Hard to Count the Cost

Hard to Count the Cost - Hard to Count the Cost Prices are...

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Hard to Count the Cost Prices are often irrational. So are consumers. By JEREMY PHILIPS Almost two-thirds of retail prices end in a nine on some estimates. These "charm prices"—set just below a round number—are meant to lead consumers to round down rather than up. While some doubt their effectiveness, plainly Steve Jobs is a believer, insisting initially that all tracks on iTunes be priced at 99 cents, as is Jeff Bezos, whose Kindle was first priced at $359, later $299 and then $259. In "Priceless," William Poundstone explains charm prices and other common pricing anomalies. More broadly, he explores some of the basic notions of behavioral economics and argues that psychology matters as much as logic in many simple economic decisions. Most prices, Mr. Poundstone notes, are not the result of exact science but are "slippery and contingent," relying on "coherent arbitrariness": Consumers don't know the "right" price for anything and mainly respond to price increases and the price of one thing compared with another. Not surprisingly, retailers and marketers exploit consumer psychology to make consumers think that they are getting more for less and to divert attention from any attempt to charge more. Sometimes, for instance, manufacturers stealthily reduce the size of their product. Mr. Poundstone cites Skippy peanut butter, which recently added an indentation to its jars that reduced its size by 9%. Consumers tent to react less to this subtle price inflation than to a higher price tag—particularly for regularly purchased products whose price consumers will remember. Eventually, a company will run out of corners to cut and can then start over with an entirely new
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This note was uploaded on 03/12/2011 for the course MKTG 3650 taught by Professor Thompson during the Spring '08 term at North Texas.

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Hard to Count the Cost - Hard to Count the Cost Prices are...

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