Marketing Strategy Apr 16, 2007

Unsure What to Order?

Deci­sions are eas­i­er when every­thing is priced the same

Based on the research of

Alexander Chernev

You’re order­ing dessert and know exact­ly what you want: the laven­der crème brûlée that was reviewed in your favorite food col­umn. Even if it’s the most expen­sive item on the dessert menu, you will prob­a­bly order it. But what about those times when you don’t come armed with advance recommendations?

A study by Kel­logg Asso­ciate Pro­fes­sor of Mar­ket­ing Alexan­der Chernev in the Sep­tem­ber Jour­nal of Con­sumer Research finds that when a per­son is unsure what to choose, pric­ing all items iden­ti­cal­ly can help ease the deci­sion-mak­ing process. The strat­e­gy, known as ldquo;parity pric­ing,” may increase the like­li­hood that the din­er will order dessert at all.

Most pri­or research has exam­ined the impact of assort­ment on choice irre­spec­tive of price or by explic­it­ly assum­ing par­i­ty pric­ing,” writes Chernev. In con­trast, this research doc­u­ments that price dif­fer­en­ti­a­tion can have a sig­nif­i­cant impact on choice and links this impact to pref­er­ence uncer­tain­ty and the con­sis­ten­cy between indi­vid­u­als’ con­sump­tion and resource-allo­ca­tion preferences.”

Chernev com­pares par­i­ty pric­ing with dif­fer­en­tial pric­ing (pric­ing all items dif­fer­ent­ly based on fac­tors such as the cost of ingre­di­ents). He finds that dif­fer­en­tial pric­ing can both help and hin­der deci­sion mak­ing since it makes cost a cru­cial fac­tor and intro­duces con­sid­er­a­tions of splurg­ing or saving.

If items in the desired price range include an item with oth­er appeal­ing qual­i­ties, the deci­sion is made eas­i­er by the price dif­fer­en­tial. How­ev­er, if the items in the price range are less desir­able than more expen­sive items in some way, the con­sumer becomes con­flict­ed about buy­ing any­thing at all.

Thus, when the con­sumer has read­i­ly formed con­sump­tion pref­er­ences, dif­fer­en­tial pric­ing will help’ choice when the most pre­ferred option is also the least expen­sive and will hurt’ choice when the most pre­ferred option is the most expen­sive,” explains Chernev.

About the Writer

Kellogg School press release. Article featured originally in Kellogg World, Winter 2006

About the Research

Chernev, Alexander (2006). "Differentiation and Parity in Assortment Pricing," Journal of Consumer Research, 33(2): 199-210

Editor’s Picks

Careers

Pod­cast: How to Be a Great Mentor

Plus, some valu­able career advice that applies to just about everyone.

Marketing

A New Way to Per­suade Kids to Drink More Water and Less Soda

Get­ting chil­dren to make healthy choic­es is tricky — and the wrong mes­sage can backfire.

Innovation

How Can Social Sci­ence Become More Solutions-Oriented?

A con­ver­sa­tion between researchers at Kel­logg and Microsoft explores how behav­ioral sci­ence can best be applied.

Innovation

Buy­ing a Com­pa­ny for Its Tal­ent? Beware of Hid­den Legal Risks.

Acquir­ing anoth­er firm’s trade secrets — even unin­ten­tion­al­ly — could prove costly.

Careers

Take 5: Tips for Widen­ing — and Improv­ing — Your Can­di­date Pool

Com­mon bias­es can cause com­pa­nies to over­look a wealth of top talent.

Innovation

Every­one Wants Phar­ma­ceu­ti­cal Break­throughs. What Dri­ves Drug Com­pa­nies to Pur­sue Them?

A new study sug­gests that firms are at their most inno­v­a­tive after a finan­cial windfall.

Careers

4 Key Steps to Prepar­ing for a Busi­ness Presentation

Don’t let a lack of prep work sab­o­tage your great ideas.

Healthcare

Video: How Open Lines of Com­mu­ni­ca­tion Can Improve Health­care Outcomes

Train­ing physi­cians to be bet­ter com­mu­ni­ca­tors builds trust with patients and their loved ones.

Operations

Here’s a Bet­ter Way to Sched­ule Surgeries

A new tool could dri­ve sav­ings of 20 per­cent while still keep­ing sur­geons happy.

Politics & Elections

Why Eco­nom­ic Crises Trig­ger Polit­i­cal Turnover in Some Coun­tries but Not Others

The fall­out can hinge on how much a country’s peo­ple trust each other.

Marketing

Build­ing Strong Brands: The Inside Scoop on Brand­ing in the Real World

Tim Calkins’s blog draws lessons from brand mis­steps and triumphs.

Economics

How the Cof­fee Indus­try Is Build­ing a Sus­tain­able Sup­ply Chain in an Unsta­ble Region

Three experts dis­cuss the chal­lenges and rewards of sourc­ing cof­fee from the Demo­c­ra­t­ic Repub­lic of Congo.