Tag: Price

Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition

Monopolistic Competition; Know the Characteristics of Monopolistic Competition, before knowing their definition – Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another and hence are not perfect substitutes. “It has been more fully realized that every case of exchange is a case of what may be called partial monopoly and partial monopoly is looked at from the other said a case of imperfect competition. There is a blending of both competition element and monopoly element in each situation.” by According to Prof. J. K. Mehta.

Know and Understand the Characteristics of Monopolistic Competition.

Concept of Monopolistic Competition: Monopolistic competition is a market structure which combines elements of monopoly and competitive markets. Essentially a monopolistic competitive market is one with freedom of entry and exit, but firms can differentiate their products. Therefore, they have an inelastic demand curve and so they can set prices.

However, because there is freedom of entry, supernormal profits will encourage more firms to enter the market leading to normal profits in the long term. Monopolistic Competition refers to the market situation in which there is a keen competition, but neither perfect nor pure, among a group of a large number of small producers or suppliers having some degree of monopoly because of the differentiation of their products.

Thus, we can say that monopolistic competition (or imperfect competition) is a mixture of competition and a certain degree of monopoly, on the basis of a correct appraisal of the market situation. Chamberlin has asserted that monopoly and competition are not mutually exclusive rather both are frequently blended together. In short, we can say that a market with a blending of Monopoly (What do you think of Monopoly?) and competition is called monopolistic competition or imperfect competition.

Characteristics of Monopolistic Competition:

Important characteristics of monopolistic competition are as follows:

Minimum Number of Buyers and Sellers:

In this market, neither buyers nor sellers are too many as under perfect competition nor there is only one seller as under monopoly. Mostly, it is a situation in between. Every producer for his produced commodity has some special buyers. Every consumer and seller can influence demand and supply in the market.

Maximum Number of Buyers and Sellers:

There are a large number of firms but not as large as under perfect competition. That means each firm can control its price-output policy to some extent. It is assumed that any price-output policy of a firm will not get a reaction from other firms that means each firm follows the independent price policy. If a firm reduces its price, the gains in sales will be slightly spread over many of its rivals so that the extent to which each of the rival firms suffers will be very small. Thus these rival firms will have no reason to react.

Ignorance of the Buyers:

There are some people who think that high priced goods will be better and of higher quality. So, they avoid buying low priced goods.

The difference in the Quality and Shape of the Goods:

Although the commodities produced by different producers can serve as perfect substitutes to those produced by others, yet they are different in color, form, packing, design, name, etc. So there is product differentiation in the market.

Differentiated Products:

Sellers sell differentiated products, but they are close— but not perfect—substitutes. Buyers may not mind if they do not get Lux soap rather than Rexona. Different varieties of soap that are available in the Indian market are slightly differentiated products and, hence, close substitutes. It is the degree of differentiation that creates both monopoly and competitive elements. Every product is unique to the buyers. So every seller enjoys some degree of monopoly of his own product over other sellers. But since these goods are close substitutes, sellers face competition.

Because of the brand loyalty of buyers, sellers exercise some monopoly power. And sales of closely related goods create a competitive environment. Thus monopolists compete among themselves. It is product differentiation that enables Monopolistically competitive firms to possess market power with competition amongst the firms. In this market, monopoly power is, therefore, small.

Product Differentiation:

Another feature of the monopolistic competition is product differentiation. Product differentiation refers to a situation when the buyers of the product differentiate the product with others. Basically, the products of different firms are not altogether different; they are slightly different from others. Although each firm producing differentiated product has the monopoly of its own product, yet he has to face the competition. This product differentiation may be real or imaginary. Real differences are like design, the material used, skill, etc. whereas imaginary differences are through advertising, trademark and so on.

Lack of Knowledge on the Part of Consumers:

Neither consumers nor sellers have full knowledge of market conditions, so there is an international difference in the price of goods from those of others.

High Transportation Cost:

In this high transportation cost play an important role in order to create discrimination among commodities. Similar goods because of different transport costs are bought and sold at different prices.

Advertisement:

Here, advertisement plays an important role because buyers are influenced to prefer by advertisement, which plays upon their mind and makes them the product of one firm to those of another. Through advertisement, they are brought to his notice through radio, television and other audio-visual aids in a more pleasing and more forceful manner. Thus, rival firms compete against each other in quantity, in facilities as well as in price.

Differences in the Establishment of Industry:

In the imperfectly competitive market, there is neither freedom of entry or exit as is under perfect competition nor there is perfect control as in monopoly but there are some restrictions on the entry of industry only.

Elastic Demand Curve:

Since the product of each seller is slightly different from his rivals he enjoys some degree of monopoly power and, hence, can raise the price of his product without losing most customers. But as other rival firms produce closely related goods, every firm faces competition and its influence over the price of the product is rather limited.

Thus, each firm has a downward sloping demand curve implying that it behaves as a price-maker. Since a seller faces a large number of competitors to whom buyers may turn, the demand curve is more elastic.

Non-Price Competition:

Besides price competition, Chamberlin suggested cases of non-price competition that arise due to product variation and selling activities. Seller always tries to establish the fact that his product is superior to others by improving the quality of his product. And in doing so, he incurs selling costs or makes advertisement to attract more customers in his fold.

It is the product differentiation that causes selling costs to emerge, in addition to production costs. In Chamberlin’s model, demand for any commodity is not only affected by the price of a commodity but also by non-price competition (i.e., product variation and selling activities). Selling costs or advertising outlays are peculiar to this market.

Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition. #Pixabay.

Now, Understand basically how to Determine the Price and output in their Competition?

You’ll understand the Characteristics of Monopolistic Competition upstairs, now study Determine the Price and output in their Competition. Under monopolistic competition, organizations need to make optimum adjustments in the prices and output sold to attain equilibrium. Apart from this, under monopolistic competition, organizations also need to pay attention to the design of the product and the way the product is promoted in the market.

Moreover, an organization under monopolistic competition is not only required to study its individual equilibrium but group equilibrium of all organizations existing in the market. Let us first understand the individual equilibrium of an organization under monopolistic competition. As we know every seller, irrespective of the market structure, is willing to maximize his/her profits. In monopolistic competition, profits are maximized at a point where marginal revenue is equal to marginal cost.

The price determined at this point is known as equilibrium price and the output produced at this point is called equilibrium output. If the marginal revenue of a seller is greater than marginal cost, he/she may plan to expand his/her output. On the other hand, if marginal revenue is lesser than marginal cost, it would be profitable for the seller to reduce his/her output to the level where marginal revenue is equal to marginal cost.

Equilibrium in Long-term Run:

In the preceding sections, we have discussed that in the short run, organizations can earn supernormal profits. However, in the long run, there is a gradual decrease in the profits of organizations. This is because, in the long run, several new organizations enter the market due to freedom of entry and exit under monopolistic competition. When these new organizations start production the supply would increase and the prices would fall. This would automatically increase the level of competition in the market.

Consequently, the AR curve shifts from right to left and supernormal profits are replaced with normal profits. In the long run, the AR curve is more elastic than that of in the short run. This is because of an increase in the number of substitute products in the long- run. The long-run equilibrium of Monopolistically competitive organizations is achieved when average revenue is equal to average cost. In such a case, organizations receive normal profits.

Equilibrium in Short-term Run:

The short-run equilibrium of a monopolistic competitive organization is the same as that of an organization under monopoly. In the short run, an organization under monopolistic competition attains its equilibrium where marginal revenue equals marginal cost and sets its price according to its demand curve. This implies that in the short run, profits are maximized when MR=MC.

April 19, 2019
What is Arbitrage Pricing Theory (APT)? Meaning and Definition
Meaning of Arbitrage Pricing Theory (APT) is one of the tools used by investors and portfolio managers who explain the return of severity based on their respective beta. This theory was developed by Stephen Ross. In finance, the APT is a general theory of property pricing that believes that the expected return of financial assets can model as a linear function of various factors or theoretical market index, wherein each of the factors The sensitivity of change is represented by a factor-specific beta coefficient. So, what is the question; What is Arbitrage Pricing Theory (APT)? Meaning and Definition.

Here are explains What is Arbitrage Pricing Theory (APT)? with Meaning and Definition.

APT is a multi-factor property pricing model based on the idea that calculating asset returns can be done using linear relationships between the expected return of assets and many macroeconomic variables that hold systematic risk. Also, This theory was created in 1976 by economist Stephen Ross. The arbitrage pricing principle provides a multi-factor pricing model for securities based on the relation between the expected return of financial assets and their risk to analysts and investors. This is a useful tool to analyze the portfolio from a price investment perspective, to temporarily identify the securities incorrectly.

APT is a more flexible and complicated option for the Capital Asset Pricing Model (CAPM). The theory provides investors and analysts with the opportunity to customize their research. As well, the model-derived rate of return will use to correctly assess the property; Also, the asset value should be equal to the expected end of the discount period at the rate mentioned by the model. If the price goes away, then arbitrage will bring it back to the line.

Women Get Shopping; What is Arbitrage Pricing Theory (APT)? Meaning and Definition. Image credit from ilearnlot.com.

What does mean the Arbitrage Pricing Theory (APT)?

Arbitrage Pricing Theory (APT) is an extension of CAPM. The pricing model given by APT is the same as CAPM. It is a model under equilibrium. The difference is that APT is based on a multi-factor model. Also, the Arbitrage pricing theory holds that arbitrage behavior is a decisive factor in the formation of modern efficient markets (that is, market equilibrium prices).

If the market does not reach equilibrium, there will be risk-free arbitrage opportunities in the market. And multiple factors uses to explain the return of risk assets, and according to the principle of no-arbitrage; there is an (approximate) linear relationship between the balanced return of risk assets and multiple factors. Also, The previous CAPM model predicts that there is a linear relationship between the returns of all securities; and, the return of a unique public factor (market portfolio).

Significance of Arbitrage Pricing Theory (APT):

Arbitrage pricing theory derives a market relationship similar to the capital asset pricing model. The arbitrage pricing theory base on the multi-factor model of the rate of the return formation process. Also, It believes that the rate of return of securities linearly relates to a set of factors; which represent some basic factors of the rate of return of securities.

When the rate of return form by a single factor (market combination), you will find that the arbitrage pricing theory forms a relationship with the capital asset pricing model. Therefore, the arbitrage pricing theory can consider as a generalized capital asset pricing model, providing investors with an alternative method to understand the equilibrium relationship between risk and return in the market. Also, Arbitrage pricing theory and modern asset portfolio theory, capital asset pricing model, option pricing model, etc. constitute the theoretical basis of modern finance.

Difference between APT and CAPM:

In 1976, American scholar Stephen Rose published the classic paper “Arbitrage Theory of Capital Asset Pricing” in the Journal of Economic Theory; and, proposed a new asset pricing model, which is the arbitrage pricing theory (APT theory). Also, Arbitrage pricing theory uses the concept of arbitrage to define equilibrium, does not require the existence of market portfolios, and requires fewer assumptions than the capital asset pricing model (CAPM model), and more reasonable.

Like the capital asset pricing model, the arbitrage pricing theory assumes:
- Investors have the same investment philosophy;
- The investor is unsatisfied and wants to maximize utility;
- Also, The market is complete.
Unlike the capital asset pricing model, arbitrage pricing theory does not have the following assumptions:
- Single investment period;
- There is no tax;
- Also, Investors can borrow freely at a risk-free rate;
- Investors choose investment portfolios based on the mean and variance of returns.
The relationship between the arbitrage pricing theory and capital asset pricing model:
- Both assume that there are no transaction costs or transaction taxes in the capital market; or both believe that if there are transaction costs or transaction taxes, they are the same for all investors.
- Both of them divide the existing risks into systemic and non-systemic risks, that is, market risk and the company’s own risk. Moreover, both models believe that through the diversified portfolio of investments and the rational optimization of the investment structure by investors; the company ’s risks can be largely or even eliminated. Therefore, when calculating the expected return of the investment portfolio; the mathematical expressions of both models believe that the capital market will not compensate investors; because, they have assumed this part of the risk, so they not include in the calculation.
- Capital asset pricing theory can regard as a special case of arbitrage pricing theory under stricter assumptions.
The role of the arbitrage pricing theory and capital asset pricing model:

The proposal of CAPM and APT has had a huge impact on financial theory research and practice all over the world. Its main performances are:
- Most institutional investors evaluate their investment performance according to the relationship between expected return and β coefficient (or unit risk-reward);
- The regulatory authorities of most countries take the relationship between the expected rate of return; and, the β coefficient together with the prediction of the market index rate of return as an important factor when determining the capital cost of the regulated object;
- The court often uses the relationship between the expected rate of return and β coefficient to determine the discount rate when measuring the amount of compensation for future loss of income
- Many companies also use the relationship between the expected rate of return and the β coefficient to determine the minimum required rate of return when making capital budget decisions. As well as it can see that the combination of the two can make more accurate predictions than pure APT; and, can make more extensive analysis than CAPM, to provide more adequate guidance for investment decisions.
November 16, 2018
Factors Affecting of Price Determination with Steps and Process
What is Price Determination? In Economics Price Determination is the interaction between the demand and supply in the free market that is used to determine the costs for a good or service. Basically Meaning is Interaction of the free market forces of demand and supply to establish the general level of price for a good or service in Market. Also learn, Factors Affecting of Price Determination with Steps and Process.

In the production of Marketing is also important of Factors Affecting of Price Determination with Steps and Process.

The Factors Affecting Price Determination of Product

Main factors affecting the price determination of product are:

Product Cost:

The most important factor affecting the price of a product is its cost. Product cost refers to the total of fixed costs, variable costs and semi-variable costs incurred during the production, distribution, and selling of the product. Fixed costs are those costs which remain fixed at all the levels of production or sales.

For example, rent of the building, salary, etc. Variable costs refer to the costs which are directly related to the levels of production or sales. For example, costs of raw material, labor costs etc. Semi-variable costs are those which change with the level of activity but not in direct proportion. For example, a fixed salary of Rs 12,000 + up to 6% graded commission on an increase in the volume of sales.

The price of a commodity is determined on the basis of the total cost. So sometimes, while entering a new market or launching a new product, the business firm has to keep its price below the cost level but in the long rim, it is necessary for a firm to cover more than its total cost if it wants to survive amidst cut-throat competition.

The Utility and Demand:

Usually, consumers demand more units of a product when its price is low and vice versa. However, when the demand for a product is elastic, little variation in the price may result in large changes in quantity demanded. In the case of inelastic demand, a change in the prices does not affect the demand significantly. Thus, a firm can charge higher profits in the case of inelastic demand. Moreover, the buyer is ready to pay up to that point where he perceives utility from the product to be at least equal to the price paid. Thus, both utility and demand for a product affect its price.

The extent of Competition in the Market:

The next important factor affecting the price of a product is the nature and degree of competition in the market. A firm can fix any price for its product if the degree of competition is low. However, when the level of competition is very high, the price of a product is determined on the basis of the price of competitors’ products, their features, and quality etc. For example, the MRF Tyre company cannot fix the prices of its Tyres without considering the prices of Bridgestone Tyre Company, the Goodyear Tyre company etc.

Government and Legal Regulations:

The firms which have the monopoly in the market, usually charge the high price for their products. In order to protect the interest of the public, the government intervenes and regulates the prices of the commodities for this purpose; it declares some products as essential products for example. Life-saving drugs etc.

Pricing Objectives:

Another important factor, affecting the price of a product or service is the pricing objectives.

Following are the pricing objectives of any business:
- Profit Maximisation: Usually, the objective of any business is to maximize the profit. During the short run, a firm can earn the maximum profit by charging the high price. However, during the long run, a firm reduces the price per unit to capture the bigger share of the market and hence earn high profits through increased sales.
- Obtaining Market Share Leadership: If the firm’s objective is to obtain a big market share, it keeps the price per unit low so that there is an increase in sales.
- Surviving in a Competitive Market: If a firm is not able to face the competition and is finding difficulties in surviving, it may resort to free offer, discount or may try to liquidate its stock even at BOP (Best Obtainable Price).
- Attaining Product Quality Leadership: Generally, the firm charges higher prices to cover high quality and high cost if it’s backed by the above objective.
Marketing Methods Used:

The various marketing methods such as distribution system, quality of salesmen, advertising, type of packaging, customer services, etc. also affect the price of a product. For example, a firm will charge high profit if it is using an expensive material for packing its product.

The Steps Involved in Price Determination Process.

The Price decision must take into account all factors affecting both demand price and supply price. The Process of Price Determination. The market price is the price determined by the free play of demand and supply. The market price of a product affects the price paid to the factors of production – rent for land, wages for labor, interest for capital and profit for the enterprise. In fact, price becomes a basic regulator of the entire economic system because it influences the allocation of these resources.

The pricing decisions must take into account all factors affecting both demand price and supply price. The price determination process involves the following steps:
- Market Segmentation: On the basis of market opportunity analysis and assessment of firms strengths and weaknesses marketers will find out specific marketing targets in the form of appropriate market segments. Marketers will have the firm decision on – (a) the type of products to be produced or sold, (b) the kind of service to be rendered, (c) the costs of operations to be estimated, and (d) the types of customers or market segments sought.
- Estimate of Demand: Marketers will estimate the total demand for the products. It will be based on sales forecast, channel opinions and degree of competition in the market.
- The Market Share: Marketers will choose a brand image and the desired market share on the basis of competitive reaction. Market planners must know exactly what his rivals are charging. Level of competitive pricing enables the firm to price above, below, or at par and such a decision is easier in many cases. The higher initial price may be preferred if you expect a smaller market share, whereas if you expect of much larger market share, you prefer the lower price.
- The Marketing Mix: The overall marketing strategy is based on an integrated approach to all the elements of the marketing mix. It covers – (1) product-market strategy, (2) promotion strategy, (3) pricing strategy, and (4) distribution strategy. All elements of the marketing mix are essential to the overall success of the firm. Price is the strategic element of the marketing mix as it influences the quality perception and enables product positioning.
- Estimate of Costs: Straight cost-plus pricing is not desirable always as it is not sensitive to demand. Marketing must take into account all relevant costs as well as price elasticity of demand, if necessary, through market tests.
- Pricing Policies: Price policies provide the general framework within which managerial decisions are made on pricing. Pricing policies are guidelines to carry out pricing strategy. Pricing policy may desire to meet competition or we may have pricing above or below the competition. We may have fixed or flexible pricing policies. Pricing policies must change and adapt themselves to the changing objectives and changing environment.
- Pricing Strategies: Pricing policies are general guidelines for recurrent and routine issues in marketing. The strategy is a plan of action (a movement or counter movement) to adjust with changing conditions of the marketplace. New and unanticipated developments may occur, e.g., price cut by rivals, government regulations economic recession, fluctuations in the purchasing power of consumers, changes in consumer demand, and so on. Situations like these demand special attention and relevant adjustments in our pricing policies and procedures.
- The Price Structure: Developing the price structure on the basis of pricing policies strategies is the final step in the price determination process.
Factors Affecting of Price Determination with Steps and Process. Image Credit from ilearnlot.com.
August 8, 2018
Do you Know Price Perception and Pricing Strategy?

Do you Understand Meaning of Pricing Strategy and Price Perception

A company will begins a good pricing with a complete understanding of the value and price of the products or services from the price setting to capture the customers’ perception on value and price. For example, if a customer decides to buy a product but he or she find that the price that set is higher the value which is from a products, this will make the customer making decision that does not buy this product. Definition of Price Perception.

A company can make the decision on pricing based on two types of value basing pricing which are good-value pricing and value-added pricing. A good-value pricing means a company will sets a fair price by offering the right combination of quality and good service. Besides that, value-added pricing means a company will sets the prices based on customers’ perceptions of product value rather than the manufacture’s cost.

The customers’ perception on value and price will set the ceiling of price; costs also will set the floor for the price that a company can set. A company needs to know the costs that spend on products before they can decide the pricing decision by using cost-based pricing. Cost-based pricing is a stage that a company set prices that including the producing expenses, distributing expenses. Selling expenses and the value of return on effort and risk. A company should consider the cost-based pricing as the important stage in pricing strategies. The costs that spend on products can be two forms which are fixed costs and variable costs.

Fixed costs are the costs that do not easily vary with production level while variable costs are the costs that vary directly with the production level. Examples of fixed costs are bills for rent, interest or executive salaries while the examples of variable costs are bills of electricity, packaging expenses and so on. The company must calculate the costs of products carefully. Role of Price Perception in Consumer Buying Process.

If the company costs are higher than other competitor’s costs during the producing and selling the products, this will make the company set the higher prices to earn some profits. The effects of charging the higher prices of products, the customers will buy the products from other competitors because the price that offers by the competitor is cheaper than the company. Therefore, a company should consider the customers’ perception on value and prices as important elements because customers can determine company performances.

Consumers’ perceptions of products rely heavily on the pricing strategy that is chosen by the marketing manager. Price will impact not only consumer perception but also profit and speed of product adoption.

Cheap or a Good Deal?

It is Valentine’s Day, and you are waiting to unwrap a gift from your significant other. The box is opened to reveal a beautiful gold necklace, that you can’t wait to wear. A week later, you stumble upon the receipt for the necklace and find out it only cost $99. The beautiful gold necklace that you once loved now seems cheap and ugly. Why? The price has altered your perception of the necklace.

Marketing managers must be careful of the pricing strategy they use to sell their products and services. Consumers’ perceptions of products, and services are drastically affected by different pricing strategies. For example, the staff of the local business called Heart Attack on a Plate Bakery is revamping their products’ prices. They are researching the best pricing strategy to implement for all of their baked goods. They want their prices to reflect a premium image but not be so costly that their consumers perceive their products as unaffordable.

Pricing Strategy: Everyday Low Price

One of the most popular pricing strategies in marketing is EDLP (everyday low price). The theory behind using this pricing strategy is that it provides value to the consumer by eliminating. The need to search for better deals elsewhere. It helps the retailer because it offers one price and avoids constant sales, discounts and price changes. Heart Attack on a Plate Bakery does not want to use an EDLP strategy as its products are premium. And area competitors can’t match its quality. Walmart is the leader in EDLP pricing. They stress that the overall price of consumer purchases will be less than the competition.

Most stores that adopt this type of strategy also use odd pricing in order to further increase. Their consumers’ perception of a good pricing deal. For example, if Heart Attack on a Plate was going to use EDLP pricing. Then its cupcakes would be priced at $1.99 each. The thought is that consumers will ignore the 99 cents and view the cupcakes as costing only $1. Sometimes, the use of odd pricing can backfire and cause the consumer to perceive the product as cheap. For example, if a bride wanted to order a wedding cake from the bakery. And was quote a price of $99.99, there could be a negative price connotation or a lower-quality image.

Pricing Strategy: High/Low Pricing

Another pricing strategy that firms can use is called high/low. In this instance, the retailer depends on promotions and sales to temporarily reduce prices. This type of pricing strategy allows consumers to perceive that they’re getting a deal during a sale. It also allows another segment of consumers who are not price-sensitive to pay full price. Which in turn brings in more profits for the company.

A high/low strategy also makes the consumer perceive excitement. Or that a deadline exists for getting the sale price during a limited-time period. A retailer does provide a reference point. Which is the price against which buyers compare the sales price of the product to the actual price.

For example, Heart Attack on a Plate Bakery creates signs with the original sales price of its cakes. And then slashes through the price with the sales price revealed: ‘Cookies on sale for $7.99 a pound!’ vs. $9.99. The bakery is going to try to use this type of pricing to create excitement for its baked goods. In the past, it has criticized for higher prices. The staff hopes this new pricing strategy will bring in new customers.

New Product Pricing Strategies

There are two additional types of pricing strategies that companies can use to introduce new products. The bakery is introducing a new line of cheesecakes. It can implement a market penetration or price skimming strategy for the cheesecake line. A market penetration strategy is setting an introductory price low to build sales, market share and profits quickly. For example, the bakery could offer its cheesecakes for a low price of $9.99 to gain customer purchases immediately. As time passes, the bakery could increase the price in small increments, if needed, to secure more profits.

The bakery could also use price skimming as the pricing strategy for its cheesecake line. This strategy appeals to customers who are willing to pay. A premium price for the chance to try the product first. The bakery could price the cheesecakes at $19.99, and describe the rich. Imported ingredients that are used to justify the higher price. In the end, the bakery has decided to pursue a market penetration strategy because it wants a large sales volume. The bakery will offer the cheesecakes at a low price of $9.99.

Pricing strategies ultimately affect consumers’ perceptions of products and services. Marketing managers must take into consideration the type of product, profit and consumer perception that will fuel sales. High/low, EDLP, penetration or skimming all offer marketing managers a choice in how they price their product and produce sales. Heart Attack on a Plate Bakery has decided to pursue a high/low pricing strategy. They want to offer five different bakery products a week on sale to bring in customers. And get them to try a new product. In the end, pricing is the most flexible. Way to alter the 4Ps of the marketing mix (product, price, promotion and place). Pricing can and will adjusted throughout. The life cycle of any product in order to react to the environmental changes and consumer demands.

November 17, 2017
Explain Dimensions of Price Perception

How to Explain Dimensions of Price Perception?

The price perception is directly related to the success of the company. Although in the end what customer pays is the reality but how it reaches at his decision is what is dependent on the perception. Definition of Price Perception, Because the company is successful in creating the desired perception of the product only then the customer will consider buying it. Hence, it is the price perception that precedes the buying decision of the customer.

This is why price perception is among one of the most important factors while crafting the advertising strategies of the company. For a successful advertising strategy, it is very important to read the minds of the customers.

The concept of price perception helps to understand those psychological factors which are in the minds of the customers and form which they make their purchasing decisions. Understanding the factors by which the seller can influence the perceptions is very important for the companies in order to attract and retain customers.

This can help them to determine the pricing strategy that will ensure their competitiveness in the market and thus, superior financial returns. Role of Price Perception in Consumer Buying Process.

The key dimensions of price perceptions are listed below:

Price-Quality Relationship

The impressive research done in pricing is about the consumer’s quality perception and their quality of products. Consumers perceive price as the prime indicator to presume the quality of the product. Many consumers believe that high priced products attribute better quality and lasts longer. Thus, price signals the quality. The point is very vastly mention in the marketing literature. If prices are mark lower than the level of consumers paying capacity they conclude it to be of low quality. Improvements in quality of products can trigger the mind for the first time and can convert the consumer into a loyal consumer as well. The consumer psychology is also affect and at the end will also affect the market share. The price-quality relationships have not found in the western societies.

Price-Consciousness

It is defined as consumers’ degree of focusing for paying less in buying. The high price conscious consumers tend to do a lot of research work before buying that particular product. The economic theories have also indicated that price has the significant roles in buyers’ preferences. The buyers generally try to maximize their benefits while purchasing and price plays a influential role in their buying process.

Value-Consciousness

This concept follows the price quality evaluation of the consumer. It comprises of what a consumer get on behalf of what they have paid for the products or services. If consumer thinks that quality is less then what they have paid, they tend to get dissatisfies and henceforth stops purchasing that product. The vice-versa of the situation leads to turning them into regular or may be loyal consumer. Consumers who are capable of making this sort of evaluations are call “Value Conscious Consumers” They generally don’t mind paying higher prices if the quality of product justifies it.

Price Mavenism

This could be define as the consumers being experts about the lowest price stores and starts sharing the information by informing them. These consumers evaluate different aspects of product to justify it with the price bracket into which they are offer and compare it with other stores to get the best benefits out of it. The consumer’s socio-economic character, previous experiences and learning processes play an important role. The price information collect is shape by rational and emotional motives of consumers. These types of consumers are experts in the product information’s and thus may be call as ‘advisors’ by other consumers.

Sale Proneness

Sales influence consumers’ price perceptions significantly. The consumers generally evaluate their last purchases with the current ones. Sales, price discounts aim to increase the total sales and also create positive purchases evaluation. The best price evaluations can made during the sales or discount prices. Another research has also indicate that young consumers tend to be lesser influence by the sales as compare to those of the older generations.

Prestige Sensitivity

It is a psychological dimension. Consumers can perceive high price as positive and even as a negative. The high pricing of the product can be perceive as a way of losing the money. Consumers buying these sorts of products generally consider it as a part of their status. They tend to purchase on their emotional moves. A prestigious product is consider to be a symbol of wealth and living above standards. Prestige sensitivity is the factor behind the same and can happen because of difference of socio-economic characteristics of consumers. This concept can be use in developing high quality and distinct product image.

Domestic-Foreign Product Sensitivity

The product sensitivity amongst domestic-foreign product also plays an important role in price perceptions. The place of product manufacturing also influences the the buying behavior and hence leading to think upon the pricing being perceive by consumers as well. Thus this dimension is also necessary to be include into the consumers’ experience of judging the price. Brand recognition, effects the quality and price perceptions. Origin of country is also not untouchable by it and influences the consumer. The products from develop country are generally regrade as the high quality and costly. The domestic and foreign products are also view emotionally and symbolically. This dimension is unique to evaluate and hence included in describing price perceptions.

November 17, 2017
Role of Price Perception in Consumer Buying Process

Role of Price Perception in Consumer Buying Process with Consumer Behavior

The price perception has been one of the most important research issues on the consumer behavior for last many years. The concept of reference point is very important in this regard and efforts have been made in order to define it. Consumers establish their reference points according to their personal understanding, annotations, the existing knowledge of prices and their subjective interpretation. Why You Should Be Balancing Your Books on Every Single Month? Definition of Price Perception.

The reference points are dependent of two factors: the kind of information i.e. external or internal and behavioral process of formation of references. The internal reference point comes from the consumer estimation of price in his mind. The two factors contextual and temporal are involved in this formation. The first factor is related to the perception of different prices within the same category of product while buying.

The temporal factor depends on the past buying experiences of the customer. The importance of both these factors varies according to the customer’s characteristics. For instance, consumer who purchased the one product more frequently will remember its price more clearly and as a result temporal factor will be more important. External information comes from the marketing and internal form other sources.

It means any message of the price consumer receives through external channel and which he uses to make comparisons. The seller can control the external information by the marketing efforts i.e. through advertising and some internal factors may be beyond their control. But the information must be credible so that the consumer can use it in making his assessment of the product.

The external reference point can be the price suggested by the seller on the product’s packaging, or the brand which is more frequently purchased or the price of the dominating brand. The main aim of the external reference point is to increase the internal reference price so that customer perceive existing price as attractive and buy the product

According to a research study, price perception is clearly more relevant factor in purchasing decision than reality. Research was conducted in five countries to measure the extent to which perception of price is important for retailers. Three factors were identified which are responsible for price perception.

The first one is the clarity with which price is communicated, second is price communication on entry points and the third is overall environment. The research indicated the fact that the retailers who are perceived as more expensive than others are unable to compete effectively in the market.

A study conducted on entry level price communication difference of Zara and H&M is a good example on price perception. According to the study, Zara was found to be 31% more costly than H&M, but the customers’ perception of this difference quite low as compared to the actual figure.

This reveals the Zara’s ability to manage its perception through effective and clear communication of prices. They have been successful in portraying their prices as nearly equal to competitor but in actual their prices are relatively high. The magic of perception has worked really well in this case which reveals the importance of perception the consumers.

Another classic example is the price perception of Argos which shows how they have been able to build their price perception that is better than reality. They have been able to communicate their price position in a way that results in a cheaper price perception than reality. Their advertising strategy was price centered along with prominent supply of low priced goods in order to create a cheap price perception of their goods.

In this way, the have been able to portray themselves as low-priced as compared to competitors while the reality may be different. However, the company has to work continuously in order to maintain that perception. How To Make Your Small Business Stand Out? Many Ways You Can Try IT!

Role of Perception in Consumer Behavior

The perceptions consumers have of a business and its products or service have a dramatic effect on buying behavior. That’s why businesses spend so much money marketing themselves, honing their customer service and doing whatever else they can to favorably influence the perceptions of target consumers. With careful planning and execution, a business can influence those perceptions and foster profitable consumer behaviors.

Influencing Perception

Consumers continually synthesize all the information they have about a company to form a decision about whether that company offers value. In a sense, consumer perception is an approximation of reality, notes the book “Consumer Behaviour,” by Atul Kr. Sharma. Businesses attempt to influence this perception of reality, sometimes through trickery and manipulation but often just by presenting themselves in the best possible light. For example, advertisements often trumpet the quality and convenience of a product or service, hoping to foster a consumer perception of high value, which can pay off with increased sales.

Reaching Consumers

A key factor in influencing consumer perception is exposure. The more information consumers have about a product, the more comfortable they are buying it. As a result, businesses do all they can to publicize their offerings. Positive Relationships with Individual and Organization Outside, However, this causes a problem: When every business bombards consumers with marketing messages, consumers tend to tune out. To influence consumer perception, a business not only must expose its product to consumers, it also must make its product stand out from the crowd.

Risk Perception

Consumer risk perception is another factor businesses must take into account when trying to encourage buying behaviors. The more risky a proposition is, the more difficult it is to get consumers to act. If consumers aren’t familiar with a brand of product, they can’t assess the risk involved; it could be poorly built, for instance, or too costly compared to substitutes. Businesses can overcome this hesitancy by offering as much product information as possible in the form of advertisements or by encouraging product reviews. Allowing potential customers to handle the product in stores or test it at home also decreases risk perception, as does offering a flexible return policy.

Customer Retention

Successful businesses don’t relax once a customer makes a purchase. Rather, they continue to foster perceptions that result in profitable behaviors. Once consumers have tried a product, the task becomes maintaining a good reputation and establishing brand loyalty. Offering superior customer service is an effective tactic because it maintains the perception that the business cares about its customers’ best interests. In return, customers become loyal to the business, which secures a consistent revenue stream for the company and makes it more difficult for competitors to poach customers.

November 17, 2017
Definition of Price Perception

Learn, Explain, Meaning, What is Definition of Price Perception?

Price perception is one of the leading variables when it comes to consumers buying process. Economists, market researchers have already undergone researches and predict that in buying decision price are the driving forces. Several studies explain and determine and explain the same fact thereby concluding the fact with decision making. The determinants of price perception can be both rational and psychological factors. The other factors may become psychological factors and prestige. The key variable to explore and explain consumers. Price perception is the degree of understanding the psychological process of consumers’ price perception. Also, Do you Know Price Perception and Pricing Strategy? Definition of Price Perception!

Meaning of Perceived value!

“Perceived value is the worth that a product or service has in the mind of the consumer. For the most part, consumers are unaware of the true cost of production for the products they buy; instead, they simply have an internal feeling for how much certain products are worth to them. To obtain a higher price for products, producers may pursue marketing strategies to create a higher perceived value for their products.”

When a firm has seasonal demand, the discrepancies are observed between the supply and demand. Generally, the firm has the excess supply at the time of low demand and scarcity when there is high demand. If the firm commercializes goods and faces seasonal demands, it can minimize the effect through good management of production and storage. The problem becomes more difficult in several sectors such as tourist services. The prices are fixed by these companies and firms drives the price-perception in different aspects. Which can differ according to the individual characteristics? The pricing fixed by the firm by undifferentiated strategies, under price discounts may lead the consumers/individuals to perceive as low-quality products offer. So the price discount strategy becomes ineffective in this case.

Price perception is a marketing strategy using businesses to increase total sales. Although the practice does not necessarily misrepresent the products sale. It is often considering a covert, or slightly undercover, approach. The success of this strategy is dependent on consumer psychology because the message must convince customers. That expensive items are not that far away in price from less costly products. Ultimately, it is up to customers to decide whether or not products warrant their investment.

“A business can sometimes benefit from downplaying the value of high-end products instead of treating expensive items as though they are special.” This type of psychology could work because of price perception. Which is the way that consumers interpret the cost for items despite the price tag that might attach to the products? Positioning pricey products in the same area as less expensive inventory could alter a consumer’s price perception. So, that there appears to be less of a discrepancy between high-end and low-end items.

When a costly product is marketing to fulfill a similar purpose as less expensive items, it may be more acceptable to consumers. Without even knowing it, customers might equate costly items with their less expensive counterparts simply because of the way the items are marketing and placed in a retail outlet. How Do You Know Your Company Wants Help From The Outside? Subsequently, consumers might more incline to pay more for an item simply as a result of price perception. As long as customers understand a price to be acceptable, even if it is a result of strategic marketing efforts by a retailer or manufacturer, they may convince to make a higher-priced purchase that would otherwise ignore.

Price-perception could work for an organization if a customer feels deceived. For instance, bait and switch is another marketing tactic that businesses can use when performed ethically. It is the practice of advertising an inexpensive item but later attempting to sell inquiring customers a higher-priced item. Retailers can bolster sales by using the customer’s inquiry as an opportunity to switch the cheaper item for a more expensive product. Savvy consumers might not fall for this strategy and price perception could be a less convincing tactic when customers have already decided to pay a certain amount for an item.

Businesses who are not seeking to capitalize on price perception would focus instead on providing consumers with transparency. This is a marketing approach that attempts to provide as much information and context about a purchase as possible, What is Most Valuable Price? including the potential risks associated with an item. Subsequently, consumers are less likely to make selections they may later regret.

November 16, 2017