Pricing strategies, behavioural nudges
products due to the belief that they are receiving a deal rather than out of preference or need for the good which develops unhealthy consumer behaviour, leading to the overconsumption of goods with low utility. Over time, this will cause allocative efficiency to fall as more resources are allocated towards these products in production, with the effect of reducing societal welfare. Additionally, default bias and framing are also techniques that manipulate consumer decisions. Customers are free not use Tesco’s Clubcard, but the substantial difference between Clubcard and non-Clubcard prices is an incentive to acquire one. 8 This concept is known as ‘choice illusion’. Thaler and Sunstein defended nudging under the principle of ‘libertarian paternalism’, referring to gently influencing choices without eliminating freedom. However, critics argue that this blurs the line between influence and exploitation. 9 Exclusive discount prices and default biases reduce the freedom of choice for consumers. These methods reveal the exploitative nature of companies using the cognitive biases of their customers to boost sales. Additionally, this may raise ethical concerns surrounding how much business should be allowed to exploit customers’ cognitive tendencies to increase revenue. Pricing strategies such as loss-leader pricing or artificially inflated ‘original prices’ prior to a discount can deceive consumers about a product's actual value. 10 This can go on to reduce the overall benefit of a product for consumers and consequently, the market may also become biased toward goods that do not represent real demand. These strategies are undeniably effective at influencing demand, but their usage must be considered alongside consumer welfare and autonomy, as well as market efficiency. In conclusion, pricing strategies and behavioural nudges both shape consumer behaviour in significant ways and are vital tactics employed by firms to influence market outcomes in the UK retail sector. Loss- leader and penetration pricing function by altering the cost of goods, often causing a clear short-term increase in demand and consumer surplus. However, if brand loyalty is not established, the results are temporary. In contrast, behavioural nudges operate by subtly exploiting cognitive biases with techniques like framing and default bias which increase revenue in the long-term without altering the product. However, these methods raise ethical problems surrounding consumers’ autonomy as they often limit consumer choice as well as encourage impulsive spending. This lowers consumer welfare and directs resources of producers towards low-utility goods, meaning allocative efficiency is lowered. Both methods can greatly impact consumer behaviour. However, their long-term impact is determined by whether they are used to enhance consumer welfare in the long run or to manipulate behaviour and damage market efficiency.
8 ‘Benefits of Clubcard.’ Tesco. Accessed August 31 st 2025. https://secure.tesco.com/clubcard/about 9 Thaler & Sustein, Nudge: Improving Decisions About Health, Wealth and Happiness (2008) 10 ‘Big UK retailers accused of ’dubious discounts’ on loyalty card offers’ https://www.theguardian.com/business/article/2024/aug/22/big-uk-retailers-accused-of-dubious-discounts-on- loyalty-card-offers-boots-superdrug-tesco-which
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