Reference price based strategies: a key to raising revenues without alienating users

Abstract

The central principle for raising prices without alienating users is to ensure they remain within the latitude of the acceptance zone around their median reference price. The paper discusses four heuristics that leisure managers should embrace which are consistent with the principle and will avoid periodic larger increases that are outside the acceptance zone which leads to resistance. The most risk-free approach is to consistently impose small annual incremental increases in price. A second heuristic is anchoring from which five strategies emanate: (i) do not underprice new services; purposefully use (ii) decoy and (iii) numeric anchors to change users’ perceptions of context; (iv) ensure price consistency among related services; and (v) use prices charged by other suppliers to validate a large price increase. The other two heuristics discussed in the paper are price as a signal of quality and customary pricing.