Pricing Decisions and Their Effect upon Buyers - Coursework Example

Pricing Decisions and their effect upon Buyers By: Introduction Prices take a crucial role in economic behavior. Many economic researchers have focused less on pricing because prices are presented irrelevantly (Rajagopal, 2013). This paper will ask a very simple and empirical question. It asks, what are pricing decisions, and how do they affect the buyers? This document discusses why storeowners have the privilege of choosing prices to tag their items. Their decision often affects the buyers’ decision to purchase through cognitive fluency, response to promotions and the buyer pricing awareness. Cognitive fluency Experts argue that people are affected by how easy or difficult to think about something. A study by Rajagopal (2013), concluded that many people prefer to choose things that are natural to think of (Rajagopal, 2013). They would not prefer things that are difficult to think about. Therefore, cognitive fluency is the experience of the ease or difficulty of completing a mental task (Rajagopal, 2013). Cognitive fluency has power over the customers’ buying decisions. Experts argue that cognitive fluency has an effect on the buyers’ decision in two ways. These ways are through its subtlety and its pervasiveness. Fluency usually guides a person’s thinking in situations that the individual is not aware that it is working. Moreover, it affects people in any situation where they weigh information (Rajagopal, 2013). Many people often misattribute the sensation of ease or difficulty in thinking about something to the thing itself (Rajagopal, 2013). Pricing decisions affect the customers’ buying decision in this way. When people are exposed more to certain prices, the more they like and adopt them. A study by Rajagopal (2013) noted that, the number of times people are exposed to certain stimuli positively influences their preference for those stimuli. Buyers will buy goods at ‘right’ prices after they have developed a feeling of familiarity with the prices. A familiar price is attractive to a customer. When prices change, the customer will no longer find it attractive. He/she will not make a purchase. Researchers argue that, when people are asked to choose the most attractive price in a supermarket, people tend to select the prices that they were composites of all the others (Rajagopal, 2013). From this discussion, it is important to note that familiarity has a significant influence on human behaviors. Usually, customers are attracted to prices that are familiar since they do not require much mental work. Experts argue that ordinary prices are attractive to clients because they require few cognitive resources (Rajagopal, 2013). To have an easy metal processing, there is a need for familiarity. Customers will purchase a product quickly after they have been familiar with the prices. Additionally, the ease of pronunciation of prices is an aspect of cognitive fluency. For instance, if prices are printed in two different fonts - a font easy to read and a font difficult to read, customers will spend twice as long reading prices that are printed in difficult fonts than the easy fonts. In other words, people will buy goods that their prices are in fonts easy to read because the buying routine would flow more naturally (Rajagopal, 2013). Prices in readable fonts affect the buyers’ perception of truth. People see prices in readable fonts as more truthful. Difficult fonts require a lot of mental processing. Buyers assume prices in easy fonts are more familiar. According to experts, people consider statements that seem easy to decipher as familiar. Obviously, people cannot track how many times they have heard of something. They usually mistake familiarity with the number of times they have actually heard of something (Rajagopal, 2013). Therefore, cognitive fluency has much influence in buyers’ decisions. Response to Promotions Storeowners usually ensure they keep their names in front of customers. They keep their names using various promotion strategies. Some of these strategies include advertising in newspapers and magazines and creative use of promotional items. Storeowners sometimes give away products free to their customers (Rajagopal, 2013). Experts argue that the ‘staying power’ of promotional product is critical. It makes the difference. Shoppers prefer buying from stores that have good quality promotional items (Rajagopal, 2013). Even if storeowners charge highly for their merchandise, good quality promotional products imprinted with the company name, logo, and phone number will attract new customers and retain the current clients. The imprints will continue to remind the customers of the store, and they will spread the news to other prospective customers (Rajagopal, 2013). Market analysts argue that promotional items can increase repeat orders from the customers. Additionally, these items serve as a general ‘thank you note’. This will enhance the customers’ positive feelings about the product; even they were charged highly (Rajagopal, 2013). However, some buyers term certain promotions as baits since the discounted and the actual prices are usually within the same range. This perception pushes the customers away. Therefore, storeowners have to be creative in their promotional strategies. For instance, storeowners who would prefer to cut their sales price in half hoping of drumming up sales should do some planning to make sure they are still making profit for extra orders coming in. This will benefit both the shop owners and the customers. The storeowners will increase the sales and attract new customers, and the same time the customers will buy at discounted prices (Rajagopal, 2013). Before cutting the sales, the storeowners have to know their current profit margin, markup, and breakeven point, calculate the best discount price to make a profit, prepare a marketing plan to encourage new customers, find out what the competitors are offering and their current pricing, review other options for promoting sales without reducing the price, decide how long the sales price will be offered, and consider their accounts for any regular times of the week, or year their business has a sales dip (Rajagopal, 2013). Good discounting could positively influence a buyers’ purchase decision. However, storeowners have to design their discounting strategies carefully in order to retain customers and attract new customers. Additionally, planned discounting strategies will cushion the business from losses. Storeowners have to master their gross margin, markup, and breakeven figures before formulating a discounting strategy (Rajagopal, 2013). Many special offers and pricing needs can influence the buyers’ purchase decision. Experts note that, it is important for the storeowners to understand their customers and what offers they will be attracted to. If a store owner realizes that buyers have termed his/her promotions as baits, he/she may decide to offer free gift-wrapping or shipping. This will retain the buyers. Having a variety of promotional strategies will attract new customers without a large marketing campaign; encourage undecided customers to purchase goods, clearing stocks, and new sales from inactive customers (Rajagopal, 2013). Buyer awareness of prices Many customers are usually familiar with the costs for particular items especially in stores they have been to before. They are, therefore, less likely to purchase the same item if the price is increased. A stable price is paramount to a firm. This is because pricing is the part of the marketing mix that brings in revenue and has significant implications for the positioning of merchandise (Rajagopal, 2013). According to statistics, once a price has been set, the consumers will show resistance to any attempts at changing it. A stable price tag is a marketing mix variable for which a competitive response can be mostly implemented (Rajagopal, 2013). There are effective ways of changing prices if a business intends to retain the customers. This paper will list four practical ways. The first method is increasing or decreasing the ‘sticker price’ of an item. The second method is increasing or decreasing the quantity of material received. For instance, storeowners may decide to reduce the size of the product, say soap if the prices of soaps have increased. The third method is changing the quality of a product. This entails cutting out the expensive ingredients of manufacturing a product. The last method is changing the terms of a sale. For example, if storeowners are offering free delivery, they should start charging it (Rajagopal, 2013). Before formulating a pricing strategy, business owners have to ensure consistency of prices. Additionally, they should conduct consumer price awareness programs. Many studies concluded that shoppers do not give much attention to the prices of individual products. They are aware of the overall price level of a store. Therefore, there is a need for stores to maintain overall prices (Rajagopal, 2013). Consumers usually keep ‘reference prices’ for products. The ‘reference prices’ are based on prices that they have seen earlier or paid in the past. Clients use it to measure the fairness of prices. A closer analysis of the ‘reference prices’ finds out that they are always constant, even after a long period. That said, storeowners find it difficult to change the prices of a product (Rajagopal, 2013). Conclusion As discussed above, there is an importance of maintaining stable prices. If storeowners frequently change the prices, they will be demotivating the customers. Before changing the prices, there is a need for an effective plan. Storeowners need to understand the effects of their pricing systems to buyers before deciding on prices top use. Typically, consumers prefer to go to the most affordable stores in town, and they are attracted to promotions. The paper has found out that cognitive fluency, promotions and familiarity of prices influences the consumers’ attitude to purchase. Reference Rajagopal. (2013). Marketing Decision Making and the Management of Pricing: Successful Business Tools. IGI Global; 1 edition. Read More