Psychological Pricing
Psychological pricing is a strategy that involves setting prices to influence consumer perception and behavior. It leverages the psychological impact of certain price points, such as $9.99 instead of $10, to make products appear more affordable and attractive. By tapping into consumers' subconscious responses, this approach aims to increase sales and create a favorable impression of the product's value.
6 Key excerpts on "Psychological Pricing"
eBook - ePub- Barney Kemps(Author)
- 2021(Publication Date)
- Bibliomundi(Publisher)
...Is Psychological Pricing an Effective Strategy? Price has a psychological significance attached to it. Buyers have this belief that if a product is highly priced then it is more valuable. Although this belief is more psychological than reality based it makes price tangibles more effective than the product itself. However, it is interesting that as the buyer starts researching the nature of the product more extensively his decisions become more rational and higher price ceases to be the measuring rod for product value. One good example where Psychological Pricing is that buyers tend to incline more towards prices that end in uneven figures such as $9, $99 because they believe they are getting a better bargain than if the prices ended in even figures such as, say, $20, $66 etc. If the products to be priced are in a price "band'' as in online auctions or if they are priced in an odd range figures like $199,00 then the products will be considered more valuable than a $200,00 listing. The psychology behind such consumer behavior is that prices in an odd range are usually considered a better bargain. Therefore, it is important to make sure that you have chosen the right price and the right strategy for the product. Another instance of Psychological Pricing is reference pricing. Reference pricing is when the buyers relate to a price psychologically since it directly reflects their regarding the relationship of a product to its price. In case of high value products such as luxury items reference pricing is highly influential and an entire business can be capitalized on this basis. However, one has to be careful while positioning the prices since the strategy may backfire if the buyer feels that the product does not deserve to be in that category. If the product has the features that attract an ego-sensitive buyer then reference pricing is an adequate pricing strategy. An example of this is high end luxury items which appeal to ego-sensitive buyers...
eBook - ePub- Marilyn Stone(Author)
- 2007(Publication Date)
- Routledge(Publisher)
...In setting a price information has to be obtained about demand factors, e.g. the price elasticity of demand. This is calculated by estimating the percentage change in quantity demanded over the percentage change in price. By gaining knowledge of demand factors the marketer helps avoid the potentially disastrous mistake of focusing too much on costs. Typically, this involves estimating likely demand at different prices; estimating what happens to cost as demand rises; estimating the likely effects of raising or lowering price. How is this done? Example. One means of estimating the importance of price is to consider how customers rate this attribute in terms of the buying decision. Competitive products are ranked in terms of key customer buying factors and customer response to price may be tested by field experiment, direct attitude survey (buyer response curves) and, for new products, value analysis of customer cost saving benefits, e.g. energy or labour saving costs. However, problems with the above approach should not be minimized. Perceptual mapping of prices is notoriously difficult to research; the process is highly subjective and the marketing environment is highly dynamic. There are a number of more sophisticated forms of demand-based pricing, as shown below. Psychological Pricing In using Psychological Pricing, sellers consider the psychology of prices as well as the economics. When consumers can judge the quality of a product by examining it, or by calling on past experience, they use price less to judge quality. When consumers cannot judge quality because they lack the information or skill, price becomes an important quality signal, as the following case study illustrates. THE PRICE OF VODKA A few years ago the producer of Smirnoff vodka, Heublein, was concerned when a competitor, Wolschmidt, entered the market with a competitor product priced at $1 less than a bottle of Smirnoff. There were a number of counter-strategies available to Smirnoff...
eBook - ePub- Sally Dibb, Lyndon Simkin(Authors)
- 2007(Publication Date)
- Routledge(Publisher)
...Pricing must be based on an assessment of target market expectations and ability to pay, plus a detailed examination of likely demand at different price points. The understanding of the relationship between demand, cost and profit is complex but it is a core task of marketing management. Without this understanding, profitability is likely to be impaired. Within this economic evaluation, break-even analysis ensures financial viability and survival. The customer often has a choice of supplier options: marketers must be aware of the competitive set and the prices charged by these rivals. A pricing policy is a guiding philosophy. Pioneer pricing options include price skimming and penetration pricing. Psychological Pricing focuses on emotional responses and includes odd–even pricing, customary pricing, prestige pricing and price lining. Professional pricing is used by experienced managers knowledgeable in a particular field. Promotional pricing includes price leaders, special event pricing and everyday low pricing. Experience curve pricing sets a low price that high cost competitors cannot match. A pricing method is a mechanical procedure for assigning prices to products. Options include cost-oriented pricing, demand-oriented, competition-oriented and marketing-oriented pricing. Pricing objectives, policies and methods should dictate actual price selection. Of all the marketing mix ingredients, price is often the easiest and quickest to modify. Marketers must be aware, however, of the implications on business performance. Conceptual overview A fundamental aspect of marketing is the setting of the price within the marketing mix for a product or service (cf. Briefs 30 and 32). This will determine the viability of the marketing programme and possibly also the company...
- Ray Donnelly, Colin Linton, Colin Linton(Authors)
- 2010(Publication Date)
- Routledge(Publisher)
...no profit or loss is sustained at this point. This is the break-even point. Sales or output beyond this level starts to generate profit. Example A small manufacturer sells a product for £200. Its fixed costs are £200,000 per year while its variable costs are £ 100 per unit. Its breakeven point is 2000 units per year. This is calculated by total fixed costs/unit price-variable costs, or £ 200,000/ £ 200-£ 100. Customer Based This is based on the perceived value as seen by the customer. There are a number of pricing methods, as seen below. Psychological Pricing The price says something about the product that makes the purchase an emotional rather than a rational purchase. The prime purpose of Psychological Pricing is ‘to influence a customer’s perception of price to make the product more attractive’ (Dibb et al., 2005). Everyday low prices or a price point of £9.99, or £19.99 can achieve this. Alternatively pricing high can have the same effect, e.g. a £100 bottle of wine becomes attractive to some segments because it reflects status, or makes the purchaser feel confident. Promotional Pricing Products are sold at below their usual price for a specific period of time to raise the level of sales. This is usually temporary and can take a number of forms from the special event approach, e.g. a discount is offered for all purchases made on the night, to the supermarket selling a product below cost, in order to encourage sales on other (higher margin) products. Differential Pricing A different price is charged to different purchasers of the same product, i.e. the price can vary. A standard price for the product is clearly easier for the purchaser to understand. However, differentiated pricing is commonly used. Consider the purchase of a holiday overseas, this will typically be much more expensive during the period of school holidays...
eBook - ePubPricing and Profitability Management
A Practical Guide for Business Leaders
- Julie Meehan, Mike Simonetto, Larry Montan, Chris Goodin(Authors)
- 2011(Publication Date)
- Wiley(Publisher)
...Thus, companies must ensure that their pricing structure reinforces the desired positioning. An effective pricing structure, working in concert with a modular product, is essential when establishing a pricing strategy that elicits the maximum value from each customer and market segment. As with prestige pricing (which we will discuss later in this chapter), even the cents portion of the pricing structure affects how buyers perceive value. Five variations of pricing structure are discussed in the following: list prices and discounting price bundling price fencing price menus price metrics. Each of these structures can support the implementation of a pricing strategy. For example, if a company decides to use skim pricing (an explanation of which is provided later in this chapter) after an initial high-price launch, it can either use discounts to lower the cost to the consumer (while maintaining the list price) or adjust the list price down. The two options have different goals: the first is a targeted, short-term decrease to produce in buyers the perception that they got a deal, while the second is a long-term adjustment to encourage broader adoption. List Prices and Discounting Companies have long attempted to influence perceptions of value and quality (while maintaining price integrity) by setting a manufacturer's suggested retail price (MSRP) or a list price. Equally important, though, is the discounting scheme used to encourage purchases. For example, by discounting the price of a different brand of potato chips to $1.99 nearly every week in a local grocery store (which will likely stimulate sales), manufacturers and retailers are signaling to customers that MSRPs are not the true price they should form attitudes about. The rotating discounting behavior conditions the customer to wait for, and value the product at, the familiar promotional price...
eBook - ePubMarket Research in Practice
An Introduction to Gaining Greater Market Insight
- Paul Hague(Author)
- 2021(Publication Date)
- Kogan Page(Publisher)
...It is suited to categories where offers are similar and brand is the determining factor behind decision making. Survey respondents are shown a series of branded products or services at once, each with a price associated with it – between three and five ‘offers’ are typically shown at once. Respondents are asked which of the offers presented is most appealing in a hypothetical buying scenario. The brand and price preference data is then analysed statistically to derive predicted market shares of each brand at different price points and the relative influence of price and brand in decision making. Read more on brand–price trade-off in Chapter 18. The challenges of researching price The challenges of researching price must be acknowledged. First, there is the question whether the price a respondent states he or she is willing to pay reflects the reality. Many market researchers who believe that willingness to pay is overstated by respondents apply a discount percentage to the stated responses to reflect reality more closely. A limitation of all pricing market research is that it assumes pricing behaviour is rational. A challenge to this assumption is the phenomenon of ‘framing’. This refers to the setting of pricing expectations. The company that launches a cheap product or enters a market at a low price will find it difficult to raise prices afterwards. The business that prices high to start with can always bring its prices down, but will often end up with a higher final price point than the company that starts cheap. Similar to framing is the ‘anchoring’ that can occur in conducting research. The price range shown and the first values shown can influence perceptions of what is appropriate, or cheap or expensive, particularly in markets where prices are largely unknown such as infrequently purchased or specialist goods. It can be argued that looking for the ‘optimum’ price is a simplistic concept. It ignores the role of optional add-ons, for example...
