USING CONSUMER EXPECTATIONS AS AN INPUT TO PRICING DECISIONS

Marketing textbooks tend to follow economic theory in their discussions of pricing, but in the real world pricing is an alchemical mixture of costs, competition and consumer psychology. This paper presents experimental evidence that, for at least some purchase situations, consumers' expectations of what a thing ought to cost may be a better predictor of choice between offerings than are the predictions from two well‐known theories relating price to consumer behavior. The paper discusses sources of consumer price expectations and ways they are influenced, and it suggests how to improve profits by basing prices on consumers' expectations.