Week 2 — Consumer choice and behavioral pricing

What can my customers afford, how do they choose, and which tricks shape the choice?

← Course map

This week you will

  • Describe what your customers can afford, and what one more unit really costs them.
  • Explain how a customer splits a budget between your product and its alternatives.
  • Find the behavioral tricks your company’s price page already uses.

1. Watch

Work through the three concept pages in this order. Each page has a short video at the bottom.

# Concept page Textbook
1 The budget constraint P&B 4.3
2 The consumer optimum: equal bang per buck P&B 4.1, 4.4 (intuition only; skip 4.2 and 4.5)
3 Behavioral pricing: anchors, defaults, decoys, framing P&B 4.6

2. Try

On each concept page, do the “Try it” box. Then try this company version: your customer’s lunch budget.

  • What else competes for the same dollars as your company’s product? For a coffee chain: convenience-store coffee and the office machine. For a streaming service: the other two services on the same credit card.
  • Open your company’s price page. Find the tiers. Which one is the decoy? Which one is the default? What is the posted price versus the total price at checkout?

Those three questions are Playbook P2.

Class experiment

Anonymous and not graded. The whole class answers one short question; the results appear when it closes.

3. Check yourself

Answer the “Check yourself” questions at the end of each concept page. They are not graded. They tell you if you are ready for the homework.

4. Do in Moodle

  1. Practice Homework U2 — concept questions, plus Excel Lab items with Lab_U2.xlsx.
  2. Playbook Page P2 Customer Choice.
  3. Two peer comments.
This week’s formulas
  • Budget line: PX·X + PY·Y = I · intercepts I ÷ PX and I ÷ PY · opportunity cost of one X = PX ÷ PY
  • Income change → parallel shift; price change → rotation
  • Best bundle: MUX ÷ PX = MUY ÷ PY, with the whole budget spent

Due dates and points are in Moodle.