Description
Pricing and consumer psychology and behaviour (psychological factors) – It is probably not surprising that price has a large impact on consumer purchase intentions and plays a critical role in the segmentation of consumers. Examine pricing models and techniques, with particular focus on the psychological impacts of pricing decisions on consumers. In this exercise, it is expected that you will consider the organizational impacts of pricing decisions and changes in pricing, for example, through processes of discounting and couponing.
Impacts of Prices on Consumer Purchase Intentions (Justin)
Price perception is one of the key decision variables of consumers in buying process. Economists, marketing researchers have done research to examine and predict the effects of price in buying decision-making (Kurtulus, 2010).
Studies trying to explain the effect of price in buying process have concentrated on two dimensions of price perceptions, namely economic and psychological (Kurtulus, 2010).
In marketing practice psychological factors have been widely used by the managers in order to create positive effect on consumers. Consumer’s price perception can be influenced by their price consciousness, value consciousness, price expertise, sensitivity to price cut and other related factors (Kurtulus, 2010).
Price-quality relationship: One of the most impressive research done in pricing is about consumers’ quality perception and their price-quality associations. Price is a good indicator to perceive quality of products. A significant proportion of consumers believe that high priced products will have high quality. Thus, price signals quality as well. In fact, every consumer has different price limits when they are setting price-quality relations (Kurtulus, 2010).
Price consciousness: Price consciousness is defined as consumers’ degrees of focusing for paying less in buying. Consumers with high price consciousness tend to make more price search in the stores (Kurtulus, 2010).
Reference:
Kurtuluş, K., & Okumuş, A. (2010). Consumers’ price perceptions as a segmentation criterion: An emerging market case. Istanbul University Journal of the School of Business Administration, 39(1), 21–34. Retrieved from https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=52005750&site=bsi-live&scope=site
Pricing models and Techniques (with a focus on the psychological impacts of pricing decisions on consumers)
Price Setting Method:
“The range for restaurant profit margins span anywhere from 0 – 15 percent, with the most common average falling between a 3 – 5 percent average restaurant profit margin’’. (Jessica Reimer, 2018)
Jessica Reimer, (Jun 20, 2018). What is the Average Restaurant Profit Margin?. Retrieved from: https://pos.toasttab.com/blog/average-restaurant-profit-margin
For most of the new business in phrice strategy, we performance small profits but quick turnover. They are variety, quality assurance, affordable their products and service. Otherwise, they need flexibly to observe customer behaviour and change to improve their industry. The economy price and membership system will be the major reasons to motivate people to try new products.
(Ethan lizongyi)
Organizational Impacts of pricing decisions and changes in pricing (Ex. Discounting and Couponing)
“Pricing is one of the important strategic decision elements of the marketing mix which could be crucial in assuring the market success of new products. Information about pricing is not the single element that may sway the buyers' decision-making process and buying behaviours. Information about various qualities of different products may also help the purchasing decision. Buyers may compare the price along with other marketing mix variables to choose the best alternative which will satisfy their needs. As Jeuland and Dolan (1982) stated, the price may become a practical quality indicator and may help to position the product if quality information is not available or clear. The price in some situations may be used as a base in a purchasing decision. In order to make the correct choice, buyers must also have an acceptable reference price to determine whether the suggested price is too low or too high.” (Ugur Yucelt, Nadeem M. Firoz, P580)
Ugur Yucelt, Nadeem M. Firoz., Buyers’ Perception of the Price-Quality Relationship: The Turkish Case, Ugur, P580. Retrieved from https://link.springer.com/chapter/10.1007/978-3-319-17323-8_124
1, Knowing Your Buyer Perceptions – in terms of how they perceive the world around them
2, Comparisons To Competitors – in terms of how they compare you to your competitors
3, Understand Brand Perceptions – in terms of how they view your actual brand itself.” (Your Buyers Perception, 2013)
Your Buyers Perception, (Friday, 22 November 2013) In Learning. Retrieved from
http://in-learning-blog.blogspot.com/2013/11/your-buyers-perception.html
Offer Reward point card, when the customer spends over $10 anything in store, they could collect one star, ten stars value $10 store credit ( Dine-in or take out by self only).Silver Elites (this is special offer the first months of opening operation only 10 dollars sign-up fee): enjoy member special offers, free wifi, 10% bonus on loyalty base points (point can use to exchange the gift or draw $5-$50 dinner lucky vouchers).
Gold Elites (on the basis of Silver card, spending $800- and 15-times meal per month) enjoy free afternoon tea (snacks and beverages) in the executive lounge. 30% bonus on loyalty base points Enhanced Wi-Fi. We expect there are 20 or more people who redeem their rewards per month in the first six months.
Sending out a thousand coupons for a potential customer who walks on the street and neighbours to motivate them to try. Wishing to get coupons back at least 50%.
According to my internship experiences, expect of breakfast, for lunch and dinner there are around 10%-35% guests are our members and more 80%, guests have coupons. this shows fully convincingly that membership system and loyalty programs greatly improve customers' flow.
(Ethan Li)
Influence on Purchase Behavior (Inna)
Using unit pricing saves consumers money. Brand, package size, and store switching are common among consumers who use unit pricing. Public policy and consumer advocacy groups should educate those who do not use unit pricing on how they can save money by applying unit pricing to brand, package size, and outlet selection. (book)
Price Hike
Before you decide to raise the price of your existing product or service you should understand how that could affect consumer behavior. For one, when you raise the price you risk turning the customer off. If the customer has the choice to get the same product from a competitor at a lower price you could lose the customer permanently. On the other hand, raising the price could have no effect at all, especially if it is a product that is in high demand and not available at competitors. In fact, charging a higher price compared with other similar products and services sometimes entices consumers to buy because some buyers equate a high price with a superior-quality product.
Low Price Effects
Lowering or initially setting a lower price than expected can have a different set of effects on a consumer. In one case, a price-conscious consumer is grateful for a price break and will possibly stock up on the item at the low price. In other cases, the consumer could become suspicious of the low price and assume it means the product is of a lower quality.
Considerations
Due to the potentially unexpected effects of price on consumers it is important to set the right price from the start. Making a change to the price of a product or service is very risky, so do so with caution and after much consideration. Do price research in advance of releasing the offering to make sure you set a price that consumers are comfortable with, while providing you with a profit that meets or exceeds your goals. You can start by checking on the prices set by competitors and reviewing business case studies. Determine your costs and the average industry mark-up percentage (the amount above cost that you charge to make a profit).
Tracking Buying Behavior
It is helpful to set up some type of system for tracking buyer behavior at the price points you set. If you have a small operation you can simply record daily sales at the price point in a spreadsheet program, but if you have a larger operation you may need dedicated software. For instance, for a product wholesale or retail business you can use a barcode tracking system to monitor and compare product sales at different price points. So if you change the price, run reports regularly to check progress.
The consumer is the individual who will actually use and/or possess that which is “purchased.”