Pricing Decisions
Definition
The price is the easiest element of a brand to change and it has the largest direct (and directly measurable) effect on sales.
Key Findings
- Consumers buy across a range of price levels, or tiers. Over time, most consumers will buy different brands that sit at different price levels and the same brand at different prices.
- Many of the sales of a high priced brand will come from the ‘low price’ or ‘mid price’ customers who occasionally buy a higher priced brand.
- There is evidence of reference price effects which can lead to consumer resistance to paying normal price after purchasing at a discounted price; but typically only when the brand is discounted frequently.
- Consumers have poor recall of prices they have paid for goods, even when interviewed moments after buying and even have low accuracy in recognising correct prices. However, consumers are better at spotting ‘good deals’ and relativities between more and less expensive competitors.
Best Practice
- Report 43: Price Promotions
- Report 78: We (still) all like a Good Deal! Do brands need to discount in order to reach the deal-prone segment?
- Academic Publications: The Effects of Competitive Context on Consumer Response to Price Changes
- As a guideline, the absolute upper limit for the proportion of sales sold at a discounted price should be 1/3rd; for every unit sold at a discount, two are sold at normal price.
