Pricing and Product Positioning with Relative Consumer Preferences

Roman Inderst and Martin Obradovits ()

No 16949, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Especially in markets with frequent price promotions, where consumers constantly have to form preferences over changing offers, product choice may depend on a relative assessment of prices and qualities. We show how such “relative thinking†profoundly influences firms’ pricing and product-positioning strategies, compared to a benchmark with standard preferences. When competition is sufficiently intense, firms want to differentiate in the quality space, and they may find it advantageous to occupy the lower end of the quality spectrum. Such a strategy pays off particularly for firms with a small base of loyal customers, which then compete more aggressively for shoppers.

Keywords: Relative thinking; Product positioning; Vertical differentiation; Promotions; Sales; Price competition (search for similar items in EconPapers)
JEL-codes: D11 D22 L11 L15 (search for similar items in EconPapers)
Date: 2022-01
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Journal Article: Pricing and Product Positioning with Relative Consumer Preferences (2023)
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