You’re ordering dessert and know exactly what you want: the lavender crème brulee that was reviewed in your favorite food column.
Even if it’s the most expensive item on the dessert menu, you’ll probably order it. But what about those times when you don’t come armed with advance recommendations?
Assuming all are equal
A study in the Journal of Consumer Research found that when a person is unsure what to choose, pricing all items the same — known as “parity pricing” — can help ease the decision-making process. In other words, parity pricing may increase the likelihood that the diner will order dessert at all.
“Most prior research has examined the impact of assortment on choice irrespective of price or by explicitly assuming parity pricing,” writes Alexander Chernev (Northwestern University). “In contrast, this research documents that price differentiation can have a significant impact on choice and links this impact to preference uncertainty and the consistency between individuals’ consumption and resource-allocation preferences.”
Chernev compares parity pricing with differential pricing (pricing all items differently based on factors such as the cost of ingredients). He finds that differential pricing can both help and hinder the decision-making process since it makes cost a crucial factor, and introduces the idea of splurging or saving.
If items in the desired price range include an item with other appealing qualities, the decision is made easier by the price difference. However, if the items in the desired price range are less desirable in some way than more expensive items, the buyer becomes conflicted about getting anything at all.
“Thus, when the consumer has readily formed consumption preferences, differential pricing will ‘help’ choice when the most preferred option is also the least expensive and will ‘hurt’ choice when the most preferred option is the most expensive,” explains Chernev.