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Faculty
Research: Alexander Chernev, Marketing
Unsure
what to order?
Decisions
are easier when everything is priced the same, finds Kellogg
marketing professor
You're
ordering dessert and know exactly what you want: the lavender
crème brulee 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 "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.
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