Page 76 - DMGT506_CONSUMER_BEHAVIOUR

Unit 5: Consumer Perception

5.2.1 Price Perceptions Notes

Whether a consumer perceives the price of a product or service as high, low, or fair has significant
influence on buying intentions and post-purchase satisfaction. There is considerable evidence to
suggest that the meaning of price variable for consumers is quite complex.

Example: Seeing the explosive growth of cheap ballpoint pens, Parker Pen repositioned
its pens based on price during 1980s and offered low-priced pens. The results were nothing but
disastrous because the Parker’s image was inconsistent with its price. The company in 1989
reverted back to its strength of high-priced pens and became profitable again.
1. Consumers have certain expectation of what the price is or should be of a product or
service.

2. Their expectations may or may not reflect the actual price of the product or service.
3. Consumers often associate the price of a product or service with quality.
Consumers consider differential pricing used by some marketers to benefit certain classes of
consumers such as club members, senior citizens, women etc., for which they are not eligible, as
unfair. We certainly feel unhappy to learn that others are paying half the price for the same
service or product. Marielza Martins and Kent B. Monroe have reported that price unfairness
affects consumer perceptions of product value, and purchase intentions and reducing perceptions
of price unfairness increases the product’s perceived value.

A reference price (also called standard price) is any price that a consumer uses as a basis for
comparing another price.

Example: A consumer may expect to pay 20,000 for a Sony 2000 PMPO music system.
This is the consumer’s reference price that she/he expects to pay and uses as basis to compare
prices for alternative brands.

Consumers are willing to accept a range of prices, called an ‘acceptable price range’, for a
product or service. The acceptable price range in case of music system might be from 12,000 on
the lower end to 22,000 on the higher end. The higher end acceptable price is called ‘reservation
price’. Below the lower end of the acceptable price the consumer might be suspicious about the
product quality and above the reservation price the product would be considered too expensive.
The range of acceptable price often varies significantly among consumers and depends on
individual consumer characteristics and attitude towards a particular brand.
According to Abhijit Biswas and Edward A Blair, reference prices can be either external or
internal. Marketers sometimes use a higher external reference price (sold elsewhere at … or
international edition …) in an attempt to persuade consumers that the product is really good
value. The consumer recalls from memory the internal reference prices or range of prices which
are believed to significantly influence his evaluations and perceptions of value of a sales
promotion deal and the authenticity of any advertised reference price.
According to ‘acquisition-transaction utility theory’, Katherine Fraccastoro, Scot Burton and
Abhijit Biswas are of the opinion that there are two types of utility associated with consumer
purchases. One is the ‘acquisition utility’ and relates to the perceived economic gain or loss
associated with a purchase and depends on product utility and its purchase price. The second is
the ‘transaction utility’ and involves the perceived pleasure or displeasure associated with the
monetary aspect of the purchase and refers to the difference between the internal reference price
and the actual purchase price.
Researchers have investigated the effects of three types of consumer price perceptions
communicated through advertising. Plausible low prices are considered well within the range

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