The Effect of Price on Consumer Brand Perception - Research Paper Example

The Effect of Price on Consumer Brand Perception Table of Contents The Effect of Price on Consumer Brand Perception The final decision making process of any given consumer when selecting a product or brand to buy is the result of a mindful thought progression analyzing the various factors that inform them regarding the possible purchase (Fournier & Mick, 1999). As previous work has shown, the beginning of this process can be triggered through many approaches. Most people don't actually need the product they buy; they’ve just been made to believe it would be beneficial for them in some way. Once they have been convinced of this, they will conduct an internal search made up of past experiences associated with the brand or product, such as related past purchases, recommendations or cautions from friends or colleagues, or a memory of an advertising promotion. The most effective of the latter has been shown to be the celebrity endorsement primarily due to the level of perceived similarity between the consumer and the celebrity’s public persona, thus making an emotional connection at the same time they are receiving a recommendation from a perceived friend or colleague in the form of the celebrity. The next step in the thought process is the external search. This is a more physical, plausible search for a product made by a consumer seeking to make an immediate purchase or as part of an ongoing search to stay updated until they're ready to make a purchase (Kamins, 1989). Throughout this process, price comparisons are made from product to product, brand to brand and store to store. Judgment is then made on the information that has been built up during these two steps, internal and external. Only then does the consumer make their decision about which product to purchase, yet this doesn’t end the process. Once they’ve made the purchase, consumers typically conduct a post purchase evaluation of the product that will result in either satisfaction or post purchase dissidence. Much of conventional marketing research has shown that consumer decision follows the sequence of need recognition, search for information, alternative evaluation, purchase and then outcomes (Kamins, 1989). The sequence can have major variations, however, from one situation to the next in terms of the extent to which each of these steps is followed and much of the process can be greatly influenced by prior brand perceptions. A good deal of the consumer’s perception post purchase, however, is based upon the perceived value of the deal. If a consumer feels he or she has achieved a quality product or service at a bargain price, they will retain a sense of satisfaction. If the consumer finds they spent more money than they needed to for the quality or esteem they hoped to achieve through the purchase, they will begin to perceive the brand as being less than satisfactory (Yi, 1990). In the end, the perceived value of the purchase is brought to a question of satisfaction, or emotion. It is important to note that satisfaction is not always based upon rational evaluations of performance for price (Westbrook and Reilly, 1983). Many times, the consumer’s concept of a brand’s value is based upon a psychological need for prestige rather than actual costs of production. While production costs may remain relatively the same for both Levis and Jordache jeans, the latter commands a higher price tag because of consumer perceived value. While price has an effect on brand perception, this effect is, in part, a conscious development by the marketing industry in response to the consumer’s emotionally driven purchase behavior. Although there are numerous factors that contribute to a consumer’s perception of brand value before, during and after the purchasing process, the truth is that consumers make purchasing decisions based more upon their emotional responses rather than a number on a tag yet the price tag has come to contribute to the consumer’s perception of the brand thanks to the marketers’ efforts to identify these behaviors and use them for product promotion. Consumer’s behave according to their emotions Consumers are irrational and emotional To be successful, it is necessary for marketers to consider the psychological aspect of shopping and consumer behavior. Buyers are not always entirely rational when moving through the purchasing process and do not usually have instant internet access to gain unlimited access to information regarding the products they end up purchasing. Even when this information is made available, through the new technologies of internet-enabled cell phones and other devices, consumers rarely take advantage of the opportunity. Whether due to time constraints, alternative motivations for making the purchase or other reasons, perfect rationality on the part of the consumer, the concept that decisions are made in a way that maximizes the gain on every pound while accomplishing the expected goals and outcomes, is so rare as to be virtually non-existent. Consumers are not simply involved in an even exchange of goods and services, they are also emotional creatures. These emotions can sometimes play a large role in their purchasing decisions. The typical consumer will weigh the various factors involved in a given purchase, but will tend to choose based upon their emotional reaction and how they expect the purchase to make them feel (Oliver, 1996). In the marketplace, they encounter a wide array of product offerings each providing a complex variety of benefits, prices, terms, and promotional messages. Every element of the product offering is geared, to some degree or another, to elicit or provide a desired emotional outcome. Within the context of a real-world environment, consumers are faced with a wide array of stresses and constraints battling against needs and desires, further placing the purchase decision within the realm of the emotional as they perceive they are meeting or failing to find true satisfaction not only in their purchase decisions, but, by extension, in their lives. What is emotion? Before one can consider how price might affect an emotional consumer’s brand perception, it is necessary to come to an understanding of what is meant by emotion and to what degree these emotions typically run. In attempting to study this elusive concept called emotion, scientists have defined it in terms of a direct biological context as a means of predicting probably emotional reaction to a given stimuli, yet the problem remained how to categorize a concept that defies definition? The numerous ways in which these issues have been addressed in the scientific field are discussed in Holbrook & Rajeev, 1987). In 1980, Robert Plutchik compared 28 different definitions of emotion and concluded that none of them were precise enough to provide an unequivocal idea of what emotion is. However, a commonly accepted conception of the term indicates any sort of feeling that is a response to a perception regarding a situation, image or event. As an important element of this conception, it must be remembered that emotion is neither a reasoned, intellectually based response as in the case of a judgment nor a physically based such as a need for food at a grocery store (Gardner, 1985). Building curiosity or a tactile response as of a tired body sinking into an available chair are also not considered to be emotional responses but are instead considered to fall under the above headings of intellectual and physical responses respectively. The inability to adequately identify the characteristics of the concept under study or to reach a common definition of the basic elements has had the unintended effect of focusing study on the extremes of emotion as a means of attempting to harness the idea. Richins (1997) discusses the various difficulties encountered in attempting to record the most basic universal truths regarding emotion as well as the inapplicability of many of these studies to the realm of marketing. “It is quite unlikely that consumption experiences will result in such extremes of emotional intensity” (Richins, 1997: 129). While emotions are undoubtedly a part of the buying experience, they are not necessarily the intense emotions typically studied. Instead, studies such as Richins (1997) demonstrate that consumers generally experience varying degrees of guilt, worry, eagerness and optimism while engaging in a purchasing experience. Other emotion states that were identified as having an impact on purchasing behavior were suspicious, bored and uninvolved. Purchasing logic to meet changing emotional needs Despite the realization that purchasing decisions are usually made on emotions and emotions, as irrational elements of the human psyche, should not necessarily follow any kind of pattern, research suggests that consumers do use a certain type of emotional logic in making their purchasing decisions. One of the small cues consumers rely upon to establish whether a particular product will meet their emotional needs is the element of price, whether it reflects they are saving money, spending money, becoming part of the jet set or sitting in squalor. Correspondingly, it is possible to identify patterns of behavior in the way buyers go about satisfying their needs (Morris & Morris, 1990). As has been discussed, consumers determine their levels of emotional satisfaction based upon their perception of the purchase made. Price emerges as a quick and readily available indicator of value. If the brand sells at a low price, it is considered to be of lesser value emotionally than something sold at a higher price. In addition, the idea that a product is given a particular price is interpreted by many consumers as indicating that many of their peers are willing and able to pay that price for the given item, introducing a sense of neighborly competition. In making an extravagant purchase, though, many consumers develop a sense of guilt for the splurge and make subsequent purchases based upon the monetary bargain. This introduces the consumer to the cyclic nature of purchasing behavior that is then skillfully pulled into play by marketers in the establishment of prices and development of market brands. Cyclic nature of emotion-based consumer purchasing behavior Studies into the purchasing process, including the post purchase perception of the consumer regarding their decision, have revealed a generalized cyclical pattern among the majority of consumers. With no real starting point, the cycle can be said to begin when the individual makes a purchase that is unnecessary yet personally desired (Ramanathan & Williams, 2007). This might be something as generally useful as a new car or as totally self-indulgent as an expensive morsel of fudge. The consumer achieves a sense of pleasure or satisfaction from the purchase, but also experiences a sense of guilt in understanding that this money could have been used in more constructive or more beneficial ways. In making this purchase, the consumer is both excited and remorseful. While the tendency is to assume that the consumer experiences emotions in a neatly defined, completely cyclical motion, first feeling excited and then feeling remorseful, recent studies continue to suggest that these emotions are experienced to varying degrees in conjunction with each other. Their emotions are not necessarily defined as all positive or all negative, but are instead some combination of both happiness or anticipation and guilt or regret (Ramanathan & Williams, 2007). While the happiness hopefully serves to satisfy the consumer’s need for emotional satisfaction, the regret serves as a survival warning to economize after such an extravagant move, causing the consumer to begin seeking bargains and values again. Eventually, however, the consumer’s needs for emotional satisfaction drive him or her to make another extravagant purchase and begin the cycle again. While this cycle does not apply to every consumer or to the same degree given the same personality, economic, social and product conditions, eventually breaks down the consumer’s need to economize for long term goals and focus on the short-term (Ramanathan & Williams, 2007). This process is helped, to a large degree, by the way in which marketers contribute to the development of the consumer’s sense of value primarily through the use of price. How price is linked to value Consumer emotional involvement pre- and post purchase is partially defined by their perception of the value of the item under consideration and part of this perception is based upon the item’s price. A great deal of research has been conducted to learn how prices assist consumers in making connections between brands, enabling marketers to play upon the emotions of the cyclical consumer pattern and maximize profitability. Thus, methods used to manipulate consumer opinion based upon price perception are methods ultimately based upon consumer emotion. As they gain experience in the marketplace, consumers often develop internal reference prices, or expectations, about what something should cost. This can be based upon past experience or simply a broadly defined ‘market value’. For example, early Coca Cola advertising made specific reference to the price of a its product at a mere dime, making it difficult to change the price later when the cost of production and distribution had increased as a result of inflation because of a public perception of the ‘appropriate’ cost per bottle. When giving advice to scientists as to how best to market their products and/or personal skills in a field that seems completely removed from the consumer society, Charles Boulakia (1999) informs his readers, “simply pricing your product based on how much it costs you to make it is downright foolish: The price you set determines, to a large extent, the perceived quality of your product. The crazy thing about price is that choosing one that’s too low can be just as damaging to your sales, and to the perception of your product, as choosing one that’s too high.” There are various pricing strategies that have been developed and studied to determine just what kind of value consumers attribute to each strategy, thus affecting brand perception. Strategy 1 – Prestige Value The beginning of the consumer cycle might begin with the purchase of an item generally recognized as a prestige brand. While other brands may be sold at a lower rate, there is a perceived greater value to a purse created by Ralph Lauren, for instance, than one made for sale in Walmart stores. A consumer in need of a purse who hasn’t had a ‘treat’ in a while may opt to purchase the more expensive Lauren knock-off rather than the less expensive dime store brand even if she feels the two purses are probably made to the same standards and might, indeed, be made by the same factory on the same assembly table. By doing this, the consumer is able to give themselves a treat by satisfying their emotional needs while still avoiding some of the guilt associated with the self-indulgence. Retailers using this strategy of prestige value work on the old saying that quality is in the eye of the beholder. Value is perceived, but not necessarily real. Consumers confronted with a high price tag on a brand they are unfamiliar with will have a greater tendency to associate this new brand with high quality and high demand. Prestige pricing generally applies to products featuring high markups and/or pricing above the product’s market and production costs. This strategy, unsurprisingly, particularly appeals to those consumers seeking material status among their peers and thus form their purchasing decisions based not on price or utility but instead based on brand name and general social esteem of this brand. Many consumers are willing to pay more for a product or service simply because it is felt the product or service is of higher quality or somehow conveys brand or manufacturer prestige (Passewitz, 2007) above that of similar products or services, boosting the consumer’s self-confidence and perception of individual worth. Strategy 2 – The Price Point One of the most widely recognized strategies to help consumers deal with their feelings of guilt following an extravagant prestige purchase is for brands to position themselves as conveniently priced with an acceptable balance of value and quality at a reasonable cost. There are certain specific prices (price-points) at which people become more willing to buy a certain type of product because of a perception that they are being thrifty (Levy et al, 2007). Popular price points exist just under major denominations of printed currency. The study by Levy et al (2007) found that 9 is the most frequently used price-ending across all price sets and that these types of prices are perceived as representing a much greater price difference than price differences with any other range of ending prices. In other words, a product priced at £19.99 including all sales tax will be perceived as costing much less than a product priced at £20, in spite of the fact that in actuality, there is only £0.01 difference between these two prices. This is also a popular price point because many consumers will typically carry £20 notes in their pockets during a given day and thus can afford the item on little more than ‘pocket’ change. Another popular price point is the ‘under £100’ ploy, in which it is considered to be affordable if it can fit beneath this benchmark, but something to discuss with the spouse at just £2 higher. Dropping the price to a popular price point might mean a lower profit margin, but the increase in sales volume offsets the loss as consumers continue to indulge in satisfying other emotional needs (Teton & Allan, 2005). These price points also introduce the concept of the value price, which is something of a specialized sub-group of the price point. Although price points work well to help even wealthier consumers deal with a guilty conscience regarding where and how they’re spending their money, the majority of the middle class seeks the value price product when they are truly attempting to economize their spending habits. Value prices also use the strategy of the price point, but emphasize the bargain concept in the purchase as a means of reaching deeper into the psychological mind of the average consumer. Just as in the case of the £20 vs. £19.99 purchase, there are many prices that just sound like a smaller expenditure than others. For those seeking the best price they can find, 99 pence sounds much less expensive than a pound the same way that £19.99 does with £20. This again proves that people buy on emotion first, rational thought second. In addition to providing purchase prices that fall within the realm of pocket change without breaking a new bill, it is assumed that the strategy of using prices ending in 9 are effective because of the way in which the consumer perceives the price. Seeing a price tag for £9.99 translates in the customer’s mind as ‘nine pounds plus change’ rather than £10, which is closer to the true cost. Odd endings to prices have also come to be associated with discount or bargain goods, somehow lacking in quality by their position within the marketplace, typically because this strategy is often used in discount stores and outlets (Baker, 1997). Discount stores tend to use these endings, while upscale department stores often use whole dollar amounts as a sign of quality. While inflation has undoubtedly changed the figures involved, research done in the 1980s suggested odd prices were more effective below £7, where people often wanted to feel they got a bargain, while consumers who paid more than that amount seemed to prefer the assurance of quality implied by a whole figure. Strategy 3 – Value Bundles Yet another means by which marketers use price structures to increase brand perception among consumers is through the use of value bundles. The traditional value bundle strategy ostensibly offers something for nothing to the consumer, thereby giving the consumer the positive feeling of having made a good purchase decision because of the ‘free’ extras. In this strategy, a group of typically related products are grouped together into a package deal in which the consumer makes a single purchase and receives numerous products. Although brands are able to bring these products together at little or no direct cost to themselves and certainly not paying retail costs, the consumer still tends to assign retail value to the items included in the bundle, regardless of whether or not they would have selected these products on their own. The effectiveness of this strategy depends upon how well the brand bundles products of nearly equal general use by consumers while maintaining a low cost that manages to equal or better the retail price of the most expensive component (Bar-Gills, 2006). Bundled packages such as a printer and ‘free’ initial ink cartridge set priced at the same or lower cost than a printer-only competing brand are seen as a bargain by consumers concerned about the cost of ink cartridges and underestimating the amount of ink they’ll use or the ease of manually refilling when necessary. The cost of these packages is made up by the brand by charging slightly more for the replacement cartridges than their competitors. This is a factor that is not considered or dismissed as unimportant by the consumer. Thus, they are given the impression that they are economizing in purchasing a bundled product and indulging in purchasing a new color printer all at the same time. Like the situation with price points, value bundling has a sub-category in the form of multiple unit selling or selling in bulk. Through this mode of bundling, a large quantity of a given product is sold at one time, giving the consumer the impression that they are saving money in the reduced packaging required on the part of the manufacturer. There are plenty of examples of this form of pricing. A particular grocery item might normally cost 49 pence per can. Multiple pricing might offer two cans for 89 pence, thus increasing immediate sales of a particular item. This type of bundling is most effective when the brand is discontinuing a product or otherwise clearing the shelves as is most useful in increasing a perception of a brand as being a staple item with a concern for the family. People tend to buy extra units of the product during these types of offerings and use them as needed. The emotional attachment to the brand is reinforced in that the brand becomes comforting and secure, ever-present and necessary as the product is used. Studies have indicated that the bargain concept of multiple pricing is not usually effective over the £10 range further indicating its appeal for the economizing, guilt-ridden consumer (Passewitz, 2007). It is, however, very effective for items within the £1 range (Passewitz, 2007). The Consumer Brand Interaction Consumer Perception Shapes Brand Value As has been shown, there are many sophisticated and not so sophisticated means developed by researchers and marketers to influence the consumer’s emotions regarding brand perception through the simple expedient of the price tag. The consumers’ perceptions regarding brand value can have just as profound an impact upon the price structure for a given line of products. Flexibility in pricing is largely driven by customer perception of a product and the competition. Generic brands are a prime example of this type of branding perception. Regardless of the quality of an in-store brand product, it is automatically perceived by the consumer to be of lesser quality or value. As a result, they will not purchase the brand unless it offers a savings over the more well-known national brands. By the same token, however, if the store brand is marketed as a specialty brand or somehow providing an added value, the marketer can place just about any price on the product and realize acceptable sales. Uniqueness is understood and valued by the customer. To avoid problems in increasing costs of resources and materials from damaging consumer brand perception, manufacturer’s suggested retail price (MSRP) is typically set at a misleadingly high price. This gives retailers the opportunity to provide psychologically advantageous sales, discounts, bundled deals, etc. to the consumer within a reasonable range. There is a legal limit to the degree of inflation this price can represent, but MSRP is also held in check by the consumers themselves. For most consumers, misleading or unethical pricing practices have led to a healthy skepticism when it comes to consideration of sales and deep discounts. Sales of as much as 30 percent off usually hit a consumer’s mind with an impression of only a 15 percent savings. At the extremes of this strategy though, when an item is marked down to a clearly improbable amount (e.g., a used car is marked 50 percent below market value), that tactic does indeed lead to some perceived savings by consumers (Passewitz, 2007). Unethical use of price to influence consumers One of the most damaging discount strategies to fuel this consumer/retailer interaction is the process of the bait and switch. Retailers using this technique will advertise a deeply discounted product that actually translates to the consumer’s perception as a significant savings. However, upon arriving at the retailer location, either the product itself is sold out, is only available in limited quantities or is the stripped down version of the product requiring upgrades in order to satisfy consumer needs. To achieve satisfaction from the purchase, the consumer finds he must purchase the upgrades, the next model up or make a more expensive selection. While this is often effective in the moment of sale as it functions on the emotional reaction of the consumer, the tactic serves to create a negative impression of the brand shortly after the consumer brings the product home, often causing significant damage to the consumer’s perception of the brand’s value. This, in turn, reduces the value of the price tag the brand can command, creating a downward spiral that is difficult to turn around. Conclusion Consumers make purchasing decisions based upon their emotions, not their rational thoughts. This emotional response to a product and perception of brand is based upon numerous elements, one of the more important being the value assigned to the product through the price tag. The numerous studies and strategies developed to try to influence consumer’s brand perceptions through price reveal the widespread acknowledgement that consumer’s are led through the purchasing decision by their emotions as well as the fact that emotions after the purchase continue to influence the consumer’s perception of brand. These lingering perceptions can have a reciprocal effect upon the brand itself, either boosting it to elite levels or destroying it into oblivion. By looking into a specific element of the consumer research field, particularly into the realm of retailer pricing, the role of consumer emotion in purchasing behavior can be better understood in relation to those emotions that are known to play a role in the unique environment of the marketplace. Although consumers are increasingly capable of making rational, judicious decisions based upon an underlying understanding of the true cost of an item and other rational considerations of present versus long-term goals and desires, consumers continue to make purchases based on irrational emotional responses. The difficulty in studying these emotional responses is discussed including the problem of agreeing upon a definition or how to break this definition into categories. The effectiveness of prestige pricing, price points and value bundling as tools in the psychological arsenal of businesses attempting to appeal to their target market’s emotional needs also illustrates the emotional nature of consumer behavior. Whether they are accustomed to or too sophisticated for such pricing strategies to be effective on a surface level, consumers continue to be influenced by them at the subconscious level. This is because of the common effect of the consumer emotional cycle in which consumers purchase a prestige item to satisfy their own emotional needs and then feel compelled to economize to make up for it. Retailers, aware of the need for consumers to feel good about making their purchases while attempting to reduce the anxiety and guilt experienced, purposely use psychological means of alleviating concerns and build brand perceptions. By directly acknowledging the type of product offered – either a budget item or a true indulgence – retailers are able to present many indulgence items as budgetary necessities through creative pricing strategies and placement. In pricing products, perception has been demonstrated to be a mighty psychological tool. Skillful pricing can convince consumers they are indulging in their desires while economizing and thereby reducing their guilt for the extravagance. 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