Psychological Pricing

Psychological Pricing

Price says something about the product. For example, many consumers use price to judge quality, A SI 00 bottle of perfume may contain only S3 worth of scent, but some people are willing to pay the $100 because this price indicates something special.

In using psychological pricing, sellers consider the psychology of prices and psychological pricing not simply the economics. For example, one study of the relationship between

A pricing approach that price and quality perception of ears found that consumers perceive higher­priced

considers the psychology

of prices and not simply perceived as even higher priced than they actually are. When consumers can

cars as having higher quality. 15 By the same token, higher­quality cars are

the economics; the price judge the quality of. a product by examining it or by calling on past experience

is used to say something with it, they use price less to judge quality. When consumers cannot judge quality

about the product. because they lack the information or skill, price becomes an important quality signal

(see Marketing Highlight 17.1).

728 • Chapter 17 Pricmg Strategies

Expense marks diamonds tlexirable and very giftable.

reference prices Another aspect of psychological pricing is reference priecs ­ prices that buyers Prices that buyers curry

cam' in their minds and refer to when looking at a given product. The reference in [heir minds ami refer

price might lie formed by noting current prices, remembering past prices or to when they look at a

assessing the buying situation. Sellers can influence or use these consumers' refer­ given product.

ence prices when setting price. For example, a company could display its product next to more expensive ones in order to imply that it belongs in the same class. Department stores often sell women's clothing in separate departments differentiated by price: clothing found in the more expensive department is assumed to be of better quality. Companies also can influence consumers' reference prices by stating high manufacturer's suggested prices, by indicating that the product was originally priced much higher or by pointing to a competitor's higher price.

Even small differences in price can suggest product differences. Consider a stereo priced at £400 compared to one priced at £399.95. The actual price differ­ ence is only 5p, but the psychological difference can be much greater. For example, some consumers will see the £399.95 as a price in the £300 range rather

than the £400 range. Whereas the £399.95 is more likely to be seen as a bargain price, the £400 price suggests more quality. Complicated numbers, sueh as £347.41, also look less appealing than rounded ones, such as £350. Some psychol­ ogists argue that each digit has symbolic and visual qualities that should be considered in pricing. Thus, 8 is round and even and creates a soodiing effect,

whereas 7 is angular and creates a jarring effect. 1 ­ 1

promotional pricing

Temporarily pricing

Promotional Pricing

products below the list price, and sometimes even below cost, to

With promotional pricing, companies will temporarily price their products below increase short­run sales.

list price and sometimes even below cost. Promotional pricing takes several forms. Supermarkets and department stores will price a few products as toss

Price­Adjustment Strategies • 729

How Price Signals

At this point, however.

Product Quality

Heublein's marketers thought of a fourth strategy ­ and it was bril­ liant, Ileublein raised the price of

Heublein produces Smirnoff, Smirnoff by 81! The company­ America's leading brand of vodka.

then introduced a new brand. Some years ago .­mother brand,

Relska, to compete with Wolf­ Wolt'schmidt, attacked Smirnoff.

schmidt. Moreover, it introduced Wolfschmidt claimed to have the

yet another brand, Popov, priced same quality as Smirnoff, but priced

even lower than WoHschmidt. at $1 less per bottle. Concerned

This product line­pricing strategy that customers might switch Lo

positioned Smirnoff as the elite Wolfschmidt, Heublcin considered

brand and Wolfschmidt as an ordi­ several possible counterstrategies. It could lower

nary brand. Heublein's clever strategy produced a Smirnoffs price by $1 to hold on to market share;

large increase in its overall profits. it could hold Smirnoffs price but increase adver­

The irony is that lleuhlein's three brands are tising and promotion expenditures; or it could

much the same in taste and manufacturing costs. hold Smirnoffs price and let its market share fall.

Ileublein knew that a product's price signals its All three strategies would lead to lower profits,

quality. Using price as a signal, Heublein sells and it seemed that Heublein faced a no­win

roughly the same product at three different qual­ situation.

ity positions.

leaders to attract customers to the store in the hope that they will buy other items at normal mark­ups. Kellers will also use special­event pricing in certain seasons to draw in more customers. Thus linens are promotionally priced every January to attract weary Christmas shoppers back into the stores. Manufacturers will sometimes offer cash rebates to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer. Rebates have recently been popular with car makers and producers of

durable goods and small appliances. Some manufacturers offer low­interest financing, longer warranties or free maintenance to reduce the consumer's 'price'. This practice has recently become a favourite of the car industry. Or, the seller may simply offer discounts from normal prices to increase sales and reduce inventories.