Strategies in Price Communication

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Price Communication

One of the strategies to influence the consumers’ willingness-to-pay is through the use of price communication. In order for companies to gain their market share they need to ensure that consumers understand the value of the company’s products both economical and psychologically.

In studies conducted by researchers many business managers have noted that the most important capability in their pricing strategies is accurately “communicating value and price”. On the other hand, they also note that it is one of the weakest capabilities for most organizations to perform (Nagle, Hogan & Zale, p. 72). Although communicating price can be difficult at times, given that many people perceive prices differently, careful analysis suggests that by using the four key aspects of proportional price evaluations, reference prices, perceived fairness, and gain-loss framing can help make the pricing strategy process easier and more effective for companies no matter what the economy is doing.

Proportional Price Evaluations

Rather than evaluating price differences in absolute terms, buyers typically evaluate proportionally, which is also known as the Weber-Fechner effect. The Weber-Fechner effect indicates that consumers tend to evaluate price differences relative to the level of the base price. In other words, consumer’s perceptions of price changes depend on a percentage not an absolute difference (Nagle, Hogan & Zale, p. 88).

In this scenario consumers typically see thresholds above and below the products price and then either do not notice or ignore the rest. For example, the textbook author’s noted automobile companies often use this tactic by offering free financing compared to a fixed dollar rebate. Consumers wil...

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...er through effective price communication, especially in today’s poor economy.

Works Cited

Nagle, T. T., Hogan, J. E., & Zale, J. (2010). The strategy and tactics of pricing, a guide to growing more profitably. (5th ed.). Upper Saddle River, NJ: Pearson P T R.

Haws, K. L., & Bearden, W. O. (2006). Dynamic Pricing and Consumer Fairness Perceptions. Journal of Consumer Research, 33(3), 304-311, Retrieved from http://web.ebscohost.com.library3.webster.edu/ehost/pdfviewer/pdfviewer?sid=e97e4379-43ce-49ac-9775-40eb641ade60%40sessionmgr115&vid=9&hid=112

Kahneman, D. (n.d.). Behavioural finance. Retrieved from http://prospect-theory.behaviouralfinance.net/

Khaneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), pp. 263-291, Retrieved from http://www.princeton.edu/~kahneman/docs/Publications/prospect_theory.pdf

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