Smarter Pricing: How to capture more value in your market

Nine effects to reduce price sensitivity

Thomas Nagle and Reed K. Holden, writing in The Strategy and Tactics of Pricing (2002) identify nine ‘effects’ that influence willingness to pay and cause buyers to be more or less price sensitive to the difference between price and value (as listed in Table 4.1). A full account is given in Chapter 4 of their book.

Table 4.1. Nine effects to reduce price sensitivity

Reference price effect	Price-quality effect	Shared-cost effect
Difficult comparison effect	Expenditure effect	Fairness effect
Switching cost effect	End-benefit effect	Framing effect

Source: Nagle and Holden (2002).

1. Reference price effect

   Willingness to pay is influenced by the perceptions buyers have of the relative cost of an alternative. If customers ...