Heuristic price theory: A model of pluralistic price evaluations

Abstract

Economic price theory assumes that consumers' responses to prices can be characterized by stable demand curves and price elasticities. The author posits that this assumption lacks descriptive validity because the demand curve is rather unstable; subtle changes in framing and contextual cues can change the demand curve. The article outlines heuristic price theory, which posits that price evaluations are pluralistic in nature. Each price evaluation entails several heuristic decision rules (or decision criteria) that are activated by conscious and unconscious evaluative responses to price and the contextual cues. The extant literature identifies six types of evaluative responses that influence these heuristic decision rules: the pain of paying, price comparisons, price-quality inferences, price negotiability judgments, price fairness judgments, and price-feature tradeoff. To predict how prices influence consumer behavior in a particular context, it is important to identify the heuristic decision rules being used in that context. This implies that managers and researchers, instead of focusing only on estimating price elasticities using stylized demand curves, should also study the heuristic decision rules that shoppers use to evaluate prices.

Consumer price evaluation strategies: Internal references, external references, and price images in consumer price perception

“…Finally, as stated at the beginning, this paper deliberately limited consideration to those three consumer price evaluation strategies that have received the most attention from marketing scholars. But it is important to note that there are other strategies not adequately covered by the present treatment (see Thomas, 2023). The proposed framework would be improved by subsequent expansion to include additional methods consumers have for evaluating prices.…”

“…I begin with the assumption that in many price evaluation situations, consumers will have access to more than one of the pricing constructs described in this paper to guide them (Thomas, 2023). I propose that the strategy consumers use to evaluate any particular price is likely to be a factor of a combination of the relative accessibility and perceived diagnosticity of their IRPs, ERPs and PIs.…”

“…Another, smaller body of work suggests that consumers may instead rely on a retailer's price image when evaluating price (Brown & Oxenfeldt, 1972; Thaler, 1985). While these three are not the only mechanisms that have been proposed to account for consumer price evaluations (see Thomas, 2023 for a holistic review of research on price evaluation heuristics), they have received the majority of attention from researchers. Further, these three might be considered foundational, in that many proposed alternative evaluation price strategies still rely on some combination of internal and external reference prices and price image in accounting for these strategies.…”

Measuring Willingness to Pay: A Comparative Method of Valuation

“…A rich literature has also noted that customers construct WTP based on the situation (e.g., Bordalo, Gennaioli, and Shleifer 2013;Thaler 1985;Voelckner 2006)-factors such as purchase goal (e.g., personal consumption vs. gift-giving) alter customers' valuation of an object. Still other perspectives have noted the role of a comparison-valuation of an object is always relative to an alternative option, whether another product or no purchase (e.g., Anderson, Narus, and Narayandas 2009;Hsee 1996;Jedidi and Zhang 2002;Kohli and Mahajan 1991;Nagle 1987;Thomas 2023). Indeed, in economic utility theory-from which WTP is derived -all utility is measured relative to some comparison.…”