Question

Explain the relationship between Consumer Psychology and Pricing.please write 600 word minimum

Answer 1

Consumer psychology and pricing- The cost of a product or service is relative to what the buyer thinks that costshould be. Based on his or her previous experiences, the customer will judgewhether prices are too high, too low, or on target.Through personal experiences, advertising, and a base knowledge of standardpricing, your customers will have a good idea of where your prices should fall inrelation to the market and your competitors.By using psychology, you can present a perception of value or discount that willhelp you to sell your products. For example, the common use of Rs.2999 over Rs.3000 has long been a matter of pricing psychology that says: Although there isonly a 1 cent difference, something in the 9 range is a greater bargain thansomething in the 10 range. In fact, studies show that odd numbers are morecommonly associated with lower prices than even numbers.Giving an item free with purchase is primarily a perception of savings. While abuy-one-get-one-free offer represents a small savings to the customer, it drawsmore business because of the idea of getting something for free.Other factors that play into the perception of pricing include availability. If, forexample, you indicate a one-day sale, the idea that availability is limited willencourage the customer to act quickly rather than mull over the purchase.Likewise, if you know that supply and demand are in your favor, you can stand bya higher price and let it be known that only a few items remain available. Limiteditems always appear as more valuable.

Reference price- People often compare a product’s price to a “reference price” that they maintainin their minds for the product or product category in question. A “referenceprice” is the price that people expect or deem to be reasonable for a certain typeof product.Several factors affect reference prices- Memory of past price,Frame of reference (compared to competitive prices, pre-sale prices,manufacturer’s suggested prices, channel-specific prices, marked prices beforediscounts, substitute product prices, etc.), Price quality inferences:Consumers often rely heavily on price as a predictor of quality and typicallyoverestimate the strength of this relation. Furthermore, the inferences of qualitythey make on the basis of price can influence their actual purchase decisions.A bottle of perfume priced Rs.5000 might contain Rs. 500 worth of scent, but giftgivers pay Rs. 5000 to communicate their high regard for the receiver.

Price Cues- A price cue is defined as any marketing tactic used to persuade customers thatprices offer good value compared to competitors’ prices, past prices or futureprices. In this paper, we review the academic literature that documents theeffectiveness of different types of prices cues. The leading economic explanationfor why price cues are effective focuses on the role of customer price knowledgeand the ability of customers to evaluate whether prices offer good value. Wesurvey the evidence supporting this theory, including a review of the literature oncustomer price knowledge. Finally, we document the boundaries of when pricecues are effective and identify several moderating factors.It can also be define as any marketing tactic used by firms to create theperception that its current price offers good value compared to competitors’price, past prices or future prices. A common example is placing a sign at thepoint of purchase claiming an item is on “Sale”.

Geographical pricing- In this pricing the company decide how to price its product to different customersin different locations & countries.Barter - The direct exchange of goods, with no money and no third party involve Compensation deal - The seller receives some percentage of the payment in cashand the rest in products. A British aircraft manufacturer sold planes to Brazil for70 percent cash and the rest in coffee. Buyback arrangement - The seller sells a plant, equipment, or technology toanother country and agrees to accept as partial payment products manufacturedwith the supplied equipment. A US. Chemical company built a plant for an Indiancompany and accepted partial payment in cash and the remainder in chemicalsmanufactured at the plant.Offset - The seller receives full payment in cash but agrees to spend a substantialamount of the money in that country within a stated time period. For example,PepsiCo sells its cola syrup to Russia for rubles and agrees to buy Russian vodka ata certain rate for sale in the United States.Price discounts and allowancesThe role of discount Offering discounts can be a useful tactic in response toaggressive competition by a competitor. However, discounting can be dangerousunless carefully controlled and conceived as part of your overall marketingstrategy. Discounting is common in many industries – in some it is so endemic asto render normal price lists practically meaningless. This is not to say that there isanything particularly wrong with price discounting provided that you are gettingsomething specific that you want in return.

Promotional PricingCompanies can use several pricing techniques to stimulate early purchase- Loss-leader pricing - Supermarkets and department stores often drop the priceon well Known brands to stimulate additional store traffic. This pays if therevenue on the additional sales compensates for the lower margins on the) boss-leader items. Manufacturers of loss-leader brands typically object because thispractice can dilute the brand image and bring complaints from retailers whocharge the list price. Manufacturers have tried to restrain intermediaries fromloss leader pricing through lobbying for retail-price -maintenance laws, but theselaws have been revoked.Special-event pricing - Sellers will establish special prices in certain seasons todraw in more customersCash rebates - Auto companies and other consumer-goods companies offer cashrebates to Encourage purchase of the manufacturers’ products within a specifiedtime period. Rebates can help clear inventories without cutting the stated listprice.Low-interest financing - Instead of cutting its price, the company can offercustomers low- interest financing. Automakers have even announced no-interestfinancing to attract Customers.Longer payment terms - Sellers, especially mortgage banks and auto companies,stretch loans over longer periods and thus lower the monthly payments.Consumers often worry less about the cost (i.e., the interest rate) of a loan andmore about whether they can afford the monthly payment.Warranties and service contracts- Companies can promote sales by adding a freeor low- cost warranty or service contract. Psychological discounting - This strategy involves setting an artificially high priceand then offering the product at substantial savings. Promotional-pricing strategies are often a zero-sum game.

Differentiated PricingCompanies often adjust their basic price to accommodate differences incustomers, products, locations, and so on.Customer-segment pricing - Different customer groups are charged differentprices for the same product or service. For example, museums often charge alower admission fee to students and senior citizens.Product-form pricing - Different versions of the product ‘are priced differently butnot pro-portionately to their respective costsImage pricing - Some companies price the same product two different levelsbased on image differences at. A perfume manufacturer can put the perfume inone bottle, give it a name and image, and price it at Rest. 50. It can put the sameperfume in another bot-tle with a different name and image and price it at Rs.200.Channel pricing - Coca-Cola carries a different price depending on whether it ispurchased ill a fine restaurant, a fast-food restaurant, or a vending machine.Location pricing - The same product is priced differently at different locationseven though the cost of offering at each location is the same. A theater varies itsseat prices according to audience preferences for different locations.Time pricing - Prices are varied by season, day, or hour. Public utilities vary energyrates to commercial users by time of day and weekend versus weekday. Restaurants charge less to “early bird” customers.