Coming here

Eventually this site will organize much of the important academic pricing research -- by topic area -- so academics (and practitioners) can get a head start on researching a topic.

It will also cover important articles by academics on pricing. Submissions welcome -- send to Jensen at PricingStrategyResources.com.

Differential Pricing

Learning from the price spread for pens

Why does the price of a pen vary so much? Functionally, they are all simply writing instruments for applying ink to paper. We could describe them as recording devices to capture our thoughts for sharing with others or reviewing at a later time, yet this type of a description would only inflate the overall price level of pens, it wouldn’t account for observed price variations.

While pens come in a variety of colors, shapes, sizes, technologies, these variations in type fail to account the variations in price. Surely more than functionality accounts for the More

Risk and maximum acceptable discount levels

Abstract

Studies on optimal discount levels have sometimes yielded contradictory results, leaving practitioners with unclear direction. This study asked 453 consumers to choose their own optimal discount levels (from 0-80%) for eight product categories across two distribution channels (physical store and online merchant). Only 13% selected the 80% discount level for each product and each channel, despite seeing the exact price they would pay at each level. Consumers were then asked why they didn’t pick the deepest discounts. In support of attribution theory, 88% of the consumers attributed at least one cause for the deepest discounts. Most frequently cited were concerns about quality problems, damaged goods, or stolen goods. Consumers also opted for lower discount levels from the online merchant than from the physical store. There was a wide divergence by product category, with consumers selecting smaller discounts on tires and cereal and the deepest discounts on shirts. See full article.

Consumer processing of higher-than-expected prices

ABSTRACT

Consumer reaction to price is partially governed by whether that price is close to the “expected” price for the consumer. Yet consumers can override their internal reference prices (IRPs) and accept a higher-than-expected price. To better understand how they do so, it is necessary to first look at research on both IRPs and external reference prices (ERPs) – as well as what happens when those two are substantially different. See expanded abstract.

The effects of discount levels on purchase intention and quality perceptions of different product categories and brand characteristics

ABSTRACT

This study examined the impact of various discount levels on purchase intention and the perception of product quality. Three discount levels (15%, 30% and 40%) and no discount were compared in five product categories for known and unknown brands. Overall, there were statistically significant positive correlations between quality ratings and purchase probability ratings. While there were some differences among the categories and brands, in aggregate discounts beyond 30% were not effective in increasing purchase intention relative to lesser or no discounts. Mean purchase intention and quality ratings were the lowest at the 40% discount. Purchase intention and quality rating increased from no discount to the 15% discount and then leveled off from 15% to 30% before dropping at the 40% discount. Therefore, the 15% discount would be the most effective from a managerial perspective. While differences were found among the product categories and for different brands, the results of this study suggest that it would be prudent for marketers to systematically test discount levels prior to implementing deeper discounts. See full article.