Consumer Behavior and Pricing Strategy

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Chapter 18 Consumer Behavior and Pricing Strategy
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Conceptual Issues in Pricing
1. Money

• Amount
• Source
• Current financial condition
• Type of work

What the consumer sacrifice to purchase a
product
2. Time

• Learn (search)
• Travel
• In-store
• Pleasure of shopping

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Conceptual Issues in Pricing (continued)
3. Cognitive Activity

• Cognitive effort in comparisons
• Shopping stress
• Decision rules

4. Behavioral Effort
What the consumer sacrifice to purchase a product

• Physically tiring/exercise
• Consumer activity in production
• Consumer activity in distribution
• Participation in purchase/ownership

• Buy
• Rent or lease
• Hire someone else to perform service
• Buy hire someone else to use maintain

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The Pivotal Role of Price in Marketing Exchanges
Consumer costs
Business costs
Money Time Cognitive activity Behavioral effort
Production Promotion
Distribution Marketing research


Profit
Value


Price willing to sell
Price willing to pay
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General Issues in Price Affect Cognition,
Behavior, and Environment
1. Price quality relationship 2. Reference Price

• Internal reference price
• External reference price

3. Involvement of product or purchase situation

• Low
• High

4. Credit cards and other funds access issues
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A Strategic Approach to Pricing
1. Analyze consumer-product relationships
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Pricing Strategy
1. Analyze Consumer - Product Relationships

• Relative consumer costs

Pizza Mix Frozen Pizza Home Delivery
Cost Money Time Cognitive activity Behavioral
effort
Low Middle High High Middle Low High Middle Lo
w High Middle Low Worst Middle Best
Value(Taste)

• Price elasticity

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Pricing Strategy (continued)
2. Analyze the Environmental Situation

• Number of competitors
• Market share of competitors
• Location of competitors
• Conditions of entry into the industry
• Degree of vertical integration of competitors
• Financial strength of competitors
• Number of products and brands sold by each
  competitor
• Cost structure of competitors
• Historical reaction of competitors to price
  changes

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Pricing Strategy (continued)
3. Determine the Role of Price in Marketing
Strategy

• Role in product positioning
• Ethical issues in pricing

• Price fixing - conspiring with competitors to fix
  prices
• Deceptive pricing - pricing practices that
  mislead consumers
• Predatory pricing - setting prices low to drive
  out competitors and then raising the prices
• Price discrimination - charging similar,
  competing channel members different prices, which
  lessens competition or trends to create a monopoly

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Pricing Strategy (continued)
4. Estimate Relevant Production and Marketing
Costs 5. Set Pricing Objectives 6. Develop
Pricing Strategy and Set Prices

• Penetration pricing - relatively low price
  introduction that may include a plan to
  sequentially raise prices after the introduction
• Skimming pricing - relatively high price
  introduction that may include a plan to
  sequentially lower prices after the introduction