Perceived vs. Negotiated Discounts — The Role of Advertised Reference Prices Under Price Negotiation
Tuesday March 2, 2021
Retailers routinely post two prices on their price tags — a posted, or sale, price and a higher regular or advertised reference price. Together, these prices create a perception of the initial discount the consumer is getting. Assistant Professor of Marketing Pranav Jindal recently investigated the impact of this initial perceived discount (IPD) on the negotiated discount, demand and revenue when prices can be negotiated.
As compared to fixed pricing, increase in demand accounts for only 54% of the increase in revenue as IPD increases, thereby pointing to the importance of the effect of IPD on negotiated price. A seller has an incentive to set an exaggerated advertised reference price under bargaining as compared to fixed pricing.