Scenario 8 – Price Perception

Understanding consumer behaviour is vital to commercial success. If product costs are too high, then they can be priced out of the market. Companies often wish to increase prices to cover their own costs but have to find the right balance between what is perceived as acceptable or face losing customers.

As part of your market research work, you were testing the range of price differences customers would perceive on a particular item. The cost of this item was £45 and you found from testing a large group of volunteers that they had a price difference threshold of £2.25 – in other words if the value was greater than £47.25 they perceived it as more expensive, below this they saw it as an imperceptible price change. The company is interested in applying your findings to other products with a range of values: £20, £35, £65, £90. You turn to Weber's Law to help you predict these difference thresholds.

For the prices indicated, calculated the predicted difference thresholds.

Display these values on a plot of prices vs difference thresholds.

You try to warn your managers that Weber's Law is not totally accurate and that threshold values predicted by the theory rarely match those obtained in practice. To prove your point, you carried out a series of measurements to establish empirical difference thresholds for the price points of interest. These are your results from a series of discrimination experiments where you tested the threshold for perceiving price difference:

Product price	£20	£35	£45	£65	£90
Price difference threshold	£1.60	£2.25	£2.25	£3.26	£4.49

On the same graph as you created above, plot these new values that you derived empirically from your discrimination experiments.

Calculate the Weber fraction for these experimentally determined difference thresholds. Compare these with the Weber fraction above. What do you observe and how might it influence your advice to your manager concerning price changes.