Price format and the evaluation of multicomponent goods
By: Marco Bertini, Luc Wathieu
Contributors: Wathieu, Luc; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 05-087; Working paper (Harvard Business School. Division of Research) -- 05-087
Publisher: Division of Research, Harvard Business School
Published: 2005
Place of publication: Boston
Language: eng
Number of pages: 49
Description: A new theoretical link between price format and preferences is analyzed for transactions involving multicomponent goods. Multicomponent goods combine a focal object or service (e.g. a book or item of clothing, theater tickets) with one or more infrastructural elements that fulfill some necessary, complementary role (e.g. shipping and handling, booking service). In this context, firms need to decide whether to post a single price (aggregated pricing) or break down the expense into a series of prices that reflects the underlying product structure (disaggregated pricing). Evidence from four studies consistently supports the general hypothesis that price format modifies the shape of the utility function that characterizes a consumer's preferences. This framing effect is captured by a multiattribute utility model in which alternative price formats change the relative weight of focal and infrastructural components in evaluation. From a prescriptive standpoint, firms aware of the influence of price format on preferences need to pay particular attention to the perceived value of each type of component in the transaction and align the way price information is presented accordingly.
Notes: "July 14, 2005."

Includes bibliographical references.