Psychological factors can affect the perception of the customers. There is a relationship between values which meet customer needs and a price. This relationship is one of the considerations of pricing adjustment. Why should you make a price adjustment? Because you must do it to meet the expectations of customers. What is psychological pricing? How do I apply psychological pricing? What are the psychological pricing examples? To answer the questions, you have to understand the theory. This article will write about
psychological pricing theory.
Implementing psychological price, in essence, is a collection of psychological studies on pricing. Many companies believe that they will get some benefits by applying psychological pricing strategy, for example, increase their sales. They have confidence in this plan that doing the strategy is a way to selling more.
Read my previous article
the relationship between psychology and marketing to enrich your insight for this subject.
Basic Psychological Pricing Theory
Let's start with a fundamental theory of psychological pricing. According to Pandy (1997), there are six strategies of psychological pricing. They are:
- Promotional pricing
- Customary pricing
- Prestige pricing
- Price Lining
- Demand-backward Pricing
- Bundle Pricing
Promotional pricing is a pricing determination based on demand. This strategy is intended to convey the message about the product concerning promotional activities.
Promotional pricing examples: sale season (reducing a price for the particular season). This strategy is performed to attract and encourage people to buy.
Customary Pricing
Customary pricing method is used to a particular product with the special price. The price is determined by convention, standardized distribution channel, and other factors.
Customary pricing means
- A company tries not to change a price, especially a price which is unaccepted by a customer.
- A company tries to apply this strategy (product adaptation/product customization) to maintain the current price.
Customary pricing is suitable for such products as rice, sugar, etc.
Prestige Pricing
There are people who are very concerned with its status. Prestige pricing is dedicated to them. Prestige pricing is the strategy of setting a high price level so they will be interested in the product, and then buy the product.
Commonly, a price can be used by people as a value of the product quality. The more expensive the price of Goods means the goods are increasingly qualified. In other words, the price indicates the quality.
What are the sample products that implement prestige pricing strategy? The products are gems, diamonds, perfume, dresses for parties, leather jackets, watches, luxury cars, and so on.
For your information, these products are difficult to sell if we set the lower price than usual.
Price Lining Strategy
Price lining is used by retailers that sell one category of goods (one line product) with the same price.
One line product means there are several types of product in one product categories, for examples several types of pens (red pens, black pens, etc.); these pens are in one class of product.
Price lining method can be implemented in two ways, they are:
- The manufacturer sells each item with the same price to the retailer; then retailer adds a different profit margin for each item so that the price will be different.
- The manufacturer plans the products with different pricing, and retailer adds nearly same profit margin so that pricing for the end user is different.
Demand-backward Pricing
A company estimates a certain price that customers are willing to pay (especially for an expensive product).
The essence of this method is knowing the estimation. Once a company knows that then the company set the profit margin from wholesaler and retailer, subsequently retailer set the profit margin; finally, it returns the final price for an end user.
After the company determines the final price for the end user, the company accommodates the design and quality of the product based on the final price.
Bundle Pricing
Bundle pricing is one of marketing strategies of more than two products in one package price.
This policy is designed for a unique consumer. The customer who appreciates the value of the overall package more than the value of each item individually.
Benefits from implementing bundle pricing from company's side: the company can reduce marketing cost. The consumer gets benefits also, i.e. customer can save the total cost.
An Industry that implements bundle pricing method is a travel agency. Commonly, travel agency offers holiday package including transportation, accommodation, etc.
Summary of psychological studies on pricing
- Running psychological pricing method is beneficial for the business performance, such as a way to selling more, keeping customers returning, increase more sales.
- The psychological pricing plan is about answering two questions; the first question is "how much do you charge?"; the second one is "How do you charge?"
- You must survey the people for knowing why consumer buy your product and why they do not purchase the product.
- Different conditions need different pricing strategies; each strategy affects the business performance.
- You must keep up to date with the data, for examples: How does the sales change as I change price (discount 10% or 10% up from the current price). You must calculate and analyze the data for the next improvement.
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