CPM CPM Price Psychology & Behavioral Economics 2 — Questions and Answers
Question 1: Scarcity messaging ('Only 3 left in stock!') increases purchase intent by activating:
- Loss aversion and fear of missing out (FOMO) (Correct answer)
- Price anchoring
- Endowment effect
- Confirmation bias
Correct answer: Loss aversion and fear of missing out (FOMO)
Scarcity signals trigger fear of loss and urgency, which behavioral research shows increases willingness to pay and purchase intent.
Question 2: In subscription pricing, which behavioral principle explains why annual plans have lower churn than monthly plans?
- Sunk cost effect — customers feel committed after a large upfront payment (Correct answer)
- Price anchoring to the annual rate
- Decoy effect of monthly pricing
- Endowment of the subscription product
Correct answer: Sunk cost effect — customers feel committed after a large upfront payment
Having paid a lump sum upfront, customers feel psychologically invested and are less likely to cancel during the subscription period.
Question 3: The 'compromise effect' in pricing predicts that consumers tend to choose:
- The middle option when three price tiers are presented (Correct answer)
- The cheapest option to minimize risk
- The most expensive option as a quality signal
- The first option presented due to anchoring
Correct answer: The middle option when three price tiers are presented
When three options are available, buyers tend to select the middle tier, making it a strategically important price point.
Question 4: Reference price theory holds that consumers evaluate a price by comparing it to:
- An internal or external standard price stored in memory or visible in context (Correct answer)
- The marginal cost of the product
- The industry average price index
- Their household income level
Correct answer: An internal or external standard price stored in memory or visible in context
Reference prices can be internal (past purchase memory) or external (displayed original price), and deviations from them drive perceived value.
Question 5: Price-quality inference refers to the tendency of buyers to:
- Use price as a signal of quality when product information is limited (Correct answer)
- Always choose the lowest price option
- Negotiate below the stated price
- Assume premium prices include hidden fees
Correct answer: Use price as a signal of quality when product information is limited
In low-information purchase environments, a higher price signals higher quality, leading some segments to prefer pricier options.
Question 6: Temporal reframing of a price (e.g., 'Less than a cup of coffee per day') is designed to:
- Reduce perceived magnitude by expressing cost in a smaller, relatable unit (Correct answer)
- Communicate product longevity
- Justify a price increase to regulators
- Compare price to a competitor
Correct answer: Reduce perceived magnitude by expressing cost in a smaller, relatable unit
Breaking down an annual or monthly cost into a daily equivalent makes the price seem trivially small relative to familiar expenditures.
CPM CPM Price Psychology & Behavioral Economics 2
Scarcity messaging ('Only 3 left in stock!') increases purchase intent by activating: