Pricing strategies, behavioural nudges
Behavioural nudges are subtle changes in how products are displayed to influence consumers’ behaviour without limiting their options. 3 Nudges tend to exploit psychological tendencies in human behaviour that lead to irrational decisions. One type of behavioural nudge is framing, where presenting the same options differently affects how consumers perceive them. For example, customers may be more drawn to ‘Buy One Get One Free’ rather than ‘50% off’ as a result of how gain-loss framing influences judgement. 4 Another behavioural nudge is default bias, where individuals tend to stick with the pre-set, default option rather than actively choosing a different option. 5 For instance, pre-selected payment plans when shopping online may appear as if designed to increase convenience but they significantly affect outcomes in the seller’s favour. In the UK, Tesco’s loyalty card pricing is a clear real-world example of behavioural nudging, where Clubcard customers receive access to a discounted price on a large range of items. 6 Clubcard prices are displayed distinctly on shelves beside the regular prices in order to stand out. This encourages consumers to sign up with the Clubcard, believing that they are receiving a better deal while Tesco builds loyalty and an increasing number of returning customers. This nudge may improve consumer surplus if the discounts result in price saving. However, it can lead to increased impulsive spending based on perceived savings, potentially reducing allocative efficiency. Ultimately, nudges do not affect consumers’ freedom of choice, but their usage raises ethical concerns about firms exploiting cognitive biases to increase revenue. Pricing strategies and behavioural nudges both aim to influence consumer behaviour, but they achieve this through methods that have rather different microeconomic impacts. Regarding price strategies, both loss- leader pricing and penetration pricing operate by reducing prices which can lead to noticeable increases in demand and consumer surplus in the short term. However, if brand loyalty is not developed, these strategies often fail to make long-term shifts in consumer behaviour once prices return to normal. Behavioural nudges, on the other hand, operate discreetly by taking advantage of cognitive biases rather than actual price. For example, Tesco’s Clubcard does not always provide discounts. However, it frames the savings that do occur as exclusive and rewarding, particularly through extra ‘benefits’ found in the mobile app, which builds brand loyalty. 7 On a microeconomic scale, nudges can boost revenue for firms without changing the costs or product quality. However, if purchases are solely driven by discounts rather than the value of goods, consumer surplus can be undermined, and these ‘savings’ can encourage problematic consumer behaviour where purchases not meet their needs or preferences. Both approaches can improve consumer welfare, but nudges rely on subconscious manipulation and may therefore raise ethical questions. Ultimately, pricing strategies tend to influence consumer behaviour through logical motivations in the short term, while behavioural nudges lead to psychologically based consequences in the long term.
Both pricing strategies and behavioural nudges may benefit customers in the short term, but they can also be said to exploit unconscious psychological tendencies. Consumers may be more likely to purchase
3 Thaler & Sustein 2008. 4 Tversky & Kahneman 1981: 454. 5 Johnson & Goldstein 2003. 6 ‘Benefits of Clubcard.’ Tesco. Accessed August 31 st 2025. https://secure.tesco.com/clubcard/about. 7 Ibid.
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