According to a given a product, its attributes and market sector, our research will provide the effectiveness of each pricing method for that sector

1. Analysis of Pricing Methods
Guide: Associate Prof. Naveen Kashyap
Department of Humanities and Social
Science
Indian Institute of Technology Guwahati
HS 213
Consumer Behaviour Project
Ankit Chowdhury (150205004)
Ayush Jain (150101012)
Himanshu Bhawsar (150121014)
Pranav Totala (150102051)
Shivam Sunderam (150205035)
Simran Agarwal (150205037)
Udayraj Deshmukh (150101021)
Vidushi Pundir (150205043)

2. Objective of the Study :
“According to a given a product, its attributes and market sector, our
research will provide the effectiveness of each pricing method for that
sector.”

3. WorkFlow of our Study

4. Our Study on Pricing Methods

5. Psychological Pricing
Use of a simple but impacting pricing tactic that is based on natural, irrational thought processes.
Concepts Used -
● Left Digit Effect -According to Kaushik Basu (World Bank Chief Economist), The rational consumers
process the price from left to right and tend to mentally replace the last two digits of the price with
an estimate.
● Cognitive Bias - The result of mental shortcuts, logical errors, social factors and memory shortfalls.
● OCD - Many people only want to see digits ending with 5 and 9 and tend to buy only those products
Advantages -
● Grabs Attention
● Encourages Impulse Buys

6. Product Life Cycle Pricing
Advantages :
● Planning business properly
● Maximize profit by varying the price
A product's life cycle consists of its
introduction, growth, maturity and decline, as
measured in changes in sales and market
share over time.
Concept : Modelling the flow of
information and Consumer interest.

7. Customary Pricing (aka Competitive-Based Pricing)
Price that is established by tradition or competition.
Concepts :
Memory Comparison : The particular product has a customary price that people remember as
reasonable.
Group Attribution : People may group your product within the existing pricing range.
Advantages:
● Prices are in line with rivals so sales should be good
● Customers see you as having similar quality product
Examples-
Notebooks
Increasing prices - Any new notebooks Reducing Prices - Music services

8. Concept : ‘Foot in the Door’ technique
● When the customer faces the need to buy the additional products, they perceive less mental barrier to
spend little more amount for it.
Examples :
● Shaving razors may be relatively inexpensive, but manufactures make up the income difference by
charging higher prices for replacement blades.
● Other eg: Desktop Printers, Rechargeable Batteries for Camera, Converter cable for Apple Mac.
Advantage :
● Easier to achieve profitability
● Helps in penetrating/competitive pricing to get established in market
Captive Pricing

9. Penetration Pricing
Penetration pricing involves setting the initial sales price far lower than what the normal selling price would be
in order to infiltrate the market. The goal behind penetration pricing is to appeal to a broader audience and
increase market share.
Concept :
● Price Sensitive Market : Majority of the Consumers are price sensitive
● Eventually, once you gain market share and customer loyalty, you'll start to gradually increase the
price.
● The competitors are forced to changed their marketing strategies
Advantages :
● Not much competition in the initial phase : When penetration pricing is introduced the competitors
are caught unaware. Most importantly it leaves them with very little reaction time. So in the initial
phase not much competition is faced.

10. Example
Due to penetration, Competitors of Reliance Jio had to reduce their Data pack charges and had to make
roaming incoming free
Supporting article - “How Reliance Jio's free voice offers forced Airtel, Vodafone, Idea & Aircel to
abolish roaming charges” by Economic times Dated April 15, 2017
Penetration Pricing

11. Price Skimming :
Businesses that have a significant competitive advantage can enter the market with a price skimming strategy
designed to gain maximum revenue advantage before other competitors begin offering similar products or product
alternatives.
Concept: Targetting Affective Loyalty
● Affective loyalty represents emotional bond with a company. The companies can succeed in building good
positioning of itself if it targets all the affective loyalty component.
● For new ideas or technology which main aim to gain maximum revenue advantage in the beginning.
● Targets : status conscious customer,teenagers and early adopters.
● Early Adopters : People who start using a product or technology as soon as it becomes available.
● Example: Ola Cabs, Syska LED.
Advantages :
● Maximum revenue advantage before other competitors begin offering similar products or product
alternatives.

12. Premium Pricing
Premium pricing strategy establishes a price higher than the competitors. There is something
unique about the product or when the product is first to market and the business has a distinct
competitive advantage.
Concept : Desire for high status and quality
● A high price designed to reflect quality, reputation and status Ex. In Fashion sector
Veblen goods are luxury goods that receive more demand at a higher price point. They are
a rare exception to the economic law of supply and demand.
● Cognitive Dissonance - People find ways to reinforce desirability of their choice i.e. they
can either.
Advantage :
● Increased visibility : To raise brand awareness. High price indicates high quality
● Improved profits
● Competitor advantage : Can invest more money and energy into advertising
Examples :
● Designer clothes, Hand made chocolates

13. Temporary discount pricing strategies include coupons, cents-off sales, seasonal price reductions and even volume
purchases. For example, a small clothing manufacturer may offer seasonal price reductions after the holidays to reduce
product inventory. A volume discount may include a buy-two-get-one-free promotion.
Temporary Discount Pricing
Advantage :
● Discounts to reward volume customers, repeat customers
and employees build customer loyalty.
● Loss leaders are effective for retailers who need to
increase traffic in the store.
● Promotional discounts, used sparingly, offer temporary
advantages including maximizing sales, revenue and
profit.

14. Promotional Pricing
Promotional pricing usually involves company creating various marketing strategies to inform consumers about
the new product. Promotional pricing may include a buy-one-get-one free offer, discounted initial price or free
items given to consumers who purchase the first 100 products. Promotional pricing may also drive sales of
other products if companies require consumers to visit retail locations to benefit from promotions.
Concept :
● Ice-Breaking : Attempts to make consumers switch their preferred product choice.
Advantage :
● To attract large number of customers.
● Increased Value Perception : Promotional pricing tactics also carry strong psychological weight
in the value-oriented market.
● Revenue Growth : Companies that need quick cash to cover short-term expense.

15. Survey:

16. Question wise analysis :
Question 1 : For Comparison of Bundle pricing with
Promotional pricing.
Option A is applying Bundle pricing
Option B is applying Promotional pricing
Majority people choose 1st option which helped us conclude that
bundling favors the customer, particularly in simple transactions in which
separate and packaged pricing can be quickly compared.
Question 2 : For Comparison of Premium pricing with Value
pricing
76.3% of the respondents go with a well established brand over a new
one.
Usually in electronics consumer choice go with a brand.Hence they
prefer quality over money. So for a new company coming with a very
low price can be seen as a low quality product.

17. Question 3 : For effectiveness of Premium pricing together with Bundle
pricing and Relative pricing
80.9% Respondents chose the combo offer while 19.1% chose a single product.
So it is clearly showing that if a marketer has chosen to apply premium pricing,
keeping a combo offer along with it is increasing product value and is also making
relative pricing (Since the price 525 is appearing less expensive in the presence of
475 than in the absence of 475).
Question 4 : For effectiveness of Penetration pricing when the company
(Samsung) already has a reputation in the market
Here it is an interesting situation when a reputed company is selling a product at a
lower price than its competitors for a similar product. As we see not many people
lose their trust on the brand and it is dominating the market share.

18. Question 5 : For effectiveness of Price Skimming in food sector.
Option A is applying Price skimming
As the difference between premium pricing and skimmed price increase, more
customers attract towards the lower priced product. But the psychological effect
of premium pricing still dominates and the skimmed face questions about
quality and authenticity.
Question 6 : For comparison of Introduction & Growth stages of
Product Life Cycle.
Option A is Introduction stage, Option B is Growth stage
It is to show that when a Unique product is launched, a good percentage of
people would opt for buying even when the good is priced high. Though the
majority of people, not extremely influenced by the new product, choose to wait
for price to reduce. (This output is a bit biased as the customers here beforehand
know about the price drop after 2 months)

19. Question 7 : For effectiveness of promotional pricing.
Approx 30% of the customers pre-ordered the phone. As such the
company got a huge market profit before even releasing the phone.
Hence, we conclude in case of 2 new releases of trusted company,
the company should follow promotional pricing.
Question 8 : For effectiveness of Captive Pricing in
Electronics sector
Option B is applying Captive pricing
This response is showing that for captive pricing to be effective, the
prices of the additional products should not be directly visible to the
consumer. But still there is nearly half of the market that is budget-
conscious which prefers the second option (which applied captive
pricing)

20. Question 9 : For effectiveness of Premium pricing and value
pricing in Fashion sector
Option A is applying Premium pricing.
The Premium pricing reduces the market share, but the profits
gained are still pretty high. Assuming the cost price is Rs 2000
34.5 % of 252 = 88 * 2500 = 2,20,000
65.5 % of 252 = 164 * 500 = 82,000
This shows that premium pricing is very effective in the fashion
sector.

21. Relative Impact of pricing methods in various sectors

22. A marketer should have an understanding of various pricing techniques, and:
● How and when to apply them according to target segment, product attributes and existing
competitors
● Pricing strategy is dependent on sectors.
○ The fashion industries have no rule of customary pricing , while it is essential in the food
sector.
○ Penetration pricing is more relevant in electronics than in daily needs products.
Conclusion of our study

23. ● The pricing methods are more effective when used in combination - from our survey, we found
that Premium pricing together with Bundle pricing and Relative pricing is a very good strategy
in premium restaurants.
● Major sector of Consumers are price conscious. So the market share will tend to be highest
towards the lowest priced product. (Penetration pricing)

24. THANK YOU