Pricing Stratagies: Facts Over Assumptions
Introduction
Everyone goes shopping. Whether someone is buying groceries, lunch, or even a new car, people get exposed to multiple different pricing strategies. Companies utilize them so that customers are more likely to purchase their products. Everyone has fallen for them, it creates appeal when it might not have existed before, but everyone should be aware of them.
One way the framing effect is prevalent globally is by people being presented with information that doesn’t give the entire story. One example of this is medical treatment effects generating different reactions from patients. Being exposed to a frightening mortality rate can affect whether a patient is more or less likely to take treatment, despite the health benefits from the treatment or the reliability of the doctor. Another example of the framing effect is online dating. On websites such as Tinder, people decide whether or not they are interested in an individual based on their appearance and then their assumption of their personality from their looks. Often people overlook others due to assumptions made from appearances. Finally, an example of the framing effect is with students’ grades. If a student is presented with a lower grade, from an outside perspective it could be seen as though the student is uneducated or was unprepared. However, a lower grade doesn’t necessarily mean a less intelligent student, and shouldn’t determine who that student is.
What Is The Framing Effect?
The framing effect explains how someone can make assumptions about how something appears over actual content, which allows for someone to make misinterpretations as there isn’t a clear understanding but just a simple view before making a decision.
What Are Pricing Stratagies?
A company determines pricing strategies that evaluate potential risks with different prices of products in the market such as volatility, competition, or supply chain, while finding a way to adjust prices to maximize profits.
Case Study: Framing Effect While Determining Pricing Stratagies
The framing effect can also have significance on a company’s pricing strategies. When a person unfamiliar with foreign currencies gets presented with a product listed in an unfamiliar currency the framing effect could lead them to believe the product is cheaper or more expensive than it is. The product may have been priced right or even better than their competitors, although because it is listed in a foreign currency, the audience is less likely to be appealed to purchase it. Another example where the framing effect can influence pricing strategies is with monthly and annual payments. Companies that use monthly or yearly fees can make pricing more appealing to customers who may believe the full price is out of their comfortable spending zone. Although the monthly or annual payments may equivocate to a larger total when it is completely paid out, customers are more likely to pay in smaller increments as it is seen as more affordable and better budgeting. Finally, deals that companies place are often examples of the framing effect. Some companies set product’s original prices significantly higher than what they plan on selling them for just so that they can place a deal to make the product more appealing to customers. Companies that always have discounts aren’t necessarily giving better deals, they are just using the framing effect to make their products more appealing to customers.
The framing effect is also visible in pricing strategies within New York. One of the largest markets in New York is real estate. New York is home to some of the most expensive real estate in the world, yet also some of the smallest. By using metrics such as price per foot, realtors find a way to advertise smaller spaces and give them more value. Another aspect of the framing effect in New York is with its restaurants. Many restaurants list expensive items first, which makes the other options seem much more affordable. Also, if someone sees expensive dishes at a high-end restaurant, they may think the food would be of better quality or greater quantity. However, high-end restaurants’ popularity masks the reality of the quality. Finally, the framing effect is prevalent in New York pricing strategies through retail pricing in tourist areas. Broadway frames their ticket prices as “starting from”, suggesting that tickets are cheaper than expected. However, if someone were to see which seta they would get at that price, they would be utterly disappointed. Many other entertainment places use this same technique, such as sports games and concerts, where they show ticket prices first as “starting from” to indicate that tickets are more affordable than previously thought. Also, many ticket websites use hidden fees to make tickets appear cheaper until checkout when a customer is more likely to finalize a purchase.
Stratagies To Overcome The Framing Effect
How To Avoid The Framing Effect In Everyday Life:
- Be aware that information is presented in a certain way
- Look beyond a basic level and dig deeper
- Be careful of thinking with emotions over rationally
How To Avoid The Framing Effect When Examining Pricing Strategies:
- Don’t be swayed by percentage discounts without taking into consideration base prices
- Asses whether bundle or individual prices provide more value
- Don’t be overly influenced by prices ending in .99 or .95
What Do You Think?
Have you ever been convinced to buy something because it had a discount? Did you ever think something was less expensive than it was due to the .99 at the end of the price tag? Do you search for the best prices or buy products the first time you see them?
Resources
https://www.morningstar.com/financial-advisors/effect-framing-financial-decision-making
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10468084
Podcast On Financial Literacy
From That’s That. Podcast