Effect of Pricing on Consumer Purchase Behavior

Term Paper of Consumer Behavior

By: Muhammad Saad Saleem 833-MBA-10
6/3/2012

Effect of pricing on consumers purchase Behavior Introduction: As we know that as a customer, we have to purchase different things in our daily life so pricing is the factor which is very important and effects our purchase decisions. This thing also linked with as the perceived quality and value of the product. So in this paper, I shall discuss the impact of pricing on the consumers psychology and then how it results in the purchase behavior, perception of product quality and its value. And finally how it is related with the customers satisfaction regarding a product. Opening Premise: Pricing of different products effect the consumers perception about the products quality and value Before going in to deep discussion first I would tell what is pricing, its different strategies and then I will give a critique by giving the examples from our daily life. Pricing is basically a process of determining that what a company will receive in exchange if its products. It consists of different costs like manufacturing cost, marketing costs etc. There are different pricing strategies used by the companies like line pricing, loss leader, price quality relationship, premium pricing, demand based pricing and multidimensional pricing. Most of the strong brands use premium pricing and value pricing, as these are the strategies which make those brands more powerful, differentiable and successful. Like Hugo Boss, Levis, Rolex, Tommy Hilfiger, Diesal and Georgeo Armani and Timber Land. All of these brands are pricing their products on the base of value and quality.
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As the name suggested of these above mentioned two pricing strategies used by successful brands how affects the psychology of the customers? Customers perceive high prices products as high quality products. This is the psyche of the customer that for what product they pay high price, they think that this is high quality product. Or the thing to which they perceive as high quality product, will preferably wanted to pay high price for it. Now question arises why strong brands keeps their prices higher? They have studied the psychology of the customers and it shows that if their favorite brand decreases their prices, customers perceive that there is something terribly wrong with the quality of the product. Todays marketers are also the psychologists and that is the reason they play with the psyche of the customers by this value and quality factor. But there is a thing that this thing is not in the case of generic products or very cheap brands. Like if a customer have to purchase a lead pencil, he will not b very much curious about its brand and quality rather that he will try to take it from a convenience store. It also gives us the way that people takes interest only in high priced, high involvement products not in low involvement and cheap products. In fact there are two types of customers one is high income group and other is low income group and I am supposing only these two segments by keeping all other segments and factors constant. High income customers: These customers are not normally price sensitive, they measure the quality of a brand or a product with its price and if the price graph goes down they perceive that there is something wrong in the quality of the product. Their target market includes luxurious products which
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include luxury cars, perfumes, cloths and wrist watches. Another thing is that they mostly pay attention only to high involvement products; they dont even bother for low involvement products. But sometimes even for small products they like to see brands. One more thing is that such customers wanted to wear expensive brands as they think that it will positively affect their personality. Like if I would wear expensive cloths and drive an expensive car people will take pride to listen me and respect me. This is the factor which motivates them to go for these expensive products, and this is the psyche of these customers from which marketers takes advantage. They charge a high premium for their products due to this perception of the high end customers. This motivation is actually created by the marketers by realizing this need of the customers to them. So we may say that motivation factor is doing the work at its best. And this motivation is created by the marketers by using powerful advertisements. This advertisement includes strong celebrity endorsement, sports stars and modals. Low Income Customers: This is the weak segment of the customers but according to many successful marketers is also a profitable segment for different companies. These are the customers which most of the time cannot afford the costly and luxurious products. This segment is also called as price sensitive segment, as their demand and purchase behavior changes whenever the price of a specific brand increases. These customers actually try to copy the upper income level customers or we may say that the high income group is the role model for them. Companies which are targeting this class always cater for low margin of profits but they earn by increasing their number of volume sold.
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Companies cannot use value based pricing or premium pricing strategies for this segment. Because with the increase in the price of a specific brand, they easily switch to some low cost brand. For example if the price of lemon Max dish wash bar increases with 15% they will switch to let say Vim brand which is still good 20% low in price. This segment believes more on the price rather than the quality. With the perspective of psychology, we may say that motivation to purchase and then repurchase a product is neither brand name here nor its quality but it is price of the product. Customer perceives high quality product with high price as the wastage for money. But some of the authors not agree with this part, they said that their motivation is same as the high end customers, they want to follow the high end customers and due to this they end up paying extra or more. Example of this phenomenon is the highly use of credit card service, car leasing etc. Now how the marketers earn more with the psychological pricing strategy, there are some psychological pricing strategies like, Reference Pricing Drip Pricing Time Limited Complex Pricing

Such pricing strategies make the customer confused like hiding the taxes as done by airlines, or giving time limited offers, or by giving some complex offers of bundling and non-bundling. Marketers use these strategies successfully and enjoy good profits at all.

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Now there is one more thing regarding pricing which is when we continuously use these above mentioned psychological strategies the customers start knowing about this which is a problem for the marketers. So companies are trying now to match the perceived quality with the actual quality of the product. By this we can make the customer comfortable that the product he/she is purchasing is equal in quality and price. Now question arises when and where what strategy should be used? For the luxurious products and valuable services, company should use premium pricing. Because we cannot afford to use low pricing strategies like for Mercedes, this will create doubts in the mind of customers and will blur the image of the company in the mind of the customers. While for the low end segments, company should use very low profit margins and should deal in high volume of sales. Now I shall discuss the relationship of customers satisfaction with pricing. If a customer is paying high price for a product but that product failed to perform, will it keep the customer satisfied? I would say never. As the performance of the product directly depends upon the quality and its features; durability, reliability and its serviceability. Pricing is a very dynamic phenomenon because it changes the decisions of different customers upon different situations. Customers behave differently on different situations as he perceives the situation and it also depends that from which segments he or she belongs. Summing Up: In the end, while summing up my discussion, I would say pricing is an important factor and can influence the customers intentions to purchase and repurchase the other products. It also influences the motivation, perception, behavior and attitude of a customer about a specific
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product or service. Marketers should set the prices of their products according to the trend of the customers regarding that product category.
Reference

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