The behavioral aspects of pricing

Citation

Maxwell, S. and Estelami, H. (2010), "The behavioral aspects of pricing", Journal of Product & Brand Management, Vol. 19 No. 7. https://doi.org/10.1108/jpbm.2010.09619gaa.001

The behavioral aspects of pricing

Article Type: Guest editorial From: Journal of Product & Brand Management, Volume 19, Issue 7

In this first decade of the twenty-first century, we have witnessed many changes in the practice of pricing. We have observed the rapid increase in the focus given by organizations on pricing. The number of professions and career paths dealing specifically with pricing has significantly grown over the past decade. Continued research in the field has identified innovative ways to make price promotions more relevant to consumers and more effective than in prior years. We have developed a better understanding of the interplay of price and perceived risk, and have investigated the pricing of new-to-the-world products. All of these changes are represented in this special issue of the Journal of Product & Brand Management (JPBM) on the behavioral aspects of pricing.

The article by Carricano, Trinquecoste and Mondejar investigates the progression of the pricing function through three main stages: commodity, control and value. An example is Colombian coffee that started with commodity pricing and evolved into higher quality standards that justify higher prices. Columbia’s coffee producers were then placed in a position to establish the superior value of the product and thereby command a superior price. Carricano, Trinquecoste and Mondejar suggest that as the pricing function matures the same sequence will take place in other related fields.

Marketing researchers continue to struggle with the problem of how to use price promotions to spur sales. Choi, Ge and Messinger look at the different responses to tensile price claims (e.g. “up to 25 per cent off”) and scratch and save promotions (with possibility of up to 25 per cent off) that are particularly popular in Canada. They find that consumers are skeptical of scratch-and-save offers but enjoy the gambling aspect of this form of promotion. Their research indicates that consumers find scratch-and-save promotions with deep discounts more attractive than limited-scope tensile price claims.

Coker, Pillai and Balasubramanian also look at price promotions. They establish that the amount of delay in receiving a reward makes a difference in customers’ motivation to buy. A coupon, for example, provides instant gratification whereas a rebate provides future gratification. They conclude that marketers could delay the reward for low-priced products without losing the customer’s motivation to buy. It appears that when the price is low, consumers are willing to take on more risk. For high priced goods, however, customers prefer an instant reward over a delayed rebate.

The element of risk is also considered by Lowe. His concern is the performance risk of the product itself. He finds that when performance risk is high – for example, for a new electronic product – consumers prefer a price discount rather than an extra free product. The opposite is the case for products where performance risk is low – for example, an established brand of shampoo. In that case, consumers value extra free product promotions more than a discount.

During this first decade of the new millennium many new products have been introduced to the market. In some cases, the pricing of those products has been disastrous: witness the kerfuffle that followed when Apple introduced the iPhone at $249 and suddenly cut the price to $99. Initial buyers were infuriated because a reference price had been established but new buyers did not have to pay it. In this special issue, Lowe and Alpert investigate how reference prices are set for new products. They find that the price of the pioneer brand establishes the reference price for both itself and its follower, but the follower’s price acts as a reference for only its own product. These effects are particularly strong when an innovative product like the Kindle is introduced.

Love, Staton, Chapman and Okada also investigate new product introductions. They show that early in a category’s lifecycle, consumers will be more promotion-oriented than prevention-oriented. Companies will, therefore, be successful in introducing a new product only if their target market is the promotion-oriented consumer. Prevention-oriented customers are more likely to try a new product only when they have the quality assurance of an established brand. An example is Apple’s successful entry into the tablet computer category.

The Associate Editors of the JPBM want to thank the many pricing researchers who submitted to this special issue. Your work demonstrates the continuing vitality and significance of research on the behavioral aspects of pricing.

We also want to thank the Editorial Board, which has over the years provided invaluable services to the field of pricing and has been instrumental in moving the pricing section of the journal forward. We are constantly amazed at the willingness of pricing academics to review articles. We are tremendously appreciative of their spending their valuable time to review all the submissions to JPBM so carefully and thoughtfully. The quality of the journal is a reflection of their dedication.

We therefore gratefully acknowledge the support of the following reviewers: Fabio Ancarani, Sundar Balakrishnan, Margaret Campbell, Rajesh Chandrashekaran, Amar Chema, Keith Coulter, Devon DelVecchio, Sujay Dutta, Ellen Garbarino, Eric Greenleaf, David Hardesty, Andreas Hintenhuber, Kostis Indounas, Sharan Jagpal, Frédéric Jallat, Biljana Juric, Monika Kukar-Kinney, Rob Lawson, Dawn Lerman, Joan Lindsey-Mullikin, Rajesh Manchanda, Ken Manning, Pete Nye, Hans Pechtl, David Sprott, Rajneesh Suri, and Lan Xia.

We also gratefully acknowledge the continuing support of our advisory board: William Bearden, Dipankar Chakravarti, Dhruv Grewal, Sunil Gupta, Donald Lehmann, Kent Monroe, Robert Schindler, Joe Urbany and Russell Winer.

Sarah Maxwell, Hooman EstelamiGuest Editors