Dacko S.G. The Advanced Dictionary of Marketing Putting Theory to Use
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precision marketing 400
in the modeling of consumer behaviors through applications of the
power law of forgetting. As consumer choice is often dependent on
what consumers have remembered as well as forgotten, knowledge of
consumer forgetting over time may be critical in establishing policies for
appropriate marketing communications.
APPLICATION AREAS AND FURTHER READINGS
Consumer Behavior
McGuire, William J. (1976). ‘Some Internal Psychological Factors Influencing Con-
sumer Choice,’ Journal of Consumer Research, 2(4), March, 302–319.
Lodish, Leonard M. (1971). ‘Empirical Studies on Individual Response to Exposure
Patterns,’ Journal of Marketing Research, 8(2), May, 212–218.
Rubin, D. C., and Wenzel, A. E. (1996). ‘One Hundred Years of Forgetting: A
Quantitative Description of Retention,’ Psychological Review, 103(4), 743–760.
BIBLIOGRAPHY
Anderson, J. R. (1995). Cognitive Psychology and its Implications, 4th edn. New York:
W. H. Freeman and Company.
Wickelgren, W. A. (1974). ‘Single Trace Fragility Theory of Memory Dynamics,’
Memory and Cognition, 2, 775–780.
Wickelgren, W. A. (1977). Learning and Memory. Englewood Cliffs, NJ: Prentice Hall.
Wixted, J. T. (1990). ‘Analyzing the Empirical Course of Forgetting,’ Journal of
Experimental Psychology: Learning, Memory, and Cogition, 16, 927–935.
Wixted, J. T., and Ebbesen, E. (1997). ‘Genuine Power Curves in Forgetting,’ Memory
and Cognition, 25, 731–739.
Ebbinghaus, H. (1913). Memory: A Contribution to Experimental Psychology, trans. H. A.
Ruger and C. E. Bussenius. New York: Teachers College, Columbia University.
(Original work published 1885.)
preapproach see selling process
precision marketing
DESCRIPTION
Marketing concerned with increasing the degree to which marketing out-
comes are able to be sharply defined and distinguished by their exactness.
KEY INSIGHTS
Precision marketing has much in common with target marketing when
the concern is targeting prospective customers with precision (see target
marketing). Yet, the scope of precision marketing is broader when one
considers that marketers may be concerned about the extent to which
their efforts can lead to sharply definable outcomes in other areas of
marketing, such as in selecting marketing research approaches that help
the firm to fine-tune its marketing mix in an effort to increase the
retention of existing customers. Nevertheless, there remains considerable
opportunity in marketing to adopt approaches that enable the firm to
identify, attract, and retain its most profitable customers.
KEY WORDS Marketing refinements, marketing enhancements
401 preference reversal
IMPLICATIONS
Marketers facing limited firm resources may find that the adopting of
precision marketing approaches will enable them to market their offer-
ings more cost-effectively. In firms engaged in direct mail marketing,
for example, there can be considerable waste involved when the firm’s
brochures are sent year after year to individuals who will never have
an interest in the firm’s products. In such a case, a greater knowledge of
precision marketing approaches may enable the firm to refine or enhance
its approach to achieve greater overall effectiveness.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
De Reyck, Bert, and Degraeve, Zeger (2006). ‘MABS: Spreadsheet-Based Decision
support for Precision Marketing,’ European Journal of Operational Resesearch, 171(3),
935–950.
Marketing Management
Brooks, David (2003). ‘People Like Us,’ Atlantic Monthly, 292, September, 29–32.
Business-to-Business Marketing
Larsson, R., and Passby, M. (1997). ‘High-Precision Marketing through Cus-
tomer Style Accommodation: Utility Industry Applications,’ DA/DSM Proceedings,
Amsterdam.
Retail Marketing
Hart, C., Doherty, N., and Ellis-Chadwick, F. (2000). ‘Retailer Adoption of the
Internet: Implications for Retail Marketing,’ European Journal of Marketing, 34(8),
954–974.
BIBLIOGRAPHY
Zabin, Jeff, and Brebach, Gresh (2003). Precision Marketing: The New Rules for Attracting,
Retaining, and Leveraging Profitable Customers. New York: John Wiley & Sons, Inc.
predatory pricing see pricing strategies
predictive validity see validity
preference see buyer influence/readiness
preference reversal
DESCRIPTION
The tendency, in facing a choice between particular types of risky ventures
involving nearly equal expected payoffs, to have a non-monetary preference
for one approach but to prefer to place a higher monetary stake on the other.
KEY INSIGHTS
Based on pioneering research by Slovic and Lichtenstein (1968, 1983),
reversals of preference occur when there is one venture, or gamble,
involving a high probability of receiving a small payoff and another
venture involving a low probability of receiving a high payoff. In other
words, individuals have tendencies to rate risky ventures as attractive
based on a stronger association with winning than with payoff size, but
price discrimination 402
ultimately individuals tend to place higher monetary values on risky ven-
tures involving stronger associations with payoff size than with winning.
Explanations offered for preference reversals include that of individual
anchoring and adjustment on monetary scales leading to overpricing of
low-probability gambles relative to the individual’s choice preference.
KEY WORDS Risk, preference, probabilities, outcomes, payoffs
IMPLICATIONS
To the extent that marketers evaluating the attractiveness of risky ven-
tures desire to understand fully the rationales and implications for their
choices, recognizing the tendency for, and occurrence of, preference
reversals may be an important consideration. In understanding consumer
behavior regarding particular forms of gambles, understanding the pref-
erence reversal phenomenon may also provide the marketer with useful
insights into general tendencies in consumer choice.
APPLICATION AREAS AND FURTHER READINGS
Consumer Behavior
Nowlis, Stephen M., and Simonson, Itamar (1997). ‘Attribute–Task Compatibility as
a Determinant of Consumer Preference Reversals,’ Journal of Marketing Research,
34(2), May, 205–218.
Coupey, Eloise, Irwin, Julie R., and Payne, John W. (1998). ‘Product Category Famil-
iarity and Preference Construction,’ Journal of Consumer Research, 24(4), March,
459–468.
Seidl, C. (2002). ‘Preference Reversal,’ Journal of Economic Surveys, 16(5), 621–656.
Slovic, Paul, and Lichtenstein, Sarah (1983). ‘Preference Reversals: A Broader Per-
spective,’ American Economic Review, 73(4), September, 596–605.
BIBLIOGRAPHY
Reilly, Robert J. (1982). ‘Preference Reversal: Further Evidence and Some Suggested
Modifications in Experimental Design,’ American Economic Review, 72(3), June,
576–584.
Tversky, Amos, Slovic, Paul, and Kahneman, Daniel (1990). ‘The Causes of
Preference Reversal,’ American Economic Review, 80(1), March, 204–217.
Slovic, Paul, and Lichtenstein, Sarah (1968). ‘Relative Importance of Probabilities
and Payoffs in Risk Taking,’ Journal of Experimental Psychology Monograph,
78(3 Pt. 2), 1–18.
premium pricing see pricing strategies
presentation see selling process
prestige pricing see pricing strategies
price, law of one see one price, law of
price discrimination
DESCRIPTION
A marketing approach where a firm charges different customers different
prices for identical offerings.
403 price effect
KEY INSIGHTS
Price discrimination is a valid marketing practice in marketplaces charac-
terized by imperfect information and where firms consider current and
potential customers to vary in their willingness and ability to pay certain
prices for certain offerings. By charging different customers different
prices for the same offering, as when an airline charges one price for
a seat on its own website and a lower price for the exact same seat
on another website, the firm aims to pursue its marketing objectives
(e.g. profitability, sales) by taking advantage of marketplace conditions
that involve variation in search costs while also taking into account the
variability in the firm’s costs to supply its offering to different areas of
the market.
KEY WORDS Discriminatory pricing
IMPLICATIONS
As a means to increase overall marketing effectiveness, marketers should
recognize how, when, and to what extent price discrimination strate-
gies and tactics can be used beneficially by the marketer’s firm. Given
the complex nature of pricing decisions, a greater knowledge of price
discrimination-related research can help to simplify and guide effective
marketing practice.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Nagle, T. T., and Holden, R. K. (1995). The Strategy and Tactics of Pricing. Upper Saddle
River, NJ: Prentice Hall.
Stokey, N. (1979). ‘Intertemporal Price Discrimination,’ Quarterly Journal of Economics,
93, 355–371.
Armstrong, M., and Vickers, J. (2001). ‘Competitive Price Discrimination,’ Rand
Journal of Economics, 32(4), 579–605.
Lederer, P. J., and Hurter, A. P., Jr. (1986). ‘Competition of Firms: Discriminatory
Pricing and Location,’ Econometrica, 54, 623–640.
Retail Marketing
Shepard, A. (1991). ‘Price Discrimination and Retail Configuration,’ Journal of Politi-
cal Economy, 99, 30–53.
International Marketing
Knetter, Michael M. (1989). ‘Price Discrimination by U.S. and German Exporters,’
American Economic Review, 79(1), 198–210.
BIBLIOGRAPHY
Varian, Hal (1989). ‘Price Discrimination,’ in R. Schmalensee and R. D. Willig (eds.),
The Handbook of Industrial Organization. Amsterdam: North Holland Publishing.
price effect
DESCRIPTION
A change in consumption or any other marketing-related variable of interest
that is directly attributable to a change in the price of an offering.
price effect 404
KEY INSIGHTS
Price may not only be influential to the demand for an offering but
to other marketing-related variables as well, such as consumer percep-
tions of a product’s quality. Considerable marketing research is therefore
directed at establishing the extent of price effects on other factors that
are either directly or indirectly controllable by the marketer. Aside from
price effects involving price increases or decreases, there are also price-
related effects related to odd versus even pricing. (See even price effect;
odd price effect.)
KEY WORDS Pricing, price changes
IMPLICATIONS
For a great many goods, price is a prime consideration in consumers’
product purchase evaluations. Yet, price acts in many different ways
to facilitate or hinder effective marketing. Price, for example, can be a
means to communicate product quality to consumers who are unable to
assess reliably a product’s quality. A greater understanding of the many
different types of price effects as well as the nature and scope of their
influence can be beneficial to marketers who are involved directly in
pricing decisions.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Dekimpe, Marnik G., and Hanssens, Dominique M. (1995). ‘The Persistence of
Marketing Effects on Sales,’ Marketing Science, 14(1), 1–21.
Marketing Management
Nijs, V. R., Dekimpe, M. G., Steenkamp, J. B. E. M., and Hanssens, D. M. (2001). ‘The
Category-Demand Effects of Price Promotions,’ Marketing Science, 20(1), 1–22.
Rao, Akshay R., and Monroe, Kent B. (1989). ‘The Effect of Price, Brand Name, and
Store Name on Buyers’ Perceptions of Product Quality: An Integrative Review,’
Journal of Marketing Research, 26(3), August, 351–357.
Consumer Behavior
Lattin, James M., and Bucklin, Randolph E. (1989). ‘Reference Effects of Price and
Promotion on Brand Choice Behavior,’ Journal of Marketing Research, 26(3), August,
299–310.
Marketing Research
Kingma, Bruce Robert (1989). ‘An Accurate Measurement of the Crowd-out Effect,
Income Effect, and Price Effect for Charitable Contributions,’ Journal of Political
Economy, 97, 1197–1207.
BIBLIOGRAPHY
Dodds, William B., Monroe, Kent B., and Grewal, Dhruv (1991). ‘Effects of Price,
Brand, and Store Information on Buyers’ Product Evaluations,’ Journal of Marketing
Research, 28(3), August, 307–319.
price elasticity of demand see elasticity of demand
price skimming see pricing strategies
405 price theory
price theory
DESCRIPTION
Theory or theories that seek to understand, explain, and predict prices and
pricing decisions relative to customer demand, firm supply, and market
characteristics.
KEY INSIGHTS
Price theory is central in much research grounded in economics, as where
market prices are often viewed as reflecting the interaction between
demand considerations based on marginal utility and supply consider-
ations based on marginal cost. Given the diversity of conditions under
which products and services are supplied and demanded in the market-
place, price theory has become a rich area of study in marketing research
as well, where the emphasis is typically on how managers should set
prices as opposed to how markets behave. Numerous models and frame-
works for pricing have subsequently been developed based on theories of
pricing.
KEY WORDS Prices, pricing
IMPLICATIONS
Since price is an essential element in the marketing mix for a product or
service, the area of price theory provides a marketer with a rich set of con-
cepts and frameworks on which to draw to facilitate pricing strategy and
management in marketing. Price theory-based frameworks and concepts
may enable a marketer to understand better the complex interactions of
firms, customers, and markets in product or service pricing.
APPLICATION AREAS AND FURTHER READINGS
Pricing
Oxenfeldt, Alfred R. (1973). ‘A Decision-Making Structure for Price Decisions,’
Journal of Marketing, 37(1), January, 48–53.
Kamen, Joseph M., and Toman, Robert J. (1970). ‘Psychophysics of Prices,’ Journal of
Marketing Research, 7(1), February, 27–35.
Gabor, Andre, Granger, Clive W. J., and Sowter, Anthony P. (1971). ‘Comments
on “Psychophysics of Prices,”’ Journal of Marketing Research, 8(2), May, 251–
252.
Noble, Peter M., and Gruca, Thomas S. (1999). ‘Industrial Pricing: Theory and Man-
agerial Practice,’ Marketing Science, 18(3), Special Issue on Managerial Decision
Making, 435–454.
Smith, Vernon L., and Williams, Arlington W. (2000). The Boundaries of Competitive
Price Theory: Convergence, Expectations, and Transaction Costs. Bargaining and Market
Behavior: Essays in Experimental Economics. New York: Cambridge University Press,
286–319.
BIBLIOGRAPHY
Hall, R. L., and Hitch, C. J. (1939). ‘Price Theory and Business Behaviour,’ Oxford
Economic Papers, 2, May, 12–45.
Hauser, John R. (1984). ‘Pricing Theory and the Role of Marketing Science,’ Journal
of Business, 57(1), Part 2: Pricing Strategy, January, S65–S71.
pricing strategies 406
pricing strategies
DESCRIPTION
Approaches to pricing offerings which are driven by strategic considerations
and which have strategic implications for a firm.
KEY INSIGHTS
There are numerous strategic pricing approaches. Notable approaches
include:
Basing-point pricing—a pricing approach that involves designating a par-
ticular geographic location as a basing point and then charging customers
the freight cost from that location to the location of the customer.
Break-even pricing—the practice of setting a price to break even on the
marketing of the product given its costs of manufacture and marketing.
By-Product Pricing—the practice of setting a price on products produced
as a result of producing a main product that allows the main product to
be marketed at a more competitive price.
Captive-product pricing—price setting for those products that must be
used in conjunction with a main product, such as ink cartridges for a
digital photo printer.
Competition-based pricing—the practice of setting prices based on the
prices that competitors are charging for their (similar) products.
Cost-plus pricing—a pricing approach that involves adding a set mark-up
to the cost of a product.
Dynamic pricing—the practice of charging difference prices to different
customers depending on their characteristics and situations.
Freight-absorption pricing—a geographic pricing practice where the seller
chooses to absorb part or all of the freight costs, typically as part of a
pricing strategy to secure a particular sale or contract.
Loss leader pricing—adopting the practice of pricing particular product(s)
below cost, below their normal mark-up price, or, more generally, at a
very low price with the aim of drawing a greater number of customers
to the seller’s location than would otherwise be achieved without loss
leader products.
Market skimming pricing—also called price skimming, the practice of set-
ting a high initial price for a new product to enable high revenues and
margins to be obtained from those in the market that are willing to pay
the high initial price.
Peak-load pricing—the practice of charging a higher price for the peak
period of demand for an offering relative to periods of lesser demand
given a situation where the offering cannot be stored and where produc-
tion capacity for the offering is not able to vary appreciably over time.
Penetration pricing—the strategy of deliberating assigning a low price to
an offering, which is often new to the market, as a means to accomplish
objectives including rapidly gaining market share (which may further
lead to scale economies for the firm) and discouraging other firms from
entering the market with competing products.
407 pricing strategies
Predatory pricing—a pricing practice, typically by a leading firm in the
market, that involves offering products at such low prices that other
firms are discouraged from competing in the market and ultimately exit,
after which prices may be raised again.
Prestige pricing—also called premium pricing, pricing a product suffi-
ciently high (as when setting the price for an offering so that it is at or
near the high end of a price range for a particular range of offerings) in
order to associate its purchase and ownership with prestige as well as to
give an impression of a high level of quality in the product and further
avoid conveying a low level of quality that could arise when a product is
priced much lower.
Product line pricing—a pricing approach that involves setting the steps
in price between products in a product line by taking into account such
factors as differences in product cost, features, customer preferences, and
competing product prices.
Profit maximization pricing—efforts by a firm to price an offering, or vary
the price of an offering, for particular levels of output in such a way that
the firm would ultimately maximize its profitability for the offering.
Promotional pricing—temporarily lowering the price of a product relative
to that which it is typically offered in an effort to increase short-term
sales.
Psychological pricing—pricing that reflects the psychological influence of
buyer beliefs and perceptions, including irrationalities, in the evaluations
of prices, as when consumers tend to perceive that prices ending in odd
numbers are significantly less expensive than those ending in even num-
bers or when consumers tend to associate high prices with high quality.
Target costing—an approach that assists the marketer in offering a prod-
uct at an ideal or desired selling price as a result of setting targets for
product costs to ensure that the desired selling price is met.
Target profit pricing—the practice of setting a price to make a target
profit on a product given its costs of manufacture and marketing.
Uniform-delivered pricing—a pricing strategy that involves charging all
customers the same price plus freight for a product, regardless of a
customer’s location.
Value pricing—a pricing approach that involves offering a product or
service at a fair price relative to its quality and associated benefits.
Value-based pricing—the practice of setting the price of an offering based
on buyers’ perception of its value as opposed to that which is based on
the seller’s costs.
Zone pricing—a pricing practice that involves establishing multiple geo-
graphic zones and charging all customers in a particular zone the same
total price.
KEY WORDS Price setting, pricing approaches
IMPLICATIONS
Marketers have a wide array of pricing approaches from which to choose
in determining the appropriate prices for their offerings. Central to the
primacy, law of 408
choice and use of one or more particular strategies is, of course, the set
of objectives to be accomplished through the use of price. While certain
levels of profitability and/or market share are common objectives for
many firms, it is also important for marketers to understand how and
why particular pricing approaches can facilitate or hinder accomplishing
such objectives given an understanding of consumer buying behavior as
well as competitive dynamics. Finally, it is essential that marketers strive
to anticipate and plan for competitive responses to particular pricing
strategies adopted.
APPLICATION AREAS AND FURTHER READINGS
Pricing
Tellis, Gerard J. (1986). ‘Beyond the Many Faces of Price: An Integration of Pricing
Strategies,’ Journal of Marketing, 50(4), October, 146–160.
Morris, M. H., and Morris, G. (1990). Market-Oriented Pricing: Strategies for Management.
New York: Quorum Books.
Montgomery, Alan L. (1997). ‘Creating Micro-Marketing Pricing Strategies Using
Supermarket Scanner Data,’ Marketing Science, 16(4), 315–337.
Online Marketing
Dewan, R., Jing, B., and Seidmann, A. (2000). ‘Adoption of Internet-Based Product
Customization and Pricing Strategies,’ Journal of Management Information Systems
17(2), 9–28.
Marketing Modeling
Dolan, Robert J., and Jeuland, Abel P. (1981). ‘Experience Curves and Dynamic
Demand Models: Implications for Optimal Pricing Strategies,’ Journal of Marketing,
45(1), Winter, 52–62.
BIBLIOGRAPHY
Kotler, Philip, and Armstrong, Gary (2004). Principles of Marketing, 10th international
edn. Upper Saddle River, NJ: Pearson Education International.
Kotler, Philip, and Armstrong, Gary (2006). Principles of Marketing, 11th edn. Upper
Saddle River, NJ: Pearson Education, Inc.
primacy, law of
DESCRIPTION
The view that, in presenting two sides of an issue involving persuasive
arguments, the side presenting first will have greater effectiveness than the
side presenting second.
KEY INSIGHTS
Named by Lund (1925) in his research on persuasion, the law of primacy
was put forth based on the finding that communications presented first
(whether pro or con to the issue) influenced an audience more than
communications presented second. Subsequent research, however, has
only shown limited support for the law of primacy under similar and
varying conditions, suggesting that considerations of variables related to
primacy in persuasion are more appropriate than a general law of pri-
macy. For example, the findings of various research studies suggest that
in persuasion efforts involving two-sided communications, non-salient,
controversial topics, topics with an interesting subject matter, and highly
409 primacy effect
familiar issues appear to meet with more success when presented first,
where the mechanism for their effectiveness is distinctly different than
that for the primacy effect involving serial learning.
KEY WORDS Persuasion, communication, arguments, primacy
IMPLICATIONS
In considering the effectiveness of persuasive communications, mar-
keters should seek to understand through prior research and experience
to what extent the characteristics of the persuasive message enable such
communications to be presented first, as opposed to second in efforts to
persuade receiving audiences. For example, persuasive communications
involving controversial topics or interesting subject matter may benefit
from being presented first to audiences, as opposed to second, in a
marketer’s efforts to influence and persuade its target audience through
the use of persuasive arguments under conditions where both sides of
the argument are presented.
APPLICATION AREAS AND FURTHER READINGS
Marketing Communications
Haugtvedt, Curtis P., and Wegener, Duane T. (1994). ‘Message Order Effects in
Persuasion: An Attitude Strength Perspective,’ Journal of Consumer Research, 21(1),
June, 205–218.
BIBLIOGRAPHY
Rosnow, R. L. (1966). ‘Whatever Happened to the “Law of Primacy”?’ Journal of
Communication, 16(1), March, 10–31.
Lund, F. (1925). ‘The Psychology of Belief: IV. The Law of Primacy in Persuasion,’
Journal of Abnormal and Social Psychology, 20, 183–191.
Luchins, A. (1957). ‘Primacy-Recency in Impression Formation,’ in C. I. Hovland
et al. (eds.), The Order of Presentation in Persuasion, New Haven: Yale University, 33–
61.
primacy effect
DESCRIPTION
A cognitive bias in individual learning where, in a series of observations or
other stimuli, initial observations or stimuli become disproportionately salient
to the individual relative to those in the middle of the series.
KEY INSIGHTS
The primacy effect is considered to be a common phenomenon in indi-
vidual learning, where information presented first in a series is more
easily remembered than that in the middle of the series. Similarly, in
forming impressions of individuals, the primacy effect is present when
initial observations have a larger effect on the overall impression of
an individual relative to later observations. One explanation given for
the primacy effect is that short-term memory is ‘less crowded’ when
pondering the initial observations, enabling them to be transferred more
easily into long-term memory.
KEY WORDS Information, stimuli, learning, memory, primacy