Marketers Mispredict Price Elasticity

Christopher Hsee, University of Chicago, USA
Luxi Shen, Fundan University, China
Price elasticity refers to consumers’ sensitivity to price variation. We identify a systematic discrepancy between marketers’ estimate of consumers’ price elasticity and consumers’ actual price elasticity. When setting prices, marketers consider many alternatives. When deciding whether to purchase a product, consumers consider only one price. A series of experiments show that this marketer-consumer mismatch leads marketers to over-estimate consumers’ price sensitivity, under-price their products and consequently profit less than they otherwise could. We also identify an important moderator for these effects: they occur only for unfamiliar products (e.g., a newly introduced drink) and not for familiar products (e.g., Coke).
[ to cite ]:
Christopher Hsee and Luxi Shen (2009) ,"Marketers Mispredict Price Elasticity", in NA - Advances in Consumer Research Volume 36, eds. Ann L. McGill and Sharon Shavitt, Duluth, MN : Association for Consumer Research, Pages: 119-122.