6.4 Psychological Pricing and Price Adjustments

Pricing strategies go beyond just setting a number. They tap into consumer psychology, shaping perceptions of value and quality. From odd-even pricing to bundling, these tactics influence buying decisions and brand image.

Price adjustments like discounts and dynamic pricing can boost sales, but they also impact profitability and customer loyalty. Marketers must balance short-term gains with long-term brand health when crafting pricing strategies.

Psychology of Pricing

Consumer Perception and Behavior

Top images from around the web for Consumer Perception and Behavior

• 

  Reading: Implementing Positioning Strategy – Introduction to Marketing I (MKTG 1010) View original

  Is this image relevant?

• 

  Introduction to Pricing Considerations | Principles of Marketing View original

  Is this image relevant?

• 

  Reading: The Positioning Process | Principles of Marketing View original

  Is this image relevant?

• 

  Reading: Implementing Positioning Strategy – Introduction to Marketing I (MKTG 1010) View original

  Is this image relevant?

• 

  Introduction to Pricing Considerations | Principles of Marketing View original

  Is this image relevant?

1 of 3

Top images from around the web for Consumer Perception and Behavior

• 

  Reading: Implementing Positioning Strategy – Introduction to Marketing I (MKTG 1010) View original

  Is this image relevant?

• 

  Introduction to Pricing Considerations | Principles of Marketing View original

  Is this image relevant?

• 

  Reading: The Positioning Process | Principles of Marketing View original

  Is this image relevant?

• 

  Reading: Implementing Positioning Strategy – Introduction to Marketing I (MKTG 1010) View original

  Is this image relevant?

• 

  Introduction to Pricing Considerations | Principles of Marketing View original

  Is this image relevant?

1 of 3

• Pricing influences consumer perception of product quality, value, and brand image
  • Higher prices are often associated with higher quality or prestige (luxury goods)
  • Lower prices may signal lower quality or value (generic brands)
• Consumer price sensitivity varies based on factors such as income level, purchase frequency, and perceived product differentiation
  • Consumers tend to be less price sensitive for essential or highly differentiated products (medication, unique services)
  • Consumers are more price sensitive for frequently purchased or undifferentiated products (groceries, commodities)

Reference Prices and Framing

• Reference prices are prices that consumers use as a basis for comparison
  • Reference prices can be influenced by past purchase prices, competitor prices, and advertised prices
  • Deviations from reference prices can impact consumer perception and purchase behavior
• The framing of prices can influence consumer perception and decision-making
  • Presenting prices as gains or losses (discount vs. surcharge)
  • Using different units of measurement (price per unit vs. total price)
  • Presenting a price as a small daily expense rather than a larger annual cost can make it seem more attractive (subscription services)

Pricing Tactics

Odd-Even Pricing and Prestige Pricing

• Odd-even pricing, also known as charm pricing, involves setting prices that end in odd or even numbers
  • Odd prices (e.g., $9.99) are often perceived as lower and can encourage purchases
  • Even prices (e.g., $10.00) may signal higher quality or prestige
• Prestige pricing involves setting high prices to create an image of exclusivity, luxury, or superior quality
  • Often used for high-end or specialty products where consumers are willing to pay a premium for perceived value (designer clothing, luxury cars)

Price Lining and Anchor Pricing

• Price lining involves offering products at different price points to target different consumer segments
  • Basic, mid-range, and premium product lines at different price levels to appeal to various customer groups (clothing retailers)
• Anchor pricing involves displaying a higher "original" price alongside a lower "sale" price
  • Creates the perception of a significant discount, even if the original price was never actually charged
• Buy one, get one (BOGO) promotions can encourage larger purchases and create a sense of value
  • Consumers receive a free or discounted item with the purchase of another item (BOGO 50% off)

Bundling vs Unbundling

Price Bundling

• Price bundling involves combining multiple products or services and selling them at a single price
  • Often at a discount compared to purchasing the items separately
  • Can increase perceived value, encourage larger purchases, and reduce transaction costs
• Bundling is more effective when the bundled items are complementary or when consumers value the convenience of purchasing multiple items together (cable TV packages, software suites)

Unbundling and Mixed Bundling

• Unbundling involves selling products or services separately rather than as a package
  • Allows consumers to choose only the items they want
  • Effective for products with distinct target markets or when consumers have varying needs (à la carte menu items)
• Mixed bundling offers both bundled and unbundled options
  • Allows consumers to choose between purchasing items separately or as a package
  • Can appeal to a wider range of consumers and provide flexibility (software with optional add-ons)

Price Adjustments and Impact

Discounts and Promotions

• Price discounts, such as percentage-off or dollar-amount reductions, can stimulate short-term sales
  • Creates a sense of urgency and value
  • Frequent or deep discounts may erode brand image and perceived quality over time
• Promotional pricing, such as limited-time offers or seasonal sales, can encourage purchases during specific periods and help manage inventory levels
  • Excessive promotions may train consumers to wait for sales and reduce overall profitability (Black Friday sales)

Dynamic Pricing and Loss Leaders

• Dynamic pricing involves adjusting prices in real-time based on factors such as demand, competitor prices, and inventory levels
  • Can help optimize revenue and profitability
  • May lead to consumer frustration if prices change frequently or are perceived as unfair (airline ticket prices)
• Loss leader pricing involves selling a product at or below cost to attract customers and encourage additional purchases of higher-margin items
  • Can drive store traffic but may result in reduced profits if customers only purchase the discounted items (doorbusters)