Inertia Equity: The Impact of Anchoring Price in Brand Switching

Abstract:     
Customers often show a tendency to prefer the status quo rather than switching to a new brand. Inertia equity is inferred from the difference between the price that will induce a customer to switch to a new brand and the price of the brand the customer has typically been using in the past (i.e., the anchoring price). Two studies demonstrated that inertia equity increases with the magnitude of the anchoring price, whereas the ratio of the inertial equity to the anchoring price decreases as the anchoring price increases. However, the hypothesis is retained that the logarithmic transformation of the inertia equity is a constant portion of the logarithmic transformation of the anchoring price. The asymmetric value function postulated by prospect theory was used to account for these relationships that link monetary variables (e.g., inertia equity) to consumer variables (e.g., inertia driver and inertia values).

Keywords: Status quo bias, prospect theory, psychophysics of pricing, inertia equity, brand switching, experiments

Working Paper Series