Consumers on the prowl for bargains are quick to blame business owners for tricking them into paying higher prices for products. But more often than not it’s consumer behavior that drives price, not a desire by business owners’ to pick pockets. Take, for example, tuna. Most consumers assume that buying in bulk is cost-effective and that bigger, ultimately, is cheaper. But a study presented at Fordham University’s second annual Behavioral Pricing Conference showed that smaller cans of tuna often are a better deal.
“We found that prices for the smaller cans were lowered by retailers because consumers were purchasing the larger cans and they wanted the smaller ones to move off the shelves,” said Anthony Miyazaki, a professor of marketing at the University of Miami and an author of the study “Price Setting, Brand-Size Demand, and Quantity Surcharges.” “Consumers assume they are being ripped off and prices are being raised, but the opposite is actually true. They are getting a better deal on the smaller cans because the larger cans are more popular.”
These types of misconceptions, along with issues such as the value of store brands versus non-brand items, how odd numbers versus even in the last digits of the price affect consumer appeal and how economic boom times affect pricing, were examined at the two-day conference. “Setting prices is extremely difficult and pricing perception plays a large role in it,” said Sarah Maxwell, Ph.D., co-direcor of Fordham’s Pricing Center. “Pricing has the biggest impact on profitability and is the most difficult part of marketing. This is the only conference in the country that looks at behavioral pricing.” This year’s conference honored Kent B. Monroe, whose 30 years of experience demonstrate that buyers’ price evaluations are often affected, and sometimes biased, by seemingly irrational and emotional influences and are rarely attributed to price alone.
Professors from around the country and overseas presented papers honoring Monroe’s work by reporting groundbreaking research on consumer price perception formation and behavioral responses to price. Monroe said the future of price perception lies in a better understanding of how people process numbers and what is in their mind when they consider prices. “Most people don’t remember the exact price they paid, they remember it being inexpensive or expensive or have an idea of what they paid,” he said. “We need to distinguish whether their knowledge is implicit or explicit, whether they process different numbers differently and how this effects behavior. We are just beginning to scratch the surface and we have to scratch harder and deeper.” Hooman Estelami, co-director of Fordham’s Pricing Center, agreed with Monroe and said consumer price recall is often a function of the economy. “In a good economic environment with high economic growth price recall accuracy decreases,” he said. “People are just less concerned with price. It’s a phenomenon we’re studying now.”