Essays on behavioral pricing

Abstract

Pricing is one of the most important marketing decisions for companies. Even a small change in price may have a substantial impact on a company’s income. In addition to cost and value information, a company needs to understand how its consumers perceive, process, and respond to prices in order to make optimal pricing decisions. Behavioral pricing focuses on this facet of pricing and on how subsequent behavior may be explained by underlying psychological phenomena. In this respect, behavioral pricing extends, and in many cases challenges, traditional economic pricing research.

This dissertation consists of four individual essays that discuss behavioral pricing. The first Essay reviews the research topics in the field. The aim of the study is to conceptualize the research in behavioral pricing based on previous literature. In addition, the research reviews the main contributions, identifies the main topics and discusses the evolution of the field. The study concludes that research in behavioral pricing has produced much important information and new insights in to pricing. The results of Essay I were used to identify research opportunities in behavioral pricing. One of the most popular fields in behavioral pricing is research on the reference price concept. Reference price is the price consumers use to compare the offered prices of a product or service. The research on reference price is largely concentrated on studying grocery products by modeling scanner panel data.

Given the above, the second Essay of this research concentrates on reference price and especially the consumer behavior when prices are above and below a reference price. Essay II differs from previous research in that the object of the research is a service whose novelty is varied. In addition, the choice-based conjoint method was employed to assess changes in demand. The results highlight the fact that the choice behavior around reference price may not only be loss aversive but also gain seeking and symmetric. Essays III and IV study further the reference price concept. These two studies look at the roles of emotions and approachwithdrawal motivation when prices are above and below a reference price, using psychophysiological measures. The role of emotions has recently received increasing attention in consumer behavior research; however, applications in pricing contexts are rare. Essay IV is the first research that studies the approach-withdrawal motivation in a purchase situation.

These results suggest that the involvement of emotional and motivational processes can be important components of customer behavior around reference price and thus, components of theories such as prospect theory and loss aversion. The ignorance of emotional and motivational factors in pricing decisions and demand estimates may lead to incorrect conclusions. In practice, this suggests that price information should be presented in such a way that it translates into more positive or negative emotions.