The Effect of Posted “Original” Prices on Consumers’ Willingness to Pay for Sale Items

Abstract

This paper investigates the role of posted original prices in influencing consumer Willingness to Pay through the lens of behavioural economics. Through analysing primary and secondary data, this paper found that consumer purchasing decisions are rarely driven by objective price alone and factors like psychological cues, perceived value, and cognitive biases play an equally significant role. Theories such as Adjustment Theory, Loss Aversion Theory and Attribution Theory play a large role in the decisions made by consumers and posted “original” prices use psychological tactics to influence consumers towards a product. Primary Data was collected from 75 participants of varying age and gender demographics. The data indicated that respondents actively sought discounted prices regardless of whether the purchase occurred during an official sale period. Additionally, a certain amount of “sale fatigue” was found amongst the respondents as they did not always associate the word “sale” with a large discount. Secondary data from the Zara Summer Sale across 3 years, showed that the sales values, profits and total revenue increased each year, further supporting the action of these psychological theories and cues. This paper found that customer decisions are never made in isolation as various psychological factors play roles in deciding whether to buy an “on sale” item. Additionally, it was also found that producers deliberately play to these biases to persuade consumers to buy their products.