Respond to two peers.
Prompt: Behavior economics is a relatively new concept that was developed by Daniel Kahneman and Amos Tversky and is known as the prospect theory. The prospect theory posits that consumers are inspired by the comparison of prices to the reference price rather than the actual price. Discuss why managing price expectations is as important as managing price. Please give three examples of local restaurants using prospect theory. Include a minimum of one reference.
Peer 1: This week, we are asked to tackle Psychological Pricing. It is defined for us as, is the practice of setting prices slightly lower than a whole number. This practice is based on the belief that customers do not round up these prices, and so will treat them as lower prices than they really are. Behavior economics is a relatively new concept that was developed by Daniel Kahneman and Amos Tversky and is known as the prospect theory. The prospect theory posits that consumers are inspired by the comparison of prices to the reference price rather than the actual price. We are asked to discuss why managing price expectations is as important as managing price, and give three examples of local restaurants using prospect theory. I am not very familiar with psychological pricing, perhaps it’s just the term I am not familiar with, so I ventured off to the internet to find some examples of this. The easiest to understand example of this comes from an article I found called “Does Psychological Pricing Work”. They state, Have you ever walked past your favorite store and the windows were plastered with signs that read, “BOGO 50%! TODAY ONLY!” then proceeded to walk in and purchase things you didn’t even need? If the answer is “yes,” then you, my friend, are a victim of psychological pricing. You see this almost on every storefront. Its a gimmick used to lure in customers who might have not have normally visited the store, as they do not have a need to purchase anything. Psychological pricing can also be described as setting prices lower than a whole number — for example, $3.99 is perceived as “cheaper” than $4. The idea is that customers will perceive the slightly lower price as a deal and be motivated to make the purchase. Discounting is another psychological pricing tactic that retailers can use to frame the sale of their products. Restaurants do the same thing with “happy hour” pricing or other deals they might advertise. I visited a Buffalo Wild Wings the other day merely for their $1 wing special on the particular day I visited, I fell for it, although I didn’t really mind. Some pros and cons to this pricing can be boosts attention, simplifies decision making for a customer, high return. On the other hand, it can come off as decietful, and not a long-term solution. Some examples of other psychological pricing includes “buy one get one”, offering a price ending in 99 to look like a lower price, any kind of “after” holiday sale, “end of year” clearance, or any type of “exclusive” deal.
Does Psychological Pricing Work? Definition & Examples | Profitwell
Peer 2: In our local town,we have severa l different pizza places to eat at. When I am trying to decide which pizza place to choose from the first thing I look at is any deals that they may have going on at the moment as to which will give me more for my money and not hit the bank account the hardest. I have two growing little boys who love pizza so it would be easier to get the most for my money to ensure they are full, plus have plenty of left overs as they love pizza so much they will eat it until it is all gone. The second thing I would look for is what the deal all actually entails when ordering from that particular pizza place because one pizza place in particular is always having deals which works out for my growing little boys. Lastly, if I feel like the pizza deals at any pizza place is not worth it then we will fall back to our most favorite pizza place and just continue to order from there. But when managing prices, it is always a good thing to have the best deal for the amount of money which would allow for more people to continue to come back to that place to continue eating. If someone believes they are not getting the most out of their money, chances are they will no longer eat there again.
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My orginal post: A few abilities are required in drawing in clients to specific merchandise. The decisions that a dealer makes are the center drivers of the deals that they will make. One of the techniques utilized is cost administration. The thought brings session the possibility hypothesis by which a financial backer puts weight on apparent additions versus misfortunes. This paper clarifies the justifications for why overseeing evaluating assumptions is significant in business.
Value the board is a center determinant of client choices. Estimating the executives depends on the cost assumptions that clients have as they enter a store. Assuming that the cost in the client’s psyche is higher than whatever they find in the store, then, at that point, they are probably going to buy the products. The thought provides the client with a feeling of control and furthermore permits them to see the value of their cash. They see as though they are helping more by purchasing merchandise at apparent lower costs which is a benefit to the current organization (Rossiter, 2019). Cost administration use three angles. The first is a conviction. This is taken advantage of by adding some view of remunerations to the client like limits for products that they purchase. The subsequent one is the seclusion impact by which stores that have specific extraordinary costs are bound to be recollected by the clients. At last, outlining is applied. This is the making of positive edges that have a greater capability of gains over misfortunes.
There are a few organizations that utilization the thoughts above. The first is KFC which utilizes a reference cost on a portion of their items. They give the reference cost in adverts close to the current costs. Romano’s Macaroni Grill and Sizzler likewise apply a comparable idea.
References
Rossiter, J. R. (2019). A critique of prospect theory and framing with particular reference to consumer decisions. Journal of Consumer Behaviour, 18(5), 399-405.
