Published on Thu, Aug 10, 2006 at 19:21 | Source : Moneycontrol.com
Updated at Fri, Aug 11, 2006 at 12:35
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The Framing Effect of Price Format
How do consumers evaluate different pricing scenarios? This study looks at different pricing models to see which is more likely to result in positive customer perception.
Existing evidence suggests that preferences are affected by whether a price is presented as one all-inclusive expense or partitioned into a series of charges. To explain this phenomenon, we propose a simple psychological mechanism whereby price format determines how many product attributes are actively processed at the time of valuation.
Three studies support the hypothesis that price partitioning acts as an incentive to process multiple product dimensions. This process sometimes leads to the paradoxical overweighting of minor (but easy to evaluate) attributes that would be overlooked under an all-inclusive price format. The effect of price partitioning on demand can be detrimental or beneficial, consistent with existing conflicting findings in the literature and with variance in practice.
Beyond its predictive and prescriptive implications, this theory contributes to the general notion that pricing might affect as much as capture perceived value.
About the author
Luc Wathieu is an associate professor in the Marketing unit at Harvard Business School.
Existing evidence suggests that preferences are affected by whether a price is presented as one all-inclusive expense or partitioned into a series of charges. To explain this phenomenon, we propose a simple psychological mechanism whereby price format determines how many product attributes are actively processed at the time of valuation. 
