The Psychology of Pricing and Pricing Strategies

Vocabulary flashcards covering key concepts and terms related to the psychology of pricing and various pricing strategies.

Perceived Value

The worth that consumers assign to a product based on their expectations, rather than its actual cost or quality.

Anchoring

A cognitive bias where individuals rely heavily on the first piece of information offered (the anchor) when making decisions.

Price Elasticity

The measure of how much the demand for a product will change in response to changes in price.

Price Discrimination

Charging different customers different prices for the same product, typically to increase usage and access.

Penetration Pricing

Setting a low initial price for a product to attract customers and gain market share.

Price Skimming

Setting an initially high price for a new product and lowering it over time as the market evolves.

Cost-Plus Pricing

A pricing strategy where a fixed percentage is added to the cost of the product to determine its price.

Odd-Even Pricing

Pricing a product a few cents or dollars below a rounded number to create a perception of value.

Captive Pricing

A pricing strategy where necessary accessories or components are sold at a high price after the initial purchase.

Leader Pricing

Pricing a product low to attract customers and encourage additional purchases of higher-margin products.

Cognitive Bias

A systematic pattern of deviation from norm or rationality in judgment, leading to illogical conclusions or decisions.

Break-Even Point (BEP)

The production level at which total revenues equal total costs, with no profit or loss.

Trade Discounts

A reduction in price offered to wholesalers and retailers to encourage them to stock more of a company’s products.

Bait and Switch

An illegal advertising tactic where customers are lured to a store with an attractive offer that is not available.

Price Bundling

Selling multiple products together at a lower price than if purchased separately, which enhances perceived value and boosts sales.