from it to justify the efforts made by the consumer to enjoy the discount.

Article forthcoming in the American Behavioral Scientist. First published online MPRA Paper No. 20962 25 February 2010.

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Free_by_Chris_Anderson_book_review.PDF Book Review: Free: The Future of a Radical Price by Chris Anderson(243KB approx)

Author: Debbie Richards
Debbie Richards’ review of Free: The Future of a Radical Price by Chris Anderson, a book which evaluates the consumer psychology behind the success of pricing strategies involving a 'free' element, as well as the potential risks involved when a product or event is 'free'.

Anderson, C. (2009), Free: The Future of a Radical Price, Hyperion.

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Free_is_a_Magic_Number.pdf Free is a Magic Number?(161KB approx)

Author: Tim Baker
There’s no more attractive price than Free! Free bends the ‘demand curve’ disproportionately so that demand at zero is substantially higher than demand at even one cent.

Free is an attractive pricing strategy for the arts, perhaps because it is seen to overcome the perception of risk in attending an unknown arts event. However, Tim Baker argues that giving something away for free can seriously undermine its value.

An abridged version of this article was published in Arts Professional Magazine, Issue 245, 21 November 2011. For definitions of UK English terms, see Glossary.

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How_prices_can_play_tricks_with_our_brains How prices can play tricks with our brains(0KB approx)

Author: Martin Hickman
In December 2010, the UK’s Office of Fair Trading published an investigative report, “Advertising of Prices”, listing seven pricing tactics used by retailers to influence a customer's purchase. Martin Hickman looks at some of OFT's experiments with tactics such as reference pricing, and asks why they're so effective at getting us to buy.

First published in The Independent on 11th December 2010. Posted to the thinkaboutpricing.com LinkedIn forum in March 2011.

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Predictably_Irrational_Book_Review.pdf Book Review: Predictably Irrational by Dan Ariely(195KB approx)

Author: Steven Roth
Steven Roth reviews Predictably Irrational, The Hidden Forces That Shape Our Decisions, Dan Ariely’s fascinating and eminently readable destruction of classical economics in the light of experiments in decision theory. His book explains how the psychology of pricing is affected by the irrational way we all make decisions about our lives and the stuff we buy.

Ariely, D (2009), Predictably Irrational, The Hidden Forces That Shape Our Decisions, Harper Collins.

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Priceless_by_William_Poundstone_book_review.pdf Book Review: Priceless by William Poundstone(86KB approx)

Author: David Reece
David Reece reviews William Poundstone’s Priceless: The Myth of Fair Value (and How to Take Advantage of It), a book that explores the field of behavioral economics.

Poundstone explains how customers’ decisions and perceptions of fairness can be manipulated by various implicit and explicit pricing tactics, many of which can be applied to pricing for the arts. The book’s emphasis on ‘fairness’ helps to answer the age-old question of why customers complain about the price of tickets to popular concerts and shows.

Poundstone, W. (2010), Priceless: The Myth of Fair Value (and How to Take Advantage of It), Scribe Publications.

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Psycho_Pricing-_Introducing_Irrationality.pdf Psycho Pricing: Introducing Irrationality(76KB approx)

Author: Tim Baker & Steven Roth
First in a series of articles sharing Baker and Roth’s application of the principles of behavioral economics to arts pricing. This first instalment explains the difference between our rational and irrational selves and the relevance of behavioral economic thinking to the arts.

First published by the National Arts Marketing Project (Americans for the Arts), 9 February 2012.

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Psycho_Pricing_-_Back_to_Basics_Supply_&_Demand.pdf Back to Basics: Supply and Demand (Part 2 of Psycho Pricing)(82KB approx)

Author: Tim Baker & Steven Roth
Second in a series of articles sharing Baker and Roth’s application of the principles of behavioral economics to arts pricing. This instalment looks at the inter-relationship of behavioral and classical economics, with particular reference to supply and demand.

First published by the National Arts Marketing Project (Americans for the Arts), 14 March 2012.

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Psycho_Pricing_-_Free_is_a_Magic_Number.pdf Free is a Magic Number? (Part 3 of Psycho Pricing)(186KB approx)

Author: Tim Baker & Steven Roth
Third in a series of articles sharing Baker and Roth’s application of the principles of behavioral economics to arts pricing. This instalment highlights the disproportionate effect that 'Free' has on customers' perception of value.

First published by the National Arts Marketing Project (Americans for the Arts), 15 May 2012.

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Psycho_Pricing_Theory_of_Relativity.pdf The Theory of Relativity (Part 5 of Psycho Pricing)(116KB approx)

Author: Tim Baker & Steven Roth
Fifth in a series of articles sharing Baker and Roth’s application of the principles of behavioral economics to arts pricing. This article is about how even the rational, reflective mind can play tricks on us because of the difficulty we have in assessing absolutes and our tendency instead to make relative judgments. The contrast bias applies to our ability to assess weight, or light... or prices.

First published by the National Arts Marketing Project (Americans for the Arts), 4 April 2013

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Psycho_Pricing_Value_is_all_in_the_Mind.pdf Value is all in the Mind (Part 4 of Psycho Pricing)(105KB approx)

Author: Tim Baker & Steven Roth
Fourth in a series of articles sharing Baker and Roth’s application of the principles of behavioral economics to arts pricing. This instalment argues that the better the true value offered is communicated – value as defined by the consumer - the more likely the customer will buy.

First published by the National Arts Marketing Project (Americans for the Arts), 19 September 2012.

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Shoppers_Will_Bite_At_These_Prices.txt Shoppers Will Bite at These Prices(0KB approx)

Author: Michaela Saunders
Article explaining how consumers can be led by irrational emotional reactions induced by “just-under-the-dollar” prices as opposed to their own independent rational thought. Particular emphasis is put on the use of this strategy for online sales.

Written by Michaela Saunders for the Omaha World Herald, published 5th December 2010. Posted to the thinkaboutpricing.com LinkedIn Forum, December 2010.

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the_challenges_of_perceived_pricing.txt The Challenges of 'Perceived Pricing'(0KB approx)

Author: Roger Tomlinson
Roger Tomlinson’s blog points to a groundswell of discussion about the impact of "perceived pricing" which he defines: when the potential purchaser inflates the price of the ticket by guessing the extra charges which will be imposed, and then decides not to buy.

First published on Brand in your Hand 11th July 2011. Posted to the thinkaboutpricing.com LinkedIn forum July 2011.
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The_Price_Behind_The_Choices_We_Make.txt The Price Behind The Choices We Make(0KB approx)

Author: Kay Ryssdal
Interview with Eduardo Porter about his new book The Price of Everything: Solving the Mystery of Why We Pay What We Do which evaluates the transaction between customer and vendor taking into account the value or ‘opportunity cost’ placed on items / experiences at any given time.

Interview conducted by Kay Ryssdal on Marketplace, transcribed and published on 10th January 2011. Posted to the thinkaboutpricing.com LinkedIn forum in January 2011.

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Use_the_psychology_of_pricing_to_keep_customers_returning.txt Use the Psychology of Pricing to Keep Customers Returning(0KB approx)

Author: Q & A with John T. Gourville by Manda Mahoney
When to charge for a product or service can be more important than how much to charge, says Harvard Business School professor John Gourville. With implications for building long-term loyalty, including subscription or season tickets, he offers concepts for customer retention and increased attendance through adjusting payment schedules and increasing price transparency.

Includes an excerpt from "Pricing and the Psychology of Consumption," Harvard Business Review, Vol. 80, No. 9, September 2002.

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Using_Menu_Psychology_to_Entice_Diners.txt Using Menu Psychology to Entice Diners(0KB approx)

Author: Sarah Kershaw
A readable insight into the menu pricing and display tactics used to coax diners into enjoying and spending more at the restaurant.

Written by Sarah Kershaw for The New York Times, published on 22nd December 2009. Posted to thinkaboutpricing.com LinkedIn forum in September 2010.

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