Non-grain pricing: a behavioural study through prospect theory perspective

Abstract

E-market place is the arena where pricing has an important role as the customer buying behaviour is dynamic. In the Indian market, especially, as more people join the online purchasing cohort, buyer behavior is evolving dynamically. Our research tries to find answers to some of these complex issues, pricing professionals face in the online context while designing discounts and bundles. Our research builds upon the existing studies on the dynamic pricing and discount framing with focus on the prospect theory by Daniel Kahneman and the mental accounting principles of Richard Thaler. From the hypotheses tested, some major insights and managerial implications are drawn, some of them include the following. The LPA for offline purchases is broader than the same for online purchases. Contrary to the belief, the hypothesis that favorite online stores enjoy loyalty and might have a broader LPA is rejected, which means the customer might have built loyalty due to the fair prices from their favorite online store which might make them expect lower prices. Ecommerce players cannot completely rely on discounts to drive volume sales since discounts effect the reference price, and consequently the purchase behavior after discount period is lapsed. The technique of increasing the price and then reducing it to normal after the discount period might negatively affect the likeliness of purchase. So a direct price increase is recommended after the discount period. Also, the theory of segregation of gains might not be applicable in giving discounts on individual items on the bundle in the online bundling context, as proved from our hypothesis.