Behavioral pricing refers to a pricing strategy that involves psychological and cognitive factors in determining the price of goods or services. It takes into consideration how consumers perceive, evaluate, and react to different prices when making purchasing decisions.
Behavioral pricing works by understanding consumer behavior and using this knowledge to influence their buying decision-making process. Businesses use various tactics such as anchoring, loss aversion, and decoy effects to alter consumer perceptions about the value of goods or services.
Anchoring is a technique where businesses set an initial higher price on a product before offering discounts or deals attached. This techniques used so that even after product discount given people would purchase the item because they after viewing the image of high cost at first glance affected buyers' mental ability thus may start finding item worthy having low attractive priced item available right beside it.
Another popular tactic under behavioral pricing is called loss aversion. Loss aversion signifies focusing on potential losses rather than gains from purchasing products; by doing so companies attract more customers.
In market "decoy effect" means presenting Potential buyer with comparison between similar items.with preference for up-sell working better.it just like tucking chain in place if McDonald’s has three types of burgers you go with medium one which have less features n benefits ,but adding another size burger able individuals compare both products again causing them getting larger burger due-to price differences seem insignificant.
There are several types of behavioral pricing strategies used in marketing:
1) Price skimming: Charging excessive prices initially until competition level increases - this mostly seen en new-product launches
2) Dynamic pricing: Changing prices often based on supply-demand ratios can change instantly & customer perception,in order to increase profitability through data-driven modifications
3)Command Pricing: Made prices round numbers,e.g $99 not $100
4)Comparison effect pricing: using certain techniques to create a distinction between different items, and influence consumer perception about the value of goods ,possibly by adding slightly better product.
Behavioral pricing enables businesses to understand how consumers react to market changes and develop effective strategies. Companies can predict their target audience behaviors before adopting an appropriate solution .
If companies are successful in setting right approach like correct timing & appropriate marketing these tactics (anchoring, decoy effects etc); they ultimately impact buyer's final decision more easily through highlighting even unwanted desired features vital for making purchases with large margins incorporating both company profit as-well-as customer satisfaction.
1) “Pricing Psychology Strategies” - Susan Lee Wee
2) “Priceless: The Myth Of Fair Value (and How To Take Advantage Of It)”- William Poundstone
3) “The Power of Influencer Marketing Through The Prism of Data Analytics”- Ph.D. Leo Vlasak
4) “Consumer Behavior: Basic Findings And Management Implications” - Jaideep Bansal
5) "Product Decisions" 10th edition-Louis E Boone
