ABSTRACT

Expectations drive behavior and nowhere more so than when setting prices. A customer’s decision to buy something at the offered price, or not, depends upon more than the trade-off between benefits and price. It also depends on customers’ expectations, and their experience of answering this question: how might our behavior influence the prices we have to pay? For example, a retail consumer may believe that a new fall fashion is well worth the price asked for it in September, but still not buy it if she expects that the store following its past behavior will have a 20 percent off sale within the next month. A policy of regular, predictable discounting has trained many retail consumers to wait for the sale price. As a result, sales at regular prices are less than they would otherwise be, increasing the amount of inventory that ultimately will be sold at the lower sale price.