Chapter 18

Consumer Behavior and

Pricing Strategy

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
 Conceptual Issues in Pricing
• General model of the nature of marketing
exchanges and the role of price in this
process

18-2
Conceptual Issues in Pricing cont.

18-3
Conceptual Issues in Pricing cont.
• For-profit vs. nonprofit differences
• Four basic types of consumer costs
– Money
– Time
– Cognitive activity
– Behavior effect

18-4
Conceptual Issues in Pricing cont.
• Four categories of marketing costs
– Production
– Promotion
– Distribution
– Marketing research

18-5
Conceptual Issues in Pricing cont.
• For marketing exchanges to occur, the price
consumers are willing to pay must be
greater than or equal to the price at which
marketers are willing to sell
• Money
– Most pricing research has focused on money

18-6
Conceptual Issues in Pricing cont.
– Several important aspects of the dollar cost of
offerings are not always considered
– A number of methods can reduce the dollar
amount spent for a particular item, although
they often involve increasing other costs

18-7
Conceptual Issues in Pricing cont.
• Time
– Necessary to learn about a product or service
– Required to travel to purchase a product or
service
– Spent in a store
– Should not be treated only as the cost of
purchasing

18-8
Conceptual Issues in Pricing cont.
• Cognitive activity
– A frequently overlooked cost of making
purchases
– Process of comparing purchase alternatives can
be stressful
– The cost involved in decision making is often
the easiest one for consumers to reduce or
eliminate
– In some situations, consumers actively seek
some form of cognitive involvement

18-9
Conceptual Issues in Pricing cont.
• Behavior effect
– Can be a benefit rather than a cost
– Consumers are willing to take on some
marketing costs to reduce the dollar amount
they spend make trade-offs among various
types of costs
– Consumers are willing to make trade-offs
among various types of costs

18-10
Conceptual Issues in Pricing cont.
– In some cases consumers will take on at least
part of the cost of the distribution to lower the
dollar price
– Consumers have several options with regard to
purchase

18-11
Conceptual Issues in Pricing cont.
• Value
– Whatever is being purchased must be
perceived to be of greater value to the
consumer than merely the sum of the costs
– Consumers seldom finely calculate each of the
costs and benefits in making brand-level
decisions

18-12
Conceptual Issues in Pricing cont.
– For some purchases, all of the costs and trade-
offs may be considered by consumers
– This view is important because it has direct
implications for the design of marketing strategy

18-13
 Price Affect and Cognition
• Typically little sensory experience is
connected with the price variable
• Little consensus on basic issues regarding
how price influences consumer choice
processes and behavior
• Price perceptions and attitudes

18-14
Price Affect and Cognition cont.

18-15
Price Affect and Cognition cont.
– Conceptual model of cognitive processing of
price information
• Internal reference price
• The stated price for a particular brand may be
considered a product attribute
• For a low-involvement product or purchase situation,
dollar price may have little or no impact on consumer
affect and cognition, or behavior

18-16
Price Affect and Cognition cont.
• Price information may not be carefully analyzed
because consumers have a particular price image for
the store they are shopping in
• Consumers often do not carefully store detailed
information in memory

18-17
 Price Behavior
• Funds access
• Transaction

18-18
 Price Environment
• Price is perhaps the most intangible
element of the marketing mix
• The price variable typically offers very little
for the consumer to experience at the
sensory level, although it may generate
considerable cognitive activity and behavior
effort

18-19
 Price Environment cont.
• Price variable may also include an external
reference price
• How price information is communication has
an effect

18-20
 Summary
• Presented an overview of pricing decisions
and consumer behavior
• Focused on developing a conceptual
framework for considering pricing decisions
that included four types of consumer costs
• Affect and cognitions, behaviors, and
environmental factors relative to price were
discussed

18-21
 Summary cont.
• Cognitive factors examined included price
perceptions and attitudes, and the
behaviors described included funds access
and transactions
• Learned how the environment focused on
price information

18-22