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Pricing is one of the four major components of marketing.
Psychological pricing forms one of the key elements of demand pricing
wherein the consumer demand is the main focus. The price and quality
relationship that governs the central theme of the consumer market
relationship is surrounded by uncertainty and gives the consumer the
perception that higher the price, better the quality.
The science of pricing is an art in itself. Rounding off the figures
may be good for basic math but never in business. The art of setting
prices for articles has been an ever challenging task in business.
Keeping in mind the changing economy, heavy competition in the market
and consumer affordability, the trick of pricing an article has been
more on a psychological evaluation of the consumer. Pricing is usually
done by keeping with industry standards. But in order to sell their
products after a baseline or whole sale price has been fixed,
individual business organizations have most often dealt with pricing
in terms of smaller denominations such as cents and pennies.
While quoting the universal example of $9.95 or 9.99 being more
attractive to consumers as compared to $10, this psychology seems to
hold in business world wide. The main reason for this is that people
tend to see the first figure in dollars as compared to the cents. $9
is cheaper than $10, and the cents don't figure in the perception.
While shopping, consumers tend to overlook small differences in cents
but go by the dollar value. And funnily, the highest single odd digit
is the most psychologically favored and 9 is that most fortunate
figure of acceptance. However one cannot rule out the fact that the
cents are totally ignored by the customer but the ignorance is at the
subconscious level and is partial. Also the use of odd figures has a
background in that it was used to curb theft by employees by way of
forcing them to give change and enter the amount in the cash register
a practice that was originally put forth way back in 1875 by the
publisher of Chicago daily news, Melville E. Stone.
Another most popular way of attracting consumers has been introductory
offers. Suppose a new toothpaste is released in market, it often sells
better when its accompanied by a free sample, a toothbrush or even 25%
extra toothpaste. And more so when the actual price is quoted and
struck off, with a new pricing quoted in a different color alongside
to attract the consumer. Often in these cases the consumer has this
inherent feeling that he is getting more for a lesser price. Sometimes
he also compares another similar priced similar product with the one
available on discount to satisfy himself that he is certainly getting
more for the price quoted.
When an article comes to shelf with a certain price, consumers most
often never question how and why it was priced. If a group of articles
is priced at say in the range of $20's, the price is taken for granted
and the evaluation and comparison of prices is limited to that range
only even if the product may be of lower or higher value of that
price. However, when the price of the same set is increased after a
certain period, the consumers do not appreciate it. The tactic of
increasing the price by 20% and giving a 10% discount on the same
article is perceived better than just an increase in price. "Buy one
take one free" is another pricing tactic to attract buyers although
the offer maybe for a limited period of time. Definitely such articles
sell fastest.
By increasing the price of a product by a few cents, a company can
earn profit as there seems to be no complaints from the consumer as
the price hovers around a key threshold point and minor increase is
accepted. Consumer sensitivity in pricing can be found when the
consumers have no other product to compare with or when the product is
exclusive and unique. Even in such cases, when the product is bundled
with a few other accessories, the aspect of consumer emotion is very
much aroused and they sell better.
Above all, when a customer is satisfied, both the company and the
customer are profited. But then the response to the concept of
psychology pricing has always been mixed. As long as the customer is
not cheated, the concept is of advantage to sellers. |