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Pricing Strategy and Consumer Perception

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  • 0:05 Cheap, or a Good Deal?
  • 1:05 Pricing Strategy:…
  • 2:30 Pricing Strategy:…
  • 3:42 New Product Pricing Strategies
  • 5:00 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Consumers' perceptions of products rely heavily on the pricing strategy that is chosen by the marketing manager. Price will impact not only consumer perception but also profit and speed of product adoption.

Cheap or a Good Deal?

It is Valentine's Day, and you are waiting to unwrap a gift from your significant other. The box is opened to reveal a beautiful gold necklace that you can't wait to wear. A week later, you stumble upon the receipt for the necklace and find out it only cost $99. The beautiful gold necklace that you once loved now seems cheap and ugly. Why? The price has altered your perception of the necklace.

Marketing managers must be careful of the pricing strategy they use to sell their products and services. Consumers' perceptions of products and services are drastically affected by different pricing strategies. For example, the staff of the local business called Heart Attack on a Plate Bakery is revamping their products' prices. They are researching the best pricing strategy to implement for all of their baked goods. They want their prices to reflect a premium image but not be so costly that their consumers perceive their products as unaffordable.

Pricing Strategy: Everyday Low Price

One of the most popular pricing strategies in marketing is EDLP (everyday low price). The theory behind using this pricing strategy is that it provides value to the consumer by eliminating the need to search for better deals elsewhere. It helps the retailer because it offers one price and avoids constant sales, discounts and price changes. Heart Attack on a Plate Bakery does not want to use an EDLP strategy as its products are premium and area competitors can't match its quality. Walmart is the leader in EDLP pricing. They stress that the overall price of consumer purchases will be less than the competition.

Most stores that adopt this type of strategy also use odd pricing in order to further increase their consumers' perception of a good pricing deal. For example, if Heart Attack on a Plate was going to use EDLP pricing, then its cupcakes would be priced at $1.99 each. The thought is that consumers will ignore the 99 cents and view the cupcakes as costing only $1. Sometimes, the use of odd pricing can backfire and cause the consumer to perceive the product as cheap. For example, if a bride wanted to order a wedding cake from the bakery and was quoted a price of $99.99, there could be a negative price connotation or a lower-quality image.

Pricing Strategy: High/Low Pricing

Another pricing strategy that firms can use is called high/low. In this instance, the retailer depends on promotions and sales to temporarily reduce prices. This type of pricing strategy allows consumers to perceive that they're getting a deal during a sale. It also allows another segment of consumers who are not price-sensitive to pay full price, which in turn brings in more profits for the company. A high/low strategy also makes the consumer perceive excitement or that a deadline exists for getting the sale price during a limited-time period. A retailer does provide a reference point, which is the price against which buyers compare the sales price of the product to the actual price. For example, Heart Attack on a Plate Bakery creates signs with the original sales price of its cakes and then slashes through the price with the sales price revealed: 'Cookies on sale for $7.99 a pound!' vs. $9.99. The bakery is going to try to use this type of pricing to create excitement for its baked goods. In the past, it has been criticized for higher prices. The staff hopes this new pricing strategy will bring in new customers.

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