Reference price

A reference price is the price that a customer considers to be reasonable to pay for a product or service. A business should be aware of the reference price perceptions of customers when setting price points for company products. For example, if the reference price used by customers is the pricing range for a competitor's product line, a business could set its prices slightly lower than the competitor's prices. Customers will perceive these prices to be a good deal in relation to the reference prices, and so will be more likely to buy from the company. A variation on the concept is for the originator of a product to initially set a high price, which customers will adopt as the reference price for that product. The firm can subsequently offer a variety of discounts, which are perceived as excellent prices, thereby boosting sales volume. Yet another variation on the concept is to place a lower-priced product next to a higher-priced product, so that the lower-priced product will appear to be a good deal, spurring sales.

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Revenue Management 
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