The Neuropricing Effect on Consumers’ Persuasion Knowledge

Outline

• Purpose of research

• Background and context

• Originality of research

• Objectives

• Literature review

• Conclusions

2

Emotional-related processes can advantageously bias judgement and reason!

3

Homo Economicus???

4

Neuromarketing

• We are rather emotional beings(Lindstrom and Underhill, 2010)

• 95% of the decisions peoplemake are made by thesubconscious and only 5% of thedecisions are conscious ones.(Arendonk, Polderman and Smit, 2013).

5

Purpose of research

To analyse the degree of pricing tacticseffect on human brain and to providevaluable information in order to createand apply more effective pricestrategies.

6

What is Neuropricing?

Neuropricing determines‘willingness-to-pay’ throughneuroscientific methods suchas EEG.

So, companies no longerhave to rely on unreliableexplicit statements made bycustomers.

7

Neuropricing tools

8

Originality of research

• Minimal research has investigated consumers’persuasion knowledge regarding marketers’ pricingtactics

(Hardesty, Bearden & Carlson, 2007)

For that reason, we have identified a gap in theliterature (lack of research that associates EEG to pricereactions).

Therefore, this study attempts to fill the gap in theexisting literature using neuromarketing techniquesand act as an originator for future research. 9

Objectives

• The effectiveness of price endings (0, 5 and 9-endings),

• The effectiveness of conspicuous pricing,• The effectiveness of dynamic pricing• The effectiveness of “pennies-a-day”

10

PROPOSED METHODOLOGY

We will apply electroencephalography (EEG), asa safe and noninvasive method, to record brainactivity in emotional states such as happiness,relaxation, excitement, stress, sadness, anger etcand therefore help marketers offer consumersnot only the right product or the right messagebut also the right price.

11

Literature review

• EEG experiments–Starbucks experiment (Dr. Kai-

Markus Müller)

12

Price endings

–Round price endings connote a HIGHprice, or a recently increased one.

–Decimal price endings connote LOW,decreased or discount prices.

(Schindler, 1991)13

€1000 or... €999,99?

Price endings & gender

Schindler and Kibarian(1996)

Experiment: direct mail retailer ofwomen’s clothingResult: The use of 99 endings (decimalpricing) led to increased consumerpurchasing.

Gendall, Holdershawand Garland (1997)

Supported this view

Harris & Bray (2007)

Women are more likely to respondwith odd-endings than men. 14

Price endings & image

Stiving (2000) High-end stores are more likely to use roundprices than lower-priced stores. Moreover,higher quality and higher priced productstend to be priced with round numbers.

Naipaul and Parsa (2001)

High-end restaurants prefer 0-ending pricesin their menus as opposed to 9-ending pricesused by mid-level and low-end restaurants.

Schindler and Kibarian (2001)

Products with 99-ending prices are perceivedas having lower prices and lower qualitycompared with the same products with 0-ending prices.

15

Conspicuous pricing ( exclusivity)

Bagwell and Bernheim(1996)

&Corneo and Jeanne (1997)

Conspicuous consumption is aconsequence of consumers' desire tosignal their wealth (Veblen effect)

Amaldoss and Jain, 2005

Maintain a product's exclusivitybecause consumers might find theproduct less valuable if it becomeswidely available.

16

Dynamic pricing

A flexible pricing strategy where a business sets flexibleprices for goods based on algorithms that take intoaccount several factors such as:

1. Competitor Pricing

2. Time-based Pricing

3. Supply and Demand

4. Customer Profile

5. External factors in the market

17

Dynamic pricing

Kannan and Kopalle (2001)

Dynamic pricing is a pricing strategy in whichprices change either over time, acrossconsumers, or across product/servicebundles.

Garbarino and Lee (2003)

If people feel they are all offered similarprices, they might react strongly regardlessof whether they were offered the higher orthe lower price.

18

Pennies-a-day

• The cost of less than 76c a day soundsmuch more affordable and attractivethan €23 a month.

• Customers are not as rational as we believe.

• Psychological pricing does have an effect on customerbehaviour and subsequently on their purchase decisions.

• EEG leads to bias free information about customers’perceptions, real needs and wants, in order to create themost appropriate price strategies. 20

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