CPP Psychology of Pricing 2 — Questions and Answers
Question 1: A retailer prices a product at $49.99 instead of $50.00. Which psychological pricing principle does this primarily leverage?
- Prestige pricing
- Charm pricing / left-digit effect (Correct answer)
- Price bundling
- Odd-even pricing symmetry
Correct answer: Charm pricing / left-digit effect
Charm pricing exploits the left-digit effect, where consumers anchor on the leftmost digit ($49 vs. $50), perceiving a larger difference than actually exists.
Question 2: A consumer is told that a wine costs $90 per bottle and reports it tastes better than when told it costs $10. This phenomenon is best explained by:
- Sunk cost fallacy
- Price-quality heuristic (Correct answer)
- Decoy effect
- Framing effect
Correct answer: Price-quality heuristic
The price-quality heuristic leads consumers to infer higher quality from higher price, sometimes altering the actual perceived experience.
Question 3: Which pricing tactic involves presenting a high-priced option first to make subsequent options seem more affordable?
- Penetration pricing
- Anchoring (Correct answer)
- Value-based pricing
- Price skimming
Correct answer: Anchoring
Anchoring sets an initial reference point (the high price) that biases all subsequent price evaluations downward.
Question 4: A software company offers three subscription tiers: Basic ($9/mo), Pro ($19/mo), and Enterprise ($99/mo). Most customers choose Pro. What pricing strategy is likely at work?
- Price skimming
- Compromise effect / center-stage effect (Correct answer)
- Dynamic pricing
- Yield management
Correct answer: Compromise effect / center-stage effect
The compromise effect causes consumers to avoid extremes, gravitating toward the middle option as a 'safe' choice.
Question 5: Prospect theory suggests that the pain of losing $100 is psychologically greater than the pleasure of gaining $100. How should a pricing professional apply this insight?
- Frame discounts as gains rather than losses
- Frame price increases as avoided losses rather than added costs (Correct answer)
- Always use round numbers to minimize loss aversion
- Price products at a premium to signal exclusivity
Correct answer: Frame price increases as avoided losses rather than added costs
Loss aversion means framing a price increase as avoiding a larger loss (e.g., 'avoid a $200 penalty') is more persuasive than framing it as a gain.
Question 6: A luxury brand deliberately keeps prices high and avoids discounting. This strategy primarily leverages:
- Odd-even pricing
- Prestige pricing and the Veblen effect (Correct answer)
- Price bundling
- Penetration pricing
Correct answer: Prestige pricing and the Veblen effect
The Veblen effect describes goods where demand increases with price because high price signals status and exclusivity.
Question 7: What is the 'just noticeable difference' (JND) concept's primary application in pricing?
- Setting prices that end in 9 to appear cheaper
- Determining the smallest price change consumers will actually detect (Correct answer)
- Establishing a price anchor before negotiation
- Measuring consumer surplus at different price points
Correct answer: Determining the smallest price change consumers will actually detect
JND (Weber's Law) helps pricing managers know how much to raise prices before consumers notice, enabling incremental increases without resistance.
CPP Psychology of Pricing 2
A retailer prices a product at $49.99 instead of $50.00.
Which psychological pricing principle does this primarily leverage?