Question

500 words please!!!!

Explain the following statement giving examples:

“When we look at buying decisions, it is not price levels but price perceptions that may be more important. Price perceptions can be molded and modified by sellers, based on the use of advertising or other cues that may determine our reference prices. After this the ‘coding’ of the price as a gain or loss” is altered. By framing a price as a ‘gain’ the seller induces purchases.”

Answer 1

Perceived prices as opposed to price levels are reference points that customers make for a product based on experience. Experience in terms of price levels that they have come across for similar products.

Every time a customer looks at a price point, there are two opposing thoughts that crosses the mind of the her. One is, the sacrifice that she is making by paying the price for the good. Other is the value addition that is happening upon buying the good. These are always opposite to each other and if the second factor outweighs the first factor, customer makes a purchase.

Now what are the factors that affect a customers perceived price.

Companies often use what is called anchoring. This is where in the display information of the article, an original (and higher price) will be crossed off and a new lower price will be displayed. When the actual price is shown to be lesser than the original price (original price is the anchor), the customer may be coaxed to make the purchasing decision.

Another strategy that companies adopt are creating a premium feel to a product or service. Primary example is Apple. For every product lines, Apple offers a far higher price than its competitors and yet customers buy their products. This is because a certain level of premium and exclusivity is aroused in the minds of the customers.

Marketers often play the card of rarity. For example, organic food often is more expensive than traditional produce. Since organic food produce is normally lesser in quantity and hence a premium price can be attached.