11.12 Price adjustment strategies

Price adjustment strategies

Price adjustment strategies

Discount and allowance pricing

Psychological pricing

Segmented pricing

1. Discounts and allowances

Discounts are very common forms of pricing and sales promotion. There are multiple ways of structuring a discount : ▻ for a first-time purchase ▻ for a multiple item purchase ▻ for a certain time or day of the week. Why are discounts used:

• to defend against competitors
• to communicate value to add brand excitement
• to support positioning
• to create more engaging marketing communications.

• to win short-term market share
• to attract new customers
• to maintain customer loyalty
• to clear stock

What is an allowance? Allowances are more common in business to business marketing, but in consumer marketing they would be a trade-in deal for a car, sometimes for a vacuum cleaner, or even a phone where the consumer receives a discount if they trade in their old product.

Price adjustment strategies

Discount and allowance pricing

Psychological pricing

Segmented pricing

2. Segmented

This approach to pricing is offering different price points for different market segments. It is common for age groups such as students, children and retirees. Family passes are also common at theme parks and tourist attractions. The movie example here provided discounts:

• to students on a certain day and time
• retirees – with tea and biscuits
• parents with children.

The purpose of segmented pricing is to:

• separate customers into time zones
• add incentives for low demand sessions/products
• provide an incentive for bulk purchases – e.g. families
• meet segment needs
• provide overall value

Segmented pricing tends to work better in services firms, as it is more difficult to apply to a physical good.

Price adjustment strategies

Discount and allowance pricing

Psychological pricing

Segmented pricing

3. Psychological

Psychological pricing is about using pricing in a manner that changes how consumers think about the deal or the offer. One of the most commonly used approaches is to have a price that ends in 9. Here is a graph from an academic study (see link in Further Readings) that change the price of different clothing items in a store. There were four different clothing items used in this experiment.

The first item of clothing was priced at either $34, $39 or $44 at different times. Then sales were tracked. As you can see from the chart, at $39 21 units of this clothing was sold, compared to 16 and 17 units at the higher and lower prices both of which ended in a 4.

This experiment produced similar results three out of four times for the different items of clothing. This suggests that consumers are impacted by a price ending in 9, which then suggests some sort of deal or special price to consumers that make them more responsive. Clearly this is not a rational thought out view, which is why it is considered part of psychological pricing.

Consumers are also impacted by displays and signage that appear to offer good deals. In both of these examples for Walmart, the actual deal is not that good. But the presentation of the display attracts consumer attention and a number of consumers will be enticed to purchase these products.

Here is another example from a journal article, where consumers perceived that the smaller the price was written (the one on the right) was a better value offering that the one on the left with the comma and the decimal places.Clearly they are identical prices, but simply the presentation of a price can have a psychological impact on a consumer's willingness to purchase.