In the first part of our pricing psychology series you can learn which price design parameters you can use for price setting. The second part explains the processing methods used by customers to record, evaluate and store prices and how you, as an online retailer or manufacturer, can take advantage of these processes. Today, in the last part of the series, we present the phenomena of customer behaviour that can be influenced by prices – and thus the ‘third P’ in Markus Kopetzky’s model.
Price behaviour – how consumers react to subjective prices
The reaction of customers to subjective prices is termed price behaviour. This takes place within the purchase process, which itself can be divided into the pre-purchase, purchase and post-purchase phases. Markus Kopetzky makes the following distinction in his book ‘Pricing Psychology’ for customer behaviour during these phases: Price search, purchase, consumption, utilisation, evaluation and fraud. He assumes that all of these behavioural reactions can be influenced by prices.
The price search describes all activities surrounding the acquisition and comparison of prices. Accordingly, it can refer to individual products at different retailers (between store/interstore price search), individual products from one retailer (in-store price search) or to one retailer for different products (store choice).
The purchasing behaviour of consumers includes:
- dichotomous purchase and non-purchase decisions
- multioptional product selection decisions
- continuous purchase quantity decision for a product
- willingness to pay and total expenditure
- cross-product and cross-quantity purchasing decisions.
The consumer’s decision of whether, when and how much of a purchased product or service is consumed is termed consumer behaviour.
At the end of the post-purchase phase, the consumer then decides on the further utility or, if necessary, replacement of the purchased product.
The evaluation behaviour is evident in all phases of the purchasing process. Customers express their satisfaction with prices and price changes, as well as their sense of fairness in, for example, recommendations or complaints within their social environment. Further possibilities include complaints to or a switch from supplier, positive or negative evaluations on the Internet, or the extension or termination of an agreement. During this assessment, conclusions are also drawn for future purchasing decisions – the consumer is thus building up here their own pricing knowledge.
Fraudulent behaviour can also be seen throughout the entire purchasing process and, according to Kopetzky, also results from dissatisfaction with price setting.
Summary: Not only are the purchase or no-purchase decisions influenced by prices. Various behavioural reactions of the consumer in all phases of the purchasing process also depend upon it. These behavioural phenomena, together with the processing stage, form the customer’s viewpoint and thus the link between price setting and profit on the part of the company.
Identifying and exploiting pricing potentials
One of the key questions retailers and manufacturers ask themselves in price management and pricing in general is, “Which price setting triggers which behavioural phenomenon and how do I benefit from it?” In our three-part series of articles, we have presented the 4-P model as a reference framework, from price setting to the quantification of consumer reaction. You have learned a selection of price design parameters that you can use for price setting and also witnessed which psychological concepts explain price processing by the customer, as well as which behaviour can be influenced by pricing.
If you now analyse exactly how customers react to price changes, you will quickly recognise your opportunities for price increases and profit optimisation. To get a feeling for adequate market prices, it is essential to look towards your competition. The right software solution will provide you the necessary support here. With the blackbee price monitoring module, you will always have an eye on price developments in online retail. You can see on a daily basis which competitors are asking which prices for articles and how competitive your own prices are on the Internet. On the basis of highly valid and reliable evidence, you can then make your price adjustment to your competition. In this way you will always remain one step ahead of your competitors.
Would you like to know more about how blackbee works ? Then contact us now and talk with our pricing experts. We look forward to your message!