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When 2 + 2 Is Not the Same as 1 + 3: Understanding Customer Reactions to Partitioned Prices

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  • Hamilton Rebecca W.
  • Srivastava Joydeep

    (Ass. Professor of Marketing, Robert H. Smith School of Business, University of Maryland, Washington/College Park, USA)

Abstract

Firms often use a pricing strategy in which they partition the total price of a product and/or service into two or more mandatory components, such as parts and shipping. In this research, we examine how dividing the same total price differently across the components affects customers’ reactions. In a series of studies, we show that customers systematically prefer partitions of the same total price in which the price of low benefit components (e.g., shipping) is lower and the price of high benefit components (e.g., parts) is higher. Thus, for effective pricing, markups on components that consumers believe provide a high degree of benefit should be higher than markups on components that consumers believe provide less benefit

Suggested Citation

  • Hamilton Rebecca W. & Srivastava Joydeep, 2009. "When 2 + 2 Is Not the Same as 1 + 3: Understanding Customer Reactions to Partitioned Prices," GfK Marketing Intelligence Review, Sciendo, vol. 1(2), pages 24-31, November.
    • Handle: RePEc:vrs:gfkmir:v:1:y:2009:i:2:p:24-31:n:4
    DOI: 10.2478/gfkmir-2014-0075
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