Probabilistic Selling for Vertically Differentiated Products with Salient Thinkers

Abstract

This paper studies probabilistic selling for vertically differentiated products, whereby consumers do not know the exact identity of a product until after making the purchase. An important feature of probabilistic selling overlooked by previous literature is that it changes the product line which often determines consumers’ choice context. Our work discovers the crucial role of context effects taking into account consumers’ salient thinking behavior: consumers focus their limited attention on and hence overweight the salient attribute of a product in their perception, leading to context-dependent preferences. We show that probabilistic selling can improve the seller’s profit with salient thinkers even when this strategy does not emerge with rational consumers. With salient thinking, the probabilistic product enables the seller to transform the consumers’ choice context favorably and direct their attention to quality. Our findings demonstrate the importance of exploiting consumers’ salient thinking behavior and suggest that probabilistic selling, as a context management tool, can be more beneficial than previously shown.

Keywords: probabilistic selling; vertically differentiated products; context effect; salience; decoy; behavioral pricing