Perception Of Price That Matters To Consumers Marketing Essay

1905 words (8 pages) Essay

1st Jan 1970 Marketing Reference this

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Consumer perception of quality and price dominate the buying behavior and product choice (Bishop, 1984). Perception is the process by which individuals choose, interpret and organize information to create a meaningful picture of the world (Peter Lindsay and Donald, 1977). While reality is what consumer has scarified to get a product (Ahtola, 1984). It means the money customer actually pay to the seller in return for products and services.

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Various articles and researches have been devoted to understand the phenomenon of perception, how it affects consumer behavior and its importance over reality of price. However, there is a disagreement on the linkages between them and the research efforts on perception have been criticized for insufficient definition and inconsistent measurement procedures (Monroe and Krishnan, 1985).

Before going into the discussions of perception and reality, it is important to understand the why perception is important in consumer decision making. A growing body of research supports the difference between price perception and price (Allen Harrell and Hunt, 1976). Studies have shown that consumers generally don’t remember the actual prices. But they encode prices in different ways (Dickson and Sawyer, 1985). For example, people buy expensive perfumes like Chanel when there are there low price alternatives available in the market. The reason is not the perfume itself only but the perception of the product they had in mind about it. They associate it with other psychological features which they have in their minds. These include the appreciation by other people, special image they will have in the society and many more. The important point is here is that perceptions can be created about the price based on different factors which have nothing to do with reality.

The price information and perception has been one of the most important research issues on the consumer behavior for last many years. The concept of reference point is very important in this regard and efforts have been made in order to define it. According to (Lowengart, 2002) consumers establish their reference points according to their personal understanding, annotations, the existing knowledge of prices and their subjective interpretation. The reference points are dependent of two factors: the kind of information i.e. external or internal and behavioral process of formation of references.

The internal reference point comes from the consumer estimation of price in his mind. The two factors contextual and temporal are involved in this formation. The first factor is related to the perception of different prices within the same category of product while buying. The temporal factor depends on the past buying experiences of the customer. The importance of both these factors varies according to the customer’s characteristics. For instance, consumer who purchased the one product more frequently will remember its price more clearly and as a result temporal factor will be more important (Rajendran and Tellis, 1994).

External information comes from the marketing and internal form other sources. It means any message of the price consumer receives through external channel and which he uses to make comparisons. The seller can control the external information by the marketing efforts i.e. through advertising and some internal factors may be beyond their control. But the information must be credible so that the consumer can use it in making his assessment of the product (Yadav and Seider, 1998; Chandrashekaran, 2004). Research reveals that external reference price is related to the contextual component that affects the internal reference price. Hence knowledge of one affects the other and these concepts are closely related. The external reference point can be the price suggested by the seller on the product’s packaging, or the brand which is more frequently purchased or the price of the dominating brand. The main aim of the external reference point is to increase the internal reference price so that customer perceive existing price as attractive and buy the product

(Cebollada and Mu´gica, 1997; Compeau et al.,2004).

However, how internal and external reference points will affect consumer vary according to the preferences and frequency of the product purchases. According to (Winer’s, 1986), there is no distinction between internal and external reference prices. However, other researchers like Bell and Bucklin (1999) and Mazumdar and Papatla (2000) differentiates between external and internal reference prices and their significance in buying decisions.

The above discussion about the role of perception reveals that why it is so important.

According to Mazumdar et al. (2005), there are different factors which dominate the minds of consumers when they made a decision to purchase something. These include the perception of quality, price, reliability and service by consumers. For instance, consumer past purchase experiences may affect their perceptions. Moreover, customers may prefer low prices in one situation while they may prefer quality in other. For instance, nutrition and quality is more important than price for the American consumer when buying food according to the research conducted by Braun Research Group. Another study on service providers by like banks and airlines industries indicates the fact that customer service is more important than price. The fact that which factor is most important to consumer while buying is a matter of it’s perception of good and service. Thus, perception plays a central role in making purchase decision.

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According to the research done by OC & C Strategy Consultants, perception of price is clearly more relevant factor in purchasing decision than reality. Research was conducted in five countries to measure the extent to which perception of price is important for retailers. Three factors were identified which are responsible for price perception. The first one is the clarity with which price is communicated, second is price communication on entry points and the third is overall environment. The research indicated the fact that the retailers who are perceived as more expensive than others are unable to compete effectively in the market.

The following real life examples will illustrate the fact that how perception of price is more important that reality. A research conducted by (OC & C Strategy Consultants, 2007) on entry level price communication difference of Zara and H&M is a good example. According to the survey, Zara was found to be 31% more costly than H&M, but the customers’ perception of this difference quite low as compared to the actual figure. This reveals the Zara’s ability to manage its perception through effective and clear communication of prices. They have been successful in portraying their prices as nearly equal to competitor but in actual their prices are relatively high. The magic of perception has worked really well in this case which reveals the importance of perception the consumers.

Another classic example is the study done on the price perception of Argos (super store, UK) which shows how they have been able to build their price perception that is better than reality. They have been able to communicate their price position in a way that results in a cheaper price perception than reality. Their advertising strategy was price centered along with prominent supply of low priced goods in order to create a cheap price perception of their goods. In this way, the have been able to portray themselves as low-priced as compared to competitors while the reality may be different. However, the company has to work continuously in order to maintain that perception.

According to Mazumdar et al. (2005), the store environment also plays an important role in perception. For example, if we look at the grocery sector, prices almost always are identical. In the end, it is the perception which matters. A number of surveys have been done on the grocery industry measuring the extent to which perception plays a role in the purchasing decision. For example, Asda has done well in this regard by creating its perception as less expensive than the competitors. Another example is of Morrison which is actually charge high prices as compared to its competitors but the fact that it is expensive is taken too lightly by the customers due to its good perception. These examples clearly reveal the facts about the role which perception of price play over the reality.

Up till now, I have given examples related to the consumer markets. However, this idea of perception is not limited to the consumer markets only, it works equally well for the industrial markets as well. Recent research done by B2b International on the role of perception in industrial markets indicates crucial role that perception plays in determining the supplier choices. The factors which are relevant in determining the supplier vary from company to company but the perception plays central role in the choices of suppliers made by companies.

Consumer perceptions around the globe are different and it varies significantly for country to country. For instance, US consumers don’t perceive retailers as the best choice while the perception of retailers in UK is exactly opposite. There can be number of different reasons behind the country specific perceptions of the consumers. These broadly include the economic conditions surrounding the countries, rate of literacy and many more. One important factor which will be worth mentioning here is demographics such as income, age etc. It has been observed that demographics do influence the way people perceive information. This is the factor which is used for market segmentation by the marketers. Different market segments are targeted according to their demographics by the sellers in order to create positive perception about the company. From the above mention facts it is evident that whatever the reasons are, perception always plays key role in consumer selection of goods and services.

The above discussion about the role of price perception is enough evidence to conclude that perception is directly related to the success of the company. Although in the end what customer pays is the reality but how it reaches at his decision is what is dependent on the perception. Because the company is successful in creating the desired perception of the product only then the customer will consider buying it. Hence, it is the price perception that precedes the buying decision of the customer. This is why perception is among one of the most important factors while crafting the advertising strategies of the company. For a successful advertising strategy, it is very important to read the minds of the customers. The concept of perception helps to understand those psychological factors which are in the minds of the customers and form which they make their purchasing decisions. Understanding the factors by which the seller can influence the perceptions is very important for the companies in order to attract and retain customers. This can help them to determine the pricing strategy that will ensure their competitiveness in the market and thus, superior financial returns.

Consumer perception of quality and price dominate the buying behavior and product choice (Bishop, 1984). Perception is the process by which individuals choose, interpret and organize information to create a meaningful picture of the world (Peter Lindsay and Donald, 1977). While reality is what consumer has scarified to get a product (Ahtola, 1984). It means the money customer actually pay to the seller in return for products and services.

Various articles and researches have been devoted to understand the phenomenon of perception, how it affects consumer behavior and its importance over reality of price. However, there is a disagreement on the linkages between them and the research efforts on perception have been criticized for insufficient definition and inconsistent measurement procedures (Monroe and Krishnan, 1985).

Before going into the discussions of perception and reality, it is important to understand the why perception is important in consumer decision making. A growing body of research supports the difference between price perception and price (Allen Harrell and Hunt, 1976). Studies have shown that consumers generally don’t remember the actual prices. But they encode prices in different ways (Dickson and Sawyer, 1985). For example, people buy expensive perfumes like Chanel when there are there low price alternatives available in the market. The reason is not the perfume itself only but the perception of the product they had in mind about it. They associate it with other psychological features which they have in their minds. These include the appreciation by other people, special image they will have in the society and many more. The important point is here is that perceptions can be created about the price based on different factors which have nothing to do with reality.

The price information and perception has been one of the most important research issues on the consumer behavior for last many years. The concept of reference point is very important in this regard and efforts have been made in order to define it. According to (Lowengart, 2002) consumers establish their reference points according to their personal understanding, annotations, the existing knowledge of prices and their subjective interpretation. The reference points are dependent of two factors: the kind of information i.e. external or internal and behavioral process of formation of references.

The internal reference point comes from the consumer estimation of price in his mind. The two factors contextual and temporal are involved in this formation. The first factor is related to the perception of different prices within the same category of product while buying. The temporal factor depends on the past buying experiences of the customer. The importance of both these factors varies according to the customer’s characteristics. For instance, consumer who purchased the one product more frequently will remember its price more clearly and as a result temporal factor will be more important (Rajendran and Tellis, 1994).

External information comes from the marketing and internal form other sources. It means any message of the price consumer receives through external channel and which he uses to make comparisons. The seller can control the external information by the marketing efforts i.e. through advertising and some internal factors may be beyond their control. But the information must be credible so that the consumer can use it in making his assessment of the product (Yadav and Seider, 1998; Chandrashekaran, 2004). Research reveals that external reference price is related to the contextual component that affects the internal reference price. Hence knowledge of one affects the other and these concepts are closely related. The external reference point can be the price suggested by the seller on the product’s packaging, or the brand which is more frequently purchased or the price of the dominating brand. The main aim of the external reference point is to increase the internal reference price so that customer perceive existing price as attractive and buy the product

(Cebollada and Mu´gica, 1997; Compeau et al.,2004).

However, how internal and external reference points will affect consumer vary according to the preferences and frequency of the product purchases. According to (Winer’s, 1986), there is no distinction between internal and external reference prices. However, other researchers like Bell and Bucklin (1999) and Mazumdar and Papatla (2000) differentiates between external and internal reference prices and their significance in buying decisions.

The above discussion about the role of perception reveals that why it is so important.

According to Mazumdar et al. (2005), there are different factors which dominate the minds of consumers when they made a decision to purchase something. These include the perception of quality, price, reliability and service by consumers. For instance, consumer past purchase experiences may affect their perceptions. Moreover, customers may prefer low prices in one situation while they may prefer quality in other. For instance, nutrition and quality is more important than price for the American consumer when buying food according to the research conducted by Braun Research Group. Another study on service providers by like banks and airlines industries indicates the fact that customer service is more important than price. The fact that which factor is most important to consumer while buying is a matter of it’s perception of good and service. Thus, perception plays a central role in making purchase decision.

According to the research done by OC & C Strategy Consultants, perception of price is clearly more relevant factor in purchasing decision than reality. Research was conducted in five countries to measure the extent to which perception of price is important for retailers. Three factors were identified which are responsible for price perception. The first one is the clarity with which price is communicated, second is price communication on entry points and the third is overall environment. The research indicated the fact that the retailers who are perceived as more expensive than others are unable to compete effectively in the market.

The following real life examples will illustrate the fact that how perception of price is more important that reality. A research conducted by (OC & C Strategy Consultants, 2007) on entry level price communication difference of Zara and H&M is a good example. According to the survey, Zara was found to be 31% more costly than H&M, but the customers’ perception of this difference quite low as compared to the actual figure. This reveals the Zara’s ability to manage its perception through effective and clear communication of prices. They have been successful in portraying their prices as nearly equal to competitor but in actual their prices are relatively high. The magic of perception has worked really well in this case which reveals the importance of perception the consumers.

Another classic example is the study done on the price perception of Argos (super store, UK) which shows how they have been able to build their price perception that is better than reality. They have been able to communicate their price position in a way that results in a cheaper price perception than reality. Their advertising strategy was price centered along with prominent supply of low priced goods in order to create a cheap price perception of their goods. In this way, the have been able to portray themselves as low-priced as compared to competitors while the reality may be different. However, the company has to work continuously in order to maintain that perception.

According to Mazumdar et al. (2005), the store environment also plays an important role in perception. For example, if we look at the grocery sector, prices almost always are identical. In the end, it is the perception which matters. A number of surveys have been done on the grocery industry measuring the extent to which perception plays a role in the purchasing decision. For example, Asda has done well in this regard by creating its perception as less expensive than the competitors. Another example is of Morrison which is actually charge high prices as compared to its competitors but the fact that it is expensive is taken too lightly by the customers due to its good perception. These examples clearly reveal the facts about the role which perception of price play over the reality.

Up till now, I have given examples related to the consumer markets. However, this idea of perception is not limited to the consumer markets only, it works equally well for the industrial markets as well. Recent research done by B2b International on the role of perception in industrial markets indicates crucial role that perception plays in determining the supplier choices. The factors which are relevant in determining the supplier vary from company to company but the perception plays central role in the choices of suppliers made by companies.

Consumer perceptions around the globe are different and it varies significantly for country to country. For instance, US consumers don’t perceive retailers as the best choice while the perception of retailers in UK is exactly opposite. There can be number of different reasons behind the country specific perceptions of the consumers. These broadly include the economic conditions surrounding the countries, rate of literacy and many more. One important factor which will be worth mentioning here is demographics such as income, age etc. It has been observed that demographics do influence the way people perceive information. This is the factor which is used for market segmentation by the marketers. Different market segments are targeted according to their demographics by the sellers in order to create positive perception about the company. From the above mention facts it is evident that whatever the reasons are, perception always plays key role in consumer selection of goods and services.

The above discussion about the role of price perception is enough evidence to conclude that perception is directly related to the success of the company. Although in the end what customer pays is the reality but how it reaches at his decision is what is dependent on the perception. Because the company is successful in creating the desired perception of the product only then the customer will consider buying it. Hence, it is the price perception that precedes the buying decision of the customer. This is why perception is among one of the most important factors while crafting the advertising strategies of the company. For a successful advertising strategy, it is very important to read the minds of the customers. The concept of perception helps to understand those psychological factors which are in the minds of the customers and form which they make their purchasing decisions. Understanding the factors by which the seller can influence the perceptions is very important for the companies in order to attract and retain customers. This can help them to determine the pricing strategy that will ensure their competitiveness in the market and thus, superior financial returns.

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