Abstract

Setting a fair price requires that we know something about consumer expectations. We introduced the economic notion of ‘too expensive’ versus ‘too cheap’, basing our ideas on the pioneering work of the Dutch economist, Peter van Westendorp, and then extended it to look at the influence of one’s mind (‘Am I price sensitive or price insensitive?’). Econometric models with psychometric curves look at equilibrium points, where the ‘too cheap’ and ‘too expensive curves’ cross. Psychophysics looks for relations among variables. Psychophysics goes one step further, and shows the nature of responses to price as a function of how a person profiles himself on a price sensitivity scale.