The influence of behavioural pricing strategies in consumer decision-making
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School of Business |
Bachelor's thesis
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Authors
Date
2019
Department
Major/Subject
Mcode
Degree programme
Markkinointi
Language
en
Pages
32
Series
Abstract
Pricing is one of the key marketing challenges for every company to confront. Several mechanisms from the fields of psychology, behavioural economics and marketing have been proposed to explain why and how certain behavioural pricing methods can be beneficial for a marketer. This research examines the relationship between psychological decision-making theories and consumers’ responses to price changes and provides theoretical evidence and managerial guidelines for the use of behavioural pricing methods. Many companies have been discovered to rely heavily on cost-based pricing, whereas value-based or behavioural pricing strategies have not received as much attention in practical use. The strategies that this thesis covers – as for instance just-below pricing, use of price points and different signaling principles – are built on the assumption that consumer demand rather includes systematic distortions than is a perfectly linear equation, which long-standing microeconomics suggests. Specifically, the research results in this thesis indicate that consumers’ perceptions of prices can be influenced with external factors, and that prices can be increased such that the difference is only noticeable, implying no effect in purchase decision. Concepts such as price perception, reference price and latitude of price acceptance suggest many tactics to deploy. For instance, there are several strategies to make a price appear to be lower than it in fact is. Furthermore, depending on the product and target market, it has been argued that a price increase should not exceed a certain percentage at a time, as slight increases are more likely to match the customer’s existing reference price. The central focus of this thesis is to examine theories about decision-making and behavioural economics in order to find the most applicable behavioural pricing strategies for today’s marketing practitioners to utilize. This study uses psychological theories to identify behavioural pricing factors contributing to increases in sales. Among the theories and factors examined, reference price seems to be the most significant determinant of consumer purchase. Implications of this thesis for theory, research, and practice are discussed. The managerial recommendations are justified with research observations from divergent decision-making environments.Description
Thesis advisor
Lavrusheva, OlgaSalminen, Emma
Keywords
behavioural pricing, reference price, consumer behaviour, price perception, price acceptance