Price
is an important element from a brand’s point of view for building brand equity.
Brands set the price of a product depending on three factors: i) the cost of
production, ii) competitor’s pricing strategy, and iii) the consumer’s
perception of the value of the product.
What is Consumer price perception?
Consumer
price perception theory states that, consumers already have a predefined price
range (a minimum value and a maximum value) for any product category, which is
acceptable to them for purchasing a certain product. The consumers tend to correlate
the quality of this product with the price of the product in the price band.
Where, the price of the product is at the lower end of the price range or price
band, the consumer assumes it to be of a lower quality. Whereas, if the price
is at the higher end of the price band, he/ she equates it to be of superior
quality. Hence you find several companies such as Procter and Gamble, Unilever
Ltd., Volkswagen and many more offering similar products with varying quality
to compete in the different price categories, so as to ensure that they do not
lose out on market share.
How to influence Consumer price perception?
There
are several factors that influence the consumer’s perception of price, while
some of them are controllable; there are many others, which cannot be
controlled by the business. Factors such as consumer’s experience with the
product, or consumer’s knowledge about the product, the consumer’s recall of
the advertising and promotion strategy of the brand, etc. are not under the
control of the brand. Leaving aside these factors, which cannot be controlled
by the advertisers, below are techniques that marketers use to influence the
consumer’s price perception of the product.
A.
Just-below
pricing
Price
of products ending with 9 or .99cent, instead of the next whole number, tends
to generate more sales. For example, if a product is priced at Rs. 19 instead
of Rs. 20 or $19.99 instead of $20, largely helps attract customers who are
looking for a discount. Research shows that this sort of pricing helps to
increase sales in retail stores by approximately 10-20%, due to the fact that,
our brain perceives 19 to be much lesser than 20. However, this strategy might
end up being detrimental to a brand, if the quality perception of the brand is
more important.
B.
Value
based pricing
The
perceived value a consumer gets from the product is an important factor
influencing his purchase decision. Hence, many marketers use the value based
pricing strategy to price their products right to meet the consumer’s
expectation. Usually, in value based pricing, marketers price their products in
such a was so as to include the cost of production of the product, the value it
adds to the consumer and a premium, if the consumer feels it’s appropriate for
the quality of the product. For example,
many consumers are willing to pay a large premium for the quality provided by
luxury cars, whereas most mid-range cars also provide similar features and cost
much lesser.
In
summary, in strategic pricing, brands want to shift the buyer’s focus from
production cost of the product to the value the product will add to the
customers. Though there are several controllable and uncontrollable factors, which
influence a consumer’s price perception, they use various techniques such as just-below pricing and value based pricing to set the right
price for their product, which in turn, would help them to maximize profits.
Comments
Post a Comment