The Memory Trap: How Yesterday’s Prices Are Costing Companies Today
Featuring Sudhir Voleti
Consumers’ memories of past prices can push firms to rethink product and pricing strategies—sometimes in surprising ways.
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Sudhir Voleti
Associate Professor of Marketing. He uses data-driven econometric and statistical methods to examine key marketing issues, including the evolution of brand equity over time, brand valuation using secondary sales data, the impact of geographic and perceptual distance on sales.
Key Takeaways
- Reference prices have strategic consequences. Consumers’ memory of past prices directly influences how firms position their products and set prices.
- Differentiation and profits follow a U-shaped curve. As reference price salience increases, firms first converge and then diverge in product space, with profits first declining and then recovering.
- Empirical evidence supports the model. Purchasing data from nine consumer goods categories confirms that product differentiation varies with purchase frequency in a pattern predicted by the model.