Mind your pricing cues
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Transcript of Mind your pricing cues
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INTRODUCTION
Pricing your product or services may be one of the most stressful parts of owning a business.
finding the right price to attach to a product or service is an art.
Finding the perfect balance is important, but it’s also about knowing how customers view prices, especially prices that end in the number nine.
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HOW GOOD ARE YOU?
Yogurt
35-mm Film
Combination TV-DVD Player
$299.99
$8.99
$1.99
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WHAT’S THE POINT ??? Consume Have low Pricing
Awareness
Comparison Shop, don’t guess
Bad habits of relying on retailers to tell us prices
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TOOLS OF THE TRADE
Sale Signs
Prices ending in “9”
Signpost Items
Pricing Guarantees
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SALE SIGNS
Most straightforward of the pricing cues.
Displayed near the discounted item.
Placing the sale sign cost the retailers nothing
Stores make no commitment to a particular level of discount when using the signs
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FINDINGS
Using the word “sale” beside a price (without actually varying the price) can increase the demand by 50%
Retailers do not use such signs truthfully. Putting sale signs on more than 30% of the items diminished
the effectiveness of the cue. Placing sale signs on multiple items can increase demand for
those but reduce overall demand. Effective only when placed on few items. Misuse can result in prosecution.
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PRICES THAT END IN 9
KNOWN AS Psychological Pricing ,Charm Pricing is a Pricing Strategy based on the theory that certain prices have a psychological impact.
Prices such as $1.99 is associated with spending $1 rather than $2.
Makes items appear cheaper than they really are.
Since people read from left to right, they are more likely to register the first number and make an immediate conclusion as to whether the price is reasonable or not .
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EXPERIMENT:WOMEN’S CLOTHING
MIT and the University of Chicago conducted an experiment with prices on women’s clothing.
-They had three basic prices, $34, $39, and $44.
FINDINGS Surprisingly, the $39 item sold the best, even better than the cheaper
price of $34.
One reason is the mind sees the first set of numbers and registers it as priced in the 30-dollar range, even when it’s closer to the 40-dollar range.
Purchasing an item for $39.99 will seem more of a value than purchasing the same item for $40 even.
Changing the price from $34 to $44 yielded no difference.
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9 at the end of the price acts the same way as sale sign does
Buyers are more sensitive to price ending than price changes
Retailers reserve prices that end in 9 for discounted items.
Research suggests that prices ending in 9 are less effective when item already has a sale sign.
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SIGNPOST ITEMS It is any marketing tactic used to persuade
customers that prices offer good value compared to competitors’ prices, past prices or future prices.
Customers use the prices of signpost items to form an overall impression of a store's prices
This strategy is used by the retailers by pricing the items lower than the usual price
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ADVANTAGES OF SIGNPOST ITEMS
It helps businesses manage and nurture relationships over time.
Use of signpost items is best for small business
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DISADVANTAGES OF SIGNPOST ITEMS
Signpost strategy can be used only for the products for which price knowledge is accurate
Customers form impressions about the store
Creates perception that products are underpriced
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CUE, PLEASE
Right cue at right place is very important
Apply pricing Cues when customer is less aware of product price and consider employing cues when:
Purchase Infrequently
Customers are new
Design vary over time
Vary seasonally
Vary across stores
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QUALITY HAS ITS OWN CUES
Make it "Right today, better tomorrow“
Balance efforts
Installment without financial charges
Concern about Quality
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PRICING MATCHING GUARANTEES
Assure the best price for the items that carry exclusive name, own price feature.
Manufacturer or supplier promises to refund the difference in price
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BENEFITS OF PRICE GUARANTEES
It is the easiest way to attract customers Pricing is directly related to the revenue
management department No fear of losing customers to rivals’ price
cuts
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DISADVANTAGES OF PRICE GUARANTEES
Price matching guarantees are effective when consumers have poor knowledge
If the guarantee is complicated, customers recognizes that guarantee lacks substance
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TRACKING EFFECTIVENESS
•On going measurement of cues are essential part
•Long term impact of the cues must be considered
•As per the study conducted :•First time shoppers who saw deep discount on their first purchase returned more often and purchased more items when they came back and established customers would stock up, returning less often and purchasing fewer items.
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If we overlook these long run effects it would set prices too low for establish customers and too high for first time buyers
Keep other departments in mind as using additional sale signs may increase demand within the department but harm demand elsewhere.
Retailer should provide price information as they provide product
Focus on quality as well
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Harsh