Pricing practices: A critical review of their effects on consumer perceptions and behaviour

•This paper is a literature review of six major pricing practices.•It examines drip, reference, time-limited, bait, bundle, and free pricing tactics.•The extant literature is looked at, including underlying psychological principles.•Mediators (learning effects, individual differences, and channel) are discussed.•The authors present theoretical, managerial, and ethical implications.

With the present challenge to compete on price or product assortment, retailers and manufacturers are increasingly focusing on state-of-the-art pricing strategies which have their roots in behavioural economics and psychology. The current review is an empirical investigation on the relative effectiveness of various pricing practices on consumer perceptions and behaviour. Six pricing strategies were reviewed; drip pricing, reference pricing, the use of the word ‘free’, bait pricing, bundling and time-limited offers. The review shows that the former three have received a significant amount of attention and have a robust impact on consumer perceptions and behaviour. There is less research on the latter three; however, the available evidence does suggest that they, too, may be capable of influencing consumers’ choices. Finally, it is also clear that the effects of pricing practices can be moderated by a variety of factors. Overall, the current review indicates that sellers are able to influence perceptions and purchase decisions of consumers based on the manner in which prices are displayed. The implications of these findings for retailers, policy makers and researchers are discussed.