Differentiation and Parity in Assortment Pricing

Abstract

Are consumers more likely to purchase an item from an assortment in which options are priced at parity or from an assortment in which options vary in price? This research examines the influence of parity-pricing and differentiation-pricing strat-egies on consumer choice and identifies conditions in which parity pricing facilitates choice, as well as conditions in which choice is facilitated by differential pricing. In a series of three experiments, the impact of assortment pricing on choice is shown to be a function of the uncertainty associated with consumers ’ preferences and the consistency of these preferences with options ’ prices. When launching a new product line, managers oftenface the question of whether to price products at parity or to let the pricing vary as a function of other factors such as the actual cost or the anticipated demand for each product. To illustrate, a restaurant could price all the options on its dessert menu the same, or, alternatively, it could let the pricing reflect the actual cost of making each dessert. A wine manufacturer could price different wine varietals at

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