Emily Ellis shares a company article that identifies consumer’s behavioral limits that affect pricing.
In February 2024, Wendy’s CEO Kirk Tanner mentioned “dynamic pricing” in an earnings call. Within 48 hours, #BoycottWendys was trending, Burger King launched a “No urge to surge” counter-campaign, and the company was forced into damage control mode with a $1 burger promotion. The price had not even changed yet.
This is the gap that pricing models miss. Most companies assume customers evaluate prices rationally. They do not. Price is a signal, a social statement, and an implicit contract. When a price change violates psychological expectations, the backlash is swift and disproportionate to the price change itself.
The question is not “what will customers pay?” It is “what will customers accept, and under what conditions?”
Four Constraints That Pricing Models Miss
Reference Dependence: Customers do not evaluate prices in absolute terms. They compare them to what they paid before, what competitors charge, and what they believe they deserve. Economists Kahneman and Tversky formalized this in “prospect theory”, showing that gains and losses are measured from a reference point, not from zero. Disney+ subscribers who paid $6.99 at launch do not evaluate today’s $18.99 Premium tier against content value. They evaluate the price against their original anchor point. The October 2025 Disney+ price increase triggered cancellation waves not because $18.99 is unreasonable, but because it represents a near-tripling from the reference price many customers still carried.
Fairness Norms: Customers reject prices that they perceive as unfair, even if they are economically advantageous. Economists Kahneman, Knetsch, and Thaler demonstrated this in their 1986 research on “dual entitlement.” Customers believe they are entitled to a reference price, and companies believe they are entitled to a reference profit. Price increases traced to cost increases are typically tolerated. Price increases that appear to exploit captive customers are not. When Wendy’s said “dynamic pricing,” consumers heard “surge pricing” and reacted with moral outrage, not price sensitivity.
Loss Aversion: Price changes are felt asymmetrically. Paying more for the same thing registers as a loss, and losses hit harder than gains. Economist Thaler’s work on mental accounting showed how this asymmetry shapes purchasing decisions, and it’s why “shrinkflation” works. A 1% price increase reduces sales by 1.19%, while a 1% pack size decrease reduces sales by only 0.56%. However, when shrinkflation becomes visible, the framing shifts. Dunkin’s 2025 portion reductions sparked disproportionate backlash because consumers perceived dishonesty. As one analyst put it: “Consumers forgive a price increase more readily than a hidden reduction, because honesty maintains equity while concealment dissolves it.
Key points include:
- How consumers evaluate pricing
- Pricing boundaries
- Trust as a pricing asset
Read the article, When Prices Feel Expensive: The Behavioral Limits of Pricing Power, on FintastIQ.com.