The Effect of Implicit versus Explicit Comparisons on Temporal Pricing Claims

Existing research has investigated the "pennies-a-day" strategy of reframing an "aggregate" expense as a "per day" expense (Nagle & Holden, 1995; Price 1995; Gourville 1998). This paper extends this research by considering the incremental impact on compliance of explicitly comparing the cost of a transaction to a specific petty cash expense (e.g., a cup of coffee). We show that in the presence of a per day framing of price (e.g., $1 per day), an explicit comparison provides little added value. However, we also show that in the presence of an aggregate framing of price (e.g., $350), an explicit comparison to a petty cash expense is sufficient to generate a "pennies-a-day" perspective. We conclude that it is not the per day framing, per se, which drives "pennies-a-day" effectiveness, but the petty cash comparisons that such a framing either implicitly or explicitly generates.     

Pricing and the psychology of consumption

Most executives know how pricing influences the demand for a product, but few of them realize how it affects the consumption of a product. In fact, most companies don't even believe they can have an effect on whether customers use products they have already paid for. In this article, the authors argue that the relationship between pricing and consumption lies at the core of customer strategy. The extent to which a customer uses a product during a certain time period often determines whether he or she will buy the product again. So pricing tactics that encourage people to use the products they've paid for help companies build long-term relationships with customers. The link between pricing and consumption is clear: People are more likely to consume a product when they are aware of its cost. But for many executives, the idea that they should draw consumers' attention to the price that was paid for a product or service is counterintuitive. Companies have long sought to mask the costs of their goods and services in order to boost sales. And rightly so--if a company fails to make the initial sale, it won't have to worry about consumption. So to promote sales, health club managers encourage members to get the payment out of the way early; HMOs encourage automatic payroll deductions; and cruise lines bundle small, specific costs into a single, all-inclusive fee. The problem is, by masking how much a buyer has spent on a given product, these pricing tactics decrease the likelihood that the buyer will actually use it. This article offers some new approaches to pricing--how and when to charge for goods and services--that may boost consumption.     

我国非煤矿山风险管理现状分析与对策研究

随着我国非煤矿山安全生产水平的不断提升,风险管理发挥着巨大的作用,但目前仍然存在一些问题。本文就这些问题进行分析、探究,并就如何提高风险管理水平提出了一些建议。     

The Effects of Monetary Magnitude and Level of Aggregation on the Temporal Framing of Price

Existing research has shown that the pennies-a-day strategy of reframing a large aggregate expense as a small daily expense helps to reduce the perceived cost of a transaction (Nagle and Holden, 1995; Price, 1995; Gourville, 1998, 1999). This paper builds on this research and explores the robustness of the phenomenon across two dimensions – (1) the level of temporal aggregation and (2) the dollar magnitude of the transaction. First, we show that the effectiveness of a pennies-a-day strategy is not limited to per-day framing. Rather, we find a more general phenomenon in which a less aggregate expense is preferred to a more aggregate expense, such that if a per-day framing is preferred to a per-year framing, than a per-month framing also will be preferred to a per-year framing. Second, we show that this effectiveness reverses with the magnitude of the underlying expense, such that while a framing of $1 per day is preferred to one of $365 per year, a framing of $4200 per year is preferred to one of $11.50 per day.     

Eager sellers and stony buyers: understanding the psychology of new-product adoption

Companies that introduce new innovations are the most likely to flourish, so they spend billions of dollars making better products. But studies show that new innovations fail at a staggering rate. While many blame these misses on lackluster products, the reality isn't so simple. The goods that consumers dismiss often do offer improvements over existing ones. So why don't people purchase them? And why do companies keep peddling products that buyers are likely to reject? The answer, says the author, can be found in the brain. New products force consumers to change their behavior, and that has a psychological cost. Many products fail because people irrationally over-value the benefits of the goods they own over those they don't possess. Executives, meanwhile, overvalue their own innovations. This leads to a serious clash. Studies show, in fact, that there is a mismatch of nine to one, or 9x, between what innovators think consumers want and what consumers truly desire. Fortunately, companies can overcome this disconnect. To start, they can determine where their products fall in a matrix with four categories: easy sells, sure failures, long hauls, and smash hits. Each has a different ratio of product improvement to change required from the consumer. Once businesses know where their products fit into this grid, they can manage the resistance to change. For some innovations, major behavior change is a given. In those cases, companies can either wait for consumers to warm to the product, make the improvement so great that buyers get past their apprehension, or try to eliminate the incumbent product. Firms can also try to minimize buyer resistance by making products that are compatible with incumbent goods, seeking out those who are not yet users of the existing product, or finding true believers.     

Pricing real assets with costly search

Markets for many real assets are characterized by sequentialsearch followed by bilateral bargaining between matched buyersand sellers. For a category of real assets, the joint, intertemporalvaluation problems of buyers, owners, and sellers and the associatedNash pricing function are solved explicity. In equilibrium,the average transaction price is a noisy, proportional randomwalk, and the liquidity premium is positive for matched owners.Depending on the values of the parameters, the liquidity ofoptimal development with costly search, the optimal exercisepoint, cost of development, and value of the undeveloped assetare calculated analytically. With search, development can occursooner and undeveloped assets have lower market values thanthe standard solution without search.     

Financial and industrial structure with agency

A subgame perfect Nash equilibrium is characterized for an industrywith dissipative costs of agency. In sequence, firms can enterthe industry, raise capital with external debt and/or equity,invest in a capital-intensive technology of dissipate capitalin perquisites, and finally produce output. For plausible valuesof two critical parameters, some firms forego in equilibriuminvestments with positive net present values. Although moremanagers would like their firms to invest in the capital-intensivetechnology, they cannot raise the required cash in the capitalmarket. In equilibrium, the industry can have both a profitablecore of large, secure, capital-intensive firms, with some debtbut no unique optimal capital structure, and a competitive fringeof small, risky, labor-intensive firms. Even as the cost ofentry converges to zero, capital-intensive firms can earn extraordinaryprofits, while all labor-intensive firms fail. With costly agency,access to capital can become a barrier to entry.     

Equilibrium and options on real assets

In aggregate, options on real and financial assets can havevery different properties. Typically, the good or service producedby a real asset has a finite elasticity of demand, and developershave finite capacities. Also, the supply of options can be limited,and developers can be less than perfectly competitive. In asubgame, perfect Nash equilibrium with these properties, theoptimal exercise policy, and resulting values of developed andundeveloped assets are calculated explicitly. The novel comparativestatics are discussed in detail.