Chapter 9: Developing Pricing Strategies and Programs

 CONSUMERS PSYCHOLOGY AND PRICING 

Price is what a good or service is sold for. It is one of the marketing mix that produces revenue while the others produces cost. Pricing isn’t always as easy as setting a price the brand hopes to get back. It involves aspects such as demand and supply, cost of the product, its perception and value for the customer etc. 

A consumer will know if a price is too high, too low or on point based on previous experiences, from advertisement, from brochures, information from family and friends. Purchase decisions are made based on customers perception of the product's value.

By employing psychology, a brand may present a perception of discount or value using the "left digit effect". Making prices end in decimals give the consumers the idea that the price is affordable rather than it ending in whole numbers. €4.99 is seen as cheaper than €5

When a price is relatively lower than it's competitors, the good is seen as inferior or less quality. That's why brands should fix the price of a good in reference to other competitors.

Using celebrities and influencers to market a product gives consumers the perception that the product is of great value that's why a famous person is using it.

Another way psychology can influence pricing is by offering free products with purchase. It makes the consumer believe he is saving.

Setting a time frame to sell of products creates a rush for the product. It gives the idea that the availability of the product is limited.

Price-quality interference is when consumers use price as an indicator of quality for ego-sensitive products like clothes and perfume. The may actually worth less but because of the product being a symbol of luxury, more is paid.

Luxury products should not be discounted. These products are often seen as symbols of luxury and of superior quality. Also, by paying a premium price, have the idea that they belong to an elite group. Discounting such products may reduce the perception of value.

In summary, Pricing psychology is important to understand how people make purchases. A brand must understand the psychology of its customers to optimize profits, enhance customer's satisfaction and give consumers the sense of  value and exclusivity.

References: Ilias Avgeropoulos(2004) Marketing Planning power point , Kotler (2000) Marketing Management,Pricing Research Lab Sciative(2003) The Psychology of Pricing: How Consumer Behavior Shapes Pricing Strategies