Price Perceptions, Consumer Choices and the Compromise Effect
- António Damásio, in his book “Descartes' Error,” states that emotions both guide and bias behavior and decision-making. One of the examples he uses is called the Compromise Eﬀect, a behavioral phenomenon by which customers often choose the mid-priced option to protect themselves from making a bad choice.
- According to Catherine Tucker, MIT Sloan Professor of Management Science and Marketing, this effect should not just be employed as a decoy, but also as an opportunity to target high value customers.
- In addition, many decisions are driven by the consumers’ lack of pricing knowledge. An MIT study interviewed people waiting in line at a store. They found that while 80% of customers thought they knew the price of the products in their basket, only 50% did, in fact, know. At Prisma, we conducted a similar survey. While the consumer was picking a product from the shelf, we asked her if the price she was paying was fair, and if it was a product that she usually bought. The survey showed that 45% of respondents that answered that the price was cheaper with another competitor were wrong.
- In a classic experiment by Kivetz, Netzer, and Srinivasan (2004), MBA students were given the choice of subscribing to the Economist in print ($125), web ($59), or print & web ($125). The result, hypothetical subscriptions to print & web increased from 43% without the web-only option to 72% when the web-only option was included.
- The implication here is that a ﬁrm can increase proﬁts by adding a high-priced option or a bundle to an existing product line.
- At Prisma, we advocate for the use of a combination of business rules, machine learning and A/B tests, among other techniques, to deliberately design your pricing and assortment strategy, and, therefore, increase your margins.
You may also be
“Canastas de Alimentos” : listas para comprar en un solo click
Con el comienzo de la cuarentena sobrevinieron importantes cambios de hábitos en el comportamiento del consumidor. La principal tendencia observable, es la manera en que el comercio online fue ganando terreno por sobre las tiendas físicas.
Let's buy it all NOW!
Fights, despair, anxiety, and many other emotions are being exposed in retail stores nowadays. We all have seen images and videos of consumers stocking (or stalking?) toilet paper and other goods in most countries hit by the COVID-19, suggesting the apocalypse of basic goods.