Consumer behavior refers to the study of how consumers make decisions about their needs wants and how they are likely to act with regards to a product, service or company. It is critical to the marketing department of a particular organization to understand consumer behavior in response to a new product or service in the market. Consumer behavior study also helps companies identify new opportunities that are not currently exploited. There are three factors that affect consumer buying behavior (Hawkins, Best & Coney, 2009). These include psychological factors, personal factors, and social factors. Psychological factors include the perception of a need or situation, an individual's altitude and their ability to learn or understand information about a particular product or service for example information regarding price. Personal factors are specific to a person and may not relate to other people within the same target group. They may include unique habits and interests, personal opinions. Decisions are influenced by age, gender, culture and other personal issues (Hawkins, Best & Coney, 2009). Social factors, on the other hand, are quite diverse and may range from work or school communities, social interaction and a person's family, social class, income, education level etc (Hawkins, Best & Coney, 2009).
Marketing refers to the managed development where services and goods flow from concept to the consumer (Bearden, 2006). Marketing is concerned with fulfilling the needs and wants of the customer. In order to understand the needs and wants of consumers and target customers, marketers should first analyze consumer behavior and determined the factors influencing consumer behavior. A successful launch of a product into the target market requires that the marketers consider the 4P's of marketing which includes, product, price, promotion, and place (Bearden, 2006). They are referred to as 4P's of marketing mix has all marketing decisions and strategies are formulated with regard to their effects on the marketing mix. This essay seeks to discuss the impact of price on consumer behavior (Bearden, 2006).
In order to identify and research on the price impact on consumer behavior, I decided to accompany my friend by the name Lisa to a nearby supermarket store for shopping. Lisa is very concerned about her spending habits and usually takes time to plan a budget and a list of items she requires from the grocery store or supermarket. I requested to accompany her and made sure that she was not aware that I was conducting research on her buying behavior. Instead, I made it sound like a favor since I was bored in the house and wanted to spend my time out of the house. She was so happy and as we took her car to the supermarket she explained how she had always wanted to replace her spoilt refrigerator. Her previous refrigerator had spoilt while she was moving to the new apartment she occupied. In the vehicle, she complained of how the economy was inflating each and every day and how price increased in almost every product. She was concerned about the price of a new refrigerator and was keen to get the best price and value from her purchase. We entered the supermarket and headed straight to the electronics store. There were many brands of refrigerator ranging from small to big ones. She informed me that she wanted to purchase a medium size refrigerator and we headed to the section whereby they were stocked. We viewed a number of refrigerators all priced different prices and from different manufacturers. She settled on Kenmore 60502 18 Cu. ft. Top Freezer Refrigerator with Glass Shelves in White, includes delivery and hookup which was priced at $549 USD. After the research, I was keen on knowing why she settled on the refrigerator and not all other brands that were available at the store. She informed me that while making the decision she considered the price of the item. She also told me that the item was previously priced at $749 USD.
The consumer buyer decision expressed by Lisa on the purchase was influenced by reference pricing. Reference pricing refers to a marketing strategy used by marketers whereby they use a price that is communicated to the consumer as being normal most commonly charged or un-discounted price. An example is the price of an item indicated as was $749 now $549. There are three types of retail reference pricing practices employed by marketers; comparing an advertised price to a price presumably charged by other retailers, comparing an advertised price to a price the retailer formerly charged for the product and comparing an advertised price to manufactures suggested retail price. Prices recommended by the retailer are referred to as recommended retail price (RRP) while retailer-supplied comparative prices are referred to as external reference prices (ERPs).
The use of reference pricing relies on the fundamental psychological principle underlying reference pricing is anchoring (Danzon, 2001). During normal consumer decision making including when the consumer is estimating the value of the product or service, an initial value (an anchor) serves as a mental benchmark or a starting point for estimating real value (Danzon, 2001). In this case, therefore, a reference price serves as an anchor that the consumer will use to make adjustments to in order to reach their final decisions on the price estimate (Mazumdar, Raj & Sinha, 2005). Because anchoring effects occur unintentionally and unconsciously, it is difficult for people to determine the extent to while an anchor value influences their estimates. Research on the impacts of reference price on consumer buying behavior suggests that an advertisement with a plausible reference price results to an increased customer's estimates of the product's regular price and the perceived offer value (Moon, Russell & Duvvuri, 2006). This is compared to an advertisement where no reference price was used. Research on an exaggerated reference price also suggested the same positive defect even amongst skeptical consumers. The decision by Lisa to purchase that particular brand was influenced by the reference price of $749. According to her, she had saved $200 from the purchase a buying decision that she considered smart. Only a few competitor products on the store had reference prices, however, after doing her math she would save more from purchasing that particular brand.
Consumer behavior is, therefore, is influenced by the price of products or services they intend to purchase. Price has a psychological effect on consumers. Marketers should ensure that they conduct research on the price impact on the purchase behavior of the target consumers before launching a new product. The use of reference prices either exaggerated or price knowledge of competitor's prices is likely to influence positively on the consumer buying behavior. Marketers who are able to exploit pricing effects to formulate marketing strategies are more likely to succeed and achieve a higher competitive advantage in a particular market.
Bearden, I. (2006). Marketing: principles and perspectives. Academic Internet Publishers, Inc.
Danzon, P. (2001). Reference pricing: theory and evidence. Reference Pricing and Pharmaceutical Policy, 86-126.
Hawkins, D., Best, R. J., & Coney, K. A. (2009). Consumer behavior. McGraw-Hill Publishing.
Mazumdar, T., Raj, S. P., & Sinha, I. (2005). Reference price research: Review and propositions. Journal of marketing, 69(4), 84-102.
Moon, S., Russell, G. J., & Duvvuri, S. D. (2006). Profiling the reference price consumer. Journal of Retailing, 82(1), 1-11.
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