Do true cost campaigns (TCCs)—which display prices at the point of purchase that include social and environmental negative externalities—nudge consumers toward more expensive sustainable products? From a theoretical point of view, the answer is promising: Communicating true costs means introducing external reference prices that provide a benchmark for consumers to assess price acceptability. Showing true costs triggers a general reference to the price of sustainability, and the higher price of sustainable products becomes at least partially explained by their lower “hidden costs” (i.e., costs to compensate for all environmental and social impacts). In two empirical studies, we demonstrate that for TCCs to be effective, the hidden costs for the sustainable products must be lower than those for the conventional alternatives. Interestingly, under this condition, TCCs have an effect in markets characterized by a larger (study 1) and a smaller (study 2) green gap. In both studies, we find that increased perceived price fairness explains the effect of TCCs, as measured by the relative preference for the sustainable compared to the conventional product. In addition, we see that the price difference between the two products plays a significant role in forming this preference judgment, independent of other factors included in the model and especially independent of TCC.
Many behavioral heuristics are fast and frugal ways for buyers to cope with uncertainty. Therefore, the extent to which pricing can rely on heuristic consumer reactions depends on the specifics and the extent of uncertainties in the market. In markets with a high degree of commoditization, uncertainties about the product are by definition low. However, as buyers are also uncertain about their own preferences, behavioral approaches can explain consumer reactions to price, even in a context of commoditization.
In this chapter, we propose and test a dual process framework for pricing around buyers’ reservation prices. Such a dual process includes both rational and heuristic modes of choice. According to our framework, reactions to prices are more or less influenced by heuristic choice, depending on their relation to a buyers’ reservation price. This framework can explain the interrelations between rational and heuristic modes of choice, willingness-to-pay ranges, and latitudes of price acceptance. We also base a set of pricing and combined price-and-communication strategies on this framework. One interesting implication is that these pricing strategies are specific to target groups among buyers: as preferences and reservation prices are heterogeneous even in commodity markets, there are different potential buyers with a more rational or more heuristic mode of choice, for every price imaginable.
How can the pricing scope be further leveraged in times of increased price transparency and growing price awareness on the
consumer side? To answer this question, this paper uses the concept of willingness-to-pay ranges (as opposed to points). Three quantitative studies show that various marketing activities that allow consumers to assess a product on a more abstract (less concrete) level shift the upper limits of the intervals upwards and thus increase the scope for price setting. These (price) upper limits are particularly high when the central product advantages are emphasized.