To divide or not to divide? The impact of partitioned pricing on the informational and sacrifice effects of price
- First Online:
- 752 Downloads
Firms often partition a product’s price into two mandatory parts (e.g., the base price of a mail-order DVD and the surcharge for shipping and handling) instead of charging one all-inclusive price. This study examines whether and to what extent partitioned pricing (compared to one all-inclusive price) influences the informational and sacrifice effects of price. We empirically show that partitioned pricing oppositely affects these two distinct roles of price: the informational effect of price (i.e., price as an indicator of quality) increases, while the sacrifice effect (i.e., price as a measure of sacrifice) becomes more negative. In product categories with substantial price–quality inferences, the positive impact of partitioned pricing on the informational effect can overcompensate for its negative impact on the sacrifice effect, making partitioned prices the preferable strategy.
KeywordsPartitioned pricing Price response of demand Dual role of price Price-perceived quality inference
- Greene, W. H. (2008). Econometric analysis (6th ed.). New Jersey: Pearson Education.Google Scholar
- Liu, M. W., & Soman, D. (2008). Behavioral Pricing. In C. P. Haugtvedt, P. M. Herr, & F. R. Kardes (Eds.), Handbook of consumer psychology (pp. 659–681). New York: Psychology Press.Google Scholar
- Orme, B. (2006). SSI Web v5: Software for web interviewing and conjoint analysis. Sequim: Sawtooth Software, Inc.Google Scholar
- Orme, B. (2004). The CBC/HB system for hierarchical Bayes estimation version 3.2. Sequim: Sawtooth Software, Inc.Google Scholar
- Rao, V. R. & Sattler, H. (2003). Measurement of price effects with conjoint analysis. Separating informational and allocative effects of price. In: Conjoint measurement: methods and applications. Eds. Gustafsson, A., Herrmann, A., & Huber, F., 3rd ed., Berlin et al., Springer, 47–66.Google Scholar
- Theysohn, S., Klein, K., Völckner, F., & Spann, M. (2011). Dual effect-based market segmentation and price optimization. Journal of Business Research, available online 16. December 2011 (http://dx.doi.org/10.1016/j.jbusres.2011.11.007).
- Tukey, J. W. (1977). Exploratory data analysis. Reading: Addison Wesley.Google Scholar