Download Consumer Behavior and Pricing Strategy

Chapter 18
Consumer Behavior and
Pricing Strategy
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Conceptual Issues in Pricing
• General model of the nature of marketing
exchanges and the role of price in this
process
18-3
Conceptual Issues in Pricing cont.
18-4
Conceptual Issues in Pricing cont.
• For-profit vs. nonprofit differences
• Four basic types of consumer costs
– Money
– Time
– Cognitive activity
– Behavior effect
18-5
Conceptual Issues in Pricing cont.
• Four categories of marketing costs
– Production
– Promotion
– Distribution
– Marketing research
18-6
Conceptual Issues in Pricing cont.
• For marketing exchanges to occur, the price
consumers are willing to pay must be
greater than or equal to the price at which
marketers are willing to sell
• Money
– Most pricing research has focused on money
18-7
Conceptual Issues in Pricing cont.
– Several important aspects of the dollar cost of
offerings are not always considered
– A number of methods can reduce the dollar
amount spent for a particular item, although
they often involve increasing other costs
18-8
Conceptual Issues in Pricing cont.
• Time
– Necessary to learn about a product or service
– Required to travel to purchase a product or
service
– Spent in a store
– Should not be treated only as the cost of
purchasing
18-9
Conceptual Issues in Pricing cont.
• Cognitive activity
– A frequently overlooked cost of making
purchases
– Process of comparing purchase alternatives can
be stressful
– The cost involved in decision making is often
the easiest one for consumers to reduce or
eliminate
– In some situations, consumers actively seek
some form of cognitive involvement
18-10
Conceptual Issues in Pricing cont.
• Behavior effect
– Can be a benefit rather than a cost
– Consumers are willing to take on some
marketing costs to reduce the dollar amount
they spend make trade-offs among various
types of costs
– Consumers are willing to make trade-offs
among various types of costs
18-11
Conceptual Issues in Pricing cont.
– In some cases consumers will take on at least
part of the cost of the distribution to lower the
dollar price
– Consumers have several options with regard to
purchase
18-12
Conceptual Issues in Pricing cont.
• Value
– Whatever is being purchased must be
perceived to be of greater value to the
consumer than merely the sum of the costs
– Consumers seldom finely calculate each of the
costs and benefits in making brand-level
decisions
18-13
Conceptual Issues in Pricing cont.
– For some purchases, all of the costs and tradeoffs may be considered by consumers
– This view is important because it has direct
implications for the design of marketing strategy
18-14
Price Affect and Cognition
• Typically little sensory experience is
connected with the price variable
• Little consensus on basic issues regarding
how price influences consumer choice
processes and behavior
• Price perceptions and attitudes
18-15
Price Affect and Cognition cont.
18-16
Price Affect and Cognition cont.
– Conceptual model of cognitive processing of
price information
• Internal reference price
• The stated price for a particular brand may be
considered a product attribute
• For a low-involvement product or purchase situation,
dollar price may have little or no impact on consumer
affect and cognition, or behavior
18-17
Price Affect and Cognition cont.
• Price information may not be carefully analyzed
because consumers have a particular price image for
the store they are shopping in
• Consumers often do not carefully store detailed
information in memory
18-18
Price Behavior
• Funds access
• Transaction
18-19
Price Environment
• Price is perhaps the most intangible element
of the marketing mix
• The price variable typically offers very little
for the consumer to experience at the
sensory level, although it may generate
considerable cognitive activity and behavior
effort
18-20
Price Environment cont.
• Price variable may also include an external
reference price
• How price information is communication has
an effect
18-21
Pricing Strategy
• Of concern in three general situations
– When a price is being set for a new product
– When a long-term change is being considered
of an established product
– When a short-term price change is being
considered
18-22
Pricing Strategy cont.
18-23
Pricing Strategy cont.
• Analyze consumer-product relationships
– Does the product itself have a clear competitive
advantage that consumers would be willing to
pay for?
– Does a competitive advantage need to be
created on the basis of other marketing mix
variables?
18-24
Pricing Strategy cont.
– Generalizations about analyzing consumerproduct relationships in terms of consumer
costs
• One important outcome is an estimate of how
sensitive the target market is to money costs
• Price elasticity
18-25
Pricing Strategy cont.
• Competing on marketing mix variables other than
money costs is often a more defensible and more
profitable strategy
• What do consumers receive from purchasing a
product in-store vs. online?
• Analyze the environment situation
– Elements should be considered early in the
process of formulating any part of marketing
strategy
18-26
Pricing Strategy cont.
– Elements should be monitored continually
– A number of factors should be considered when
setting or changing prices
• Determine the role of price in marketing
strategy
– Is the dollar price to be a key aspect of
positioning the product, or is it to play a different
role?
18-27
Pricing Strategy cont.
– In many situations, dollar price may not play a
particularly important positioning role other than
in terms of pricing competitively
• Estimate relevant production and marketing
costs
– Provides a useful benchmark for making pricing
decisions
18-28
Pricing Strategy cont.
• Set pricing objectives
– Should be derived from overall marketing
objective, which in turn should be derived from
corporate objectives
• Develop pricing strategy and set prices
– A thorough analysis in preceding stages should
provide necessary information
18-29
Pricing Strategy cont.
– In some cases, prices may be developed with a
long-run strategy in mind
– Penetration pricing
– Skimming pricing
– Most price changes occur as a result of
changes in consumers, the environment,
competition, costs, strategies, and objectives
18-30
Summary
• Presented an overview of pricing decisions
and consumer behavior
• Focused on developing a conceptual
framework for considering pricing decisions
that included four types of consumer costs
• Affect and cognitions, behaviors, and
environmental factors relative to price were
discussed
18-31
Summary cont.
• Cognitive factors examined included price
perceptions and attitudes, and the behaviors
described included funds access and
transactions
• Learned how the environment focused on
price information
• Described a pricing strategy model for use
in pricing new products or for making pricechange decisions
18-32