Outline

Pricing & Promotions • Review

(Shopper Marketing)
• Relevance of Pricing
Barcelona, April - June 2019

• Complexities of Pricing

• Psychology of pricing

• Final Project:
• Feedback
• Next steps
Edgar Sánchez, Ph.D. Neurosciences

Review Review’s Goals

Personal Evaluation
What were the concepts we discussed effort of it
last class?

Write them down individually

FEEDBACK
SIGNIFICANT
Class discussion Corrections
LEARNINGS
Additions

Review

• Price
• The price is more than a figure
• Psychology of pricing
Pricing, Relevance
• Paying Pain
• “Value” & its complexity
• Cost Based
• Competition Based
• Value Based Approach
 Pricing, Relevance Pricing, Relevance

Direct Impact on bottom line:

What is the impact/importance of these
What is the Pricing Relevance? profit drivers: volume, price, fixed cost,
“price can boost and variable cost?
Profit
profit faster than 
Driver
Individual definition
increasing volume” All of them profit drivers.
Group Definition - Which one is the most important one?
- Why?
Boehm (2016)

Pricing, Relevance Pricing, Relevance Pricing, Relevance

Study 2,400 companies in the USA: price

Pricing the most important
“raising prices by 1% will actually lead to an increase
in the bottom line by more than 11%”
(Cited in Boehm, 2016)
Effectiveness in the bottom line of ‘cost
focused’ vs ‘pricing focused’ companies? Price Management is
“companies that focus on price
really important
management are significantly more
profitable than companies focusing simply
on the management of their costs”
(Boehm, 2016)

Pricing,

Expensive?
YES NO
 Pricing, Complexities

What are the Pricing Complexities?

In Company
Pricing, Complexities
Complexities 
Individual definition Out side the
Group Definition company

Pricing, Complexities Inside Pricing, Complexities Outside Pricing, Complexities Outside

Operations - Difficulty to asses Value - Difficulty to asses Value

↑ Production
Low price  ↑ Volume 
Efficiencies • Subjective • Subjective
• Variability & Sensibility of • Variability & Sensibility of
Marketing
Image: Create perception perception
Hi price  premium quality
product
Sales
Low price  ↑ Volume

Group Activity Group Activity

Choose 2 products that have at least 3 different Homework

sizes.
Meals, Beverages, Cleaning products personal
care products, etc.
The 2 products should be from different
industries. i.e. not 2 beverages or 2 shampoos
Analysis of 4 products, those 2 you have
chosen + one direct competitor for each one
Product A & Product A’
Product B & Product B’
Email: Products & Team members
 Group Activity Group Activity Group Activity

Homework Homework Homework

1) Pic’s of the products on the store shelves 2) Analysis of pricing:

showing: Deadline 1 week e-mail delivery DOC & PPT
Characteristics Monday May 6th 11.59 PM
Product Comparison between competitors
Price Tuesday May 7th, 5 min oral presentation in
Size (grams, milliliters, etc.) class
Include Supermarket, Address of it & date

Pricing, Pricing,

How many of you have paid for a How many of you have paid for a
product that costs more than product that costs more than
200€/liter? 200€/liter?
YES NO

Which one?
Which one? (beverage, perfume, shampoo, etc.)
(beverage, perfume, shampoo, etc.)

Pricing, Pricing, Pricing,

How much would you pay for this

How many of you use perfumes? products?

YES NO 1 2 3 4
 Pricing, Pricing, Pricing,

Lets see cost per litter you are willing Lets see real costs (amazon.es Apr 29 ,19)th
Expensive?
to pay 28€
 311€/lt
90 ml
YES NO
https://calcuworld.com/math/rule‐of‐three‐
calculator/

37€
208€/liter
 411€/lt
90 ml

Pricing,

How many of you have paid for a

product that costs more than
200€/liter? Psychology of Pricing
(Behavioral Pricing)

You have!
Unconsciously

Anchoring

Attaches & Blocks movement

What does Anchor

Anchoring Anchor/Anchoring
mean?
 Anchoring Anchoring Anchoring

Attaches & Blocks movement Attaches & Blocks movement

Anchoring Anchoring
(Mind Do you believe (Mind
Previous information comes
Mechanism) Anchoring happens Mechanism)
to play a particularly
influential role in a to you?
judgment or decision.
We can not see it

Anchoring Anchoring Anchoring

1. Write down on a piece of paper your social Experiment
security number Final question: 250
(US nine-digit number)
1996 Hermitage (wine)
2. Write down the last two digits of your SSN 200

the form of a price for each item Do you feel that writing down the last two 1998 Côtes du Rhône
(wine)
150
digits of your social security number had Neuhaus chocolates
Range of last two digits of SSN

Experiment USD Buy it? (Yes/No) Max Bid Experiment influenced your final bids? 100
Design book
Cordless
00-19

8,64
20-39

11,82
40-59

13,45
60-79

21,18
80-99

26,18
Correlatio
ns
0,42
trackball
Cordless Cordless keyboard
1 Cordless
trackball 50 keyboard
16,09 26,82 29,27 34,55 55,64 0,52
Cordless trackball Design book 12,82 16,18 15,82 19,27 º30 0,32
Cordless
2
keyboard No way! 0
Neuhaus
chocolates
9,55 10,64 12,45 13,27 20,64 0,42

3 Design book 00‐19 20‐39 40‐59 60‐79 80‐99 1998 Côtes

du Rhône 8,64 14,45 12,55 15,45 27,91 0,33
Neuhaus (wine)
4
chocolates 1996
Hermitage 11,73 22,45 18,09 24,55 37,55 0,33
5
1998 Côtes du
Rhône (wine) The higer the (wine)

6
1996 Hermitage
(wine)
anchor,
the higher bid!

Anchoring Anchoring Anchoring

Unconscious &
Conclusion
arbitrary (i.e. totally Application,
unrelated) elements
influence judgment & Iphone, Starbucks
Decision Making
CRITICAL THINKING - Cognitive Biases: Anchoring

https://www.youtube.com/watch?v=NFiDdbquWJY
 1st iPhone Anchoring Anchoring
Application Application Application
Starbucks Starbucks
Initial Price
 Initial Anchor Coffee?
$499 to $599 Construction a very different
ambience
profit maximization Many options: McDonalds,
a) Higher price for
 (higher price for those who are Dunkin Donuts… your own
early adopters willing to pay more) house
Nice places
High end food & products
perception of
bargain for Very low anchor (opposite to iPhone).
b) Anchor price But Starbucks coffees are
Dissociation from existing
for non-early Later ↓ price  non-early price
expensive!
adopters: adopters  new anchor prices
(those who are not willing From 3€ to 6.5 €
to pay that much)

Decoy

Decoy

Decoy Decoy Decoy

Most preferred alternative? Why? Most preferred alternative? Why?

Image Credit: Image Credit: humanhow.com (Apr29,19) Image Credit: Image Credit: humanhow.com (Apr29,19)
 Decoy Decoy Decoy

Most preferred alternative? Why? Most preferred alternative? Why?

Easier To compare
Easier To compare 2 similar products (B & B’)
Simplest way to do it: make it more expensive
2 similar products (B & B’)
One of them is slightly
A B B’ One of them is slightly We avoid extreme options, because it looks we are
inferior in one attribute
A B’ B inferior in one attribute
less likely to make mistakes
B’ < B  Chose B
B > B’  Unlikely to Buy B’  Choose B
2 Options  they are extreme
 Psychology of Pricing

Decoy Decoy

A new element make us change our preference, Requirement:

influence choice behavior Slightly different to the main product = Easy to compare
B ≈ B’

Phenomenon: Asymmetric Dominance B’ = Decoy Image Credit: Image Credit: humanhow.com (Apr29,19)

Decoy

“humans rarely choose things in

absolute terms. We don't have an
internal value meter that tells us how
much things are worth. Rather, we Final Project
focus on the relative advantage of one
thing over another, and estimate value
accordingly”
Ariely (2008)
 Final Project Final Project Final Project
• Simulation of a selling process to the President/CEO
of the company. Organization Chart

Global Structure
What is it? (Definition) 1st delivery: Micro Presentation 2 Class, Apr11th nd

Advantages (vs other systems)

Deep Explanation: Components, Relations among components,
Managerial Structure - Resources Needed
- Technology: computers, nets, etc.
- HR: Type and Depth: Knowledge/Talent: experts, analysts, Workflow
Managers
-General work flow: Roles & responsibilities, order, info Processes &
gathered, sources, processing. Info Decision
 Responsible 
3-5 Examples Source Making
People
73 Limitations & Criticisms 74 75

Final Project Final Project Final Project

Examples of graphical presentation of ideas
EVALUATION CRITERIA

E‐deliveries Files Names Clarity: Written Report & Oral Presentation

In Class 10 Min [Project Name]
Presentati Apr 11, 2019 Presentation DOC & PPT 2nd version Arguments: Clarity, Consistency, Coherence
on (definitions) (DOC or PPT) 11Ap19 (team work)
In Class 10 Min [Project Name]
Presentati May 14th, 2019 Presentation
(improvements of Def &
DOC & PPT 2nd version Graphical Presentation of ideas in DOC & PPT:
on Advantages vs other systems) 14My19
(DOC or PPT)
Tables, Graphs, Ideas connected (as I do in my
≈10 Minutes slides)
[Project Name]
Coaching Session with each
June 4th, 2019 DOC 3rd version
Session group to check
Progresses
(DOC or PPT) 4Jn19 20 Minutes Presentation (Max)
Final
20 Minutes
[Project Name] Sources: Quality, Proper location & format (APA
Presentati Jun 11th, 2019 DOC & PPT Final version
Presentation (Max) Style)
on (DOC or PPT) 11Jn19
76

Vision Final Project

•

Uncomfortable for
some people • Feedback
(dealing with uncertainty, dealing with
new things, new challenges, etc.)

Doing a project Micro-meetings with each group

 But
from scratch
Based on how the
world works today in
Mgmt
(Fast changing, really uncertain,
challenging, flexible)
80