Consumer Behavior
Product and price programs
Consumer response to
product and price
programs
Consumer Behavior
Product and price programs
Outline
• A model of quality, price, and value
• Perceived quality
– The quality perception process
– Brand and COO as extrinsic quality cues
• Perceived price
– The price perception process
– The psychology of pricing
• Perceived value
Consumer Behavior
Product and price programs
Quality, price, and value
• goods and services quality as both a macro-level
economic policy concern and as a micro-level
strategic issue;
• prevailing promotional practices and the adoption of
pricing strategies such as EDLP have given new
importance to price as a marketing mix variable;
• value marketing as one of the buzzwords of business;
Consumer Behavior
Product and price programs
A model of perceived quality, price, and value
non-quality
benefits
intrinsic
quality cues
extrinsic
quality cues
actual price
reference price
perceived
benefits
perceived
quality
perceived
value
perceived
price
perceived
sacrifices
nonmonetary
sacrifices
willingness
to buy
Consumer Behavior
Product and price programs
Perceived quality
• perceived quality as a consumer’s evaluative
judgment of the overall excellence (in terms of
fitness for consumption) of a product relative to
other choice alternatives;
• perceived quality differs from management-based
notions of product quality and presumably objective
assessments of product quality;
• judgments of product quality are based on cues that
consumers believe signal overall quality;
Consumer Behavior
Product and price programs
Cues used in quality evaluations
• search, experience, and credence properties:
– search properties
– experience properties
– credence properties
• intrinsic and extrinsic cues:
– intrinsic cues
– extrinsic cues
Consumer Behavior
Product and price programs
Which cues influence quality perceptions?
• cue utilization is a function of a cue’s:
– predictive value (PV):
– confidence value (CV):
• extrinsic cues are likely to be used more under peripheral
processing conditions (lack of opportunity, ability, or
motivation to use intrinsic cues);
• at the point of purchase consumers may have to use extrinsic
cues (esp. when the product has few intrinsic search properties),
but at the point of consumption intrinsic cues should be more
important (unless there are many credence properties);
Consumer Behavior
Product and price programs
Buckler non-alcoholic beer
Non-alcoholic beer has traditionally had a watered-down
negative image among beer drinkers. When Heineken
introduced Buckler non-alcoholic beer, it used the following
marketing strategy: new Buckler brand name but
identification as a Heineken product; typical beer bottle and
label; priced at a 20% premium above regular beer; PanEuropean positioning as a premium brand with a good quality
beer taste. Discuss Buckler’s marketing strategy from the
perspective of the model of perceived quality and value.
Consumer Behavior
Product and price programs
National brands vs. private labels
• problem that private labels frequently suffer from a lowquality image compared to national brands;
• Richardson, Dick, and Jain conducted an experiment in which
1564 consumers sampled one of five products (cheese, chips,
dip, cookies, jelly) marketed by either an established national
manufacturer or one of two stores under a private label
(intrinsic cue); consumers did not necessarily taste the real
product but were made to believe that the sample came from
the package shown to them; along with the brand name they
were also provided with price and size information (extrinsic
cue);
Consumer Behavior
Product and price programs
National brands vs. private labels (cont’d)
NB
PL1
PL2
intrinsic
cue
cheese
chips
dip
cookies
jelly
$2.29
1.79
1.89
$1.39
.99
1.09
$.89
.59
.79
$2.49
1.79
1.79
$1.48
1.25
1.38
NB
PL1
PL2
NB
extrinsic cue
PL1
PL2
row mean
5.95
5.73
5.58
5.20
5.11
5.24
5.29
5.01
5.37
5.48
5.28
5.40
col. mean
5.75
5.18
5.22
although store brands enjoyed an average price advantage of 21%, mean
value for money ratings were only 7% higher and perceived quality was
more strongly correlated with willingness to buy than perceived value
for money;
Consumer Behavior
Product and price programs
Which cues prompt country-of-origin
(COO) perceptions?
• Product category: the product category may be
associated with a certain country of origin;
• Company: the producer may be linked to a certain
country of origin;
• Brand name: the brand name may suggest the
country of origin of the product;
• Country of origin information: labels such as
“made in” or “imported from” may signal the country
of origin;
Consumer Behavior
Product and price programs
How do COO cues influence consumers?
• affect transfer process: knowledge of a product’s
COO evokes an emotional reaction which influences
a consumer’s overall evaluation of the product;
• cognitive mediation process: knowledge of a
product’s COO affects a consumer’s perceptions of the
product’s attributes which in turn influence overall
evaluations;
• direct behavioral process: knowledge of a product’s
COO has a direct impact on behavioral intentions or
behavior without mediating effects of product attributes
or attitudes;
Consumer Behavior
Product and price programs
Consumer ethnocentrism
(Shimp and Sharma)
• consumer ethnocentrism as the extent to which a consumer
believes that purchasing foreign-made products is inappropriate
or even immoral;
• consumer ethnocentrism can be measured with the CETSCALE
(e.g., we should buy from foreign countries only those products
that we cannot obtain within our own country, it is not right to
purchase foreign products because it puts Americans out of
work);
• consumers who are more ethnocentric have more unfavorable
attitudes and lower purchase intentions toward foreign-made
products, more frequently own products manufactured in their
home country, and attach greater importance to country of
manufacture;
Consumer Behavior
Product and price programs
Components of perceived sacrifice
• price:
–
–
–
–
–
the monetary component of sacrifice
actual prices vs. perceived prices
the price-quality relationship
Price awareness/consciousness (Dickson and Sawyer)
The psychology of pricing
• nonmonetary sacrifices:
– includes costs in terms of time, physical energy, mental
effort, etc.
– may at times be more important than price
Consumer Behavior
Product and price programs
Positive and negative role of price
negative role
of price
price
consciousness
value
consciousness
coupon
proneness
positive role
of price
sale
proneness
price
mavenism
price-quality
schema
prestige
sensitivity
Consumer Behavior
Product and price programs
• When I use coupons I feel that I’m getting a good deal.
• I am very concerned about low prices, but I am equally
concerned about product quality.
• The old saying ‘You get what you pay for’ is generally
true.
• I’m considered somewhat of an expert when it comes to
knowing the prices of products.
• I am more likely to buy brands that are on sale.
• Buying the most expensive brand of a product makes me
feel classy.
• I will grocery shop at more than one store to take
advantage of low prices.
Consumer Behavior
Product and price programs
In-class exercise:
Quality, price and value of E-book readers
The December 2011 issue of Consumer Reports reported an
evaluation of 21 models of E-book readers. The file
EReaders.pdf reproduces parts of the article (you will need
Acrobat Reader to open this file) and the file EReaders.xls
contains a summary of the relevant data for your
convenience. Graph the overall scores against price and then
answer the following questions: Is price a good signal of
quality in this product category? Which brands offer good or
bad value? Would you rate any of the brands as a best buy?
How can brands providing poor quality and/or value survive?
Consumer Behavior
Product and price programs
Empirical evidence concerning the
price-quality relationship
• a meta-analysis of studies conducted in the US by Tellis and
Wernerfelt, based on observations from 1271 product markets
between 1939 and 1980, showed that the mean (median) rank
correlation between price and objective quality was .27 (.31);
• a meta-analysis of 36 studies investigating the effects of price,
brand name, and store name on buyers’ perceptions of product
quality by Rao and Monroe showed that price had a moderately
large and statistically significant effect on perceived quality
ratings, the effect of brand name was slightly larger, and the
effect of store name was small and nonsignificant;
Consumer Behavior
Product and price programs
The price knowledge of supermarket shoppers
(Dickson and Sawyer)
• 802 shoppers in four stores of a large supermarket chain
were observed making a purchase in one of four product
categories:
–
–
–
–
toothpaste (low turnover, infrequent price promotions);
coffee (low turnover, frequent price promotions);
cold cereal (high turnover, infrequent price promotions);
margarine (high turnover, frequent price promotions);
• immediately after the chosen item was placed in the cart,
shoppers were interviewed about price-related aspects of
their purchase (e.g., recall of the the price of the chosen
item, awareness of whether the price of the selected item
was regular or special);
Consumer Behavior
Product and price programs
Price knowledge of supermarket shoppers (cont’d)
• the average time between arriving at and departing from the
product category display was less than 12 seconds; in 85% of
the purchases only the chosen brand was handled;
• only 58% of shoppers claimed to have checked the price of the
chosen item and only 22% reported checking the price of an
alternative brand;
• only 47% of shoppers were able to state the correct exact price
(56% gave a price within 5% of the actual price), 32% provided a price estimate that was inaccurate (the average error
was 15%, with the recalled price generally lower than the
actual price), and 22% did not even offer a price estimate;
• slightly less than half of the shoppers knew whether or not the
chosen item was on special;
Consumer Behavior
Product and price programs
The psychology of pricing
• Framing effects and prospect theory
• Reference prices
– influence of past prices
– influence of competitor prices
• Framing price differences
– odd price endings
– percentage differences
Consumer Behavior
Product and price programs
Framing effects and prospect theory
value
losses
gains
Consumer Behavior
Product and price programs
Implications of prospect theory
for pricing
• Discounts from a higher price vs. premiums over a
lower price
• Endowment effect
• Out-of-pocket losses vs. foregone opportunities
• Unbundle gains
• Bundle losses
Consumer Behavior
Product and price programs
Discounts vs. premiums
The owner of a gas station intends to charge
different prices for credit card and cash sales.
There are two options:
• Advertise gasoline for $1.20 per gallon and
charge a $.10 surcharge if the buyer pays with a
credit card.
• Advertise gasoline for $1.30 per gallon and give a
$.10 discount if the buyer pays with cash.
What would you recommend?
Consumer Behavior
Product and price programs
Discounts vs. premiums
value
losses
-1.30
-1.20
-.10
gains
.10
v(-1.30)+v(.10)
v(-1.20)
v(-1.30)
v(-1.20)+v(-.10)
Consumer Behavior
Product and price programs
The endowment effect
Assume that one group of students gets Penn
State coffee mugs which sell for $6 at the
bookstore. Another group of students gets
tokens to be used as cash. Students from the
two groups are then paired and they are
invited to “bargain” for the mugs. At what
price do you think mug owners will be willing
to sell their mug, and how much will cash
holders be willing to pay for a mug?
Consumer Behavior
Product and price programs
The endowment effect
value
losses
Lose mug
Gain mug
gains
Consumer Behavior
Product and price programs
Out-of-pocket losses vs.
foregone opportunities
A bank offers two options (assume an interest rate on
savings accounts of 5.8 percent, compounded monthly):
– You can keep a minimum balance of $1,500 (with
no interest) and get a free checking account.
– You can pay a $5.00 service charge and you don’t
have to keep a minimum balance.
What would you do?
Consumer Behavior
Product and price programs
In-class exercise:
Bundling of gains and losses
• You want to reward your loyal buyers by sending them a
gift card. Should you give away two gift cards worth $10
each, or should you give away one card worth $20?
• You want to sell an extended warranty plan to computer
purchasers. Assume the computer costs $1,500 and the
extended warranty costs $200 for three years. Should you
try to sell the warranty at the time of the computer
purchase, or should you contact buyers a short while after
the computer purchase and offer them the warranty?
Consumer Behavior
Product and price programs
Framing price differences:
Odd price endings
Which seems the better bargain?
 $.75 compared to a regular price of $.89.
 $.79 compared to a regular price of $.93
Consumer Behavior
Product and price programs
Framing price differences:
The relative value of money
• A Sony Walkman you want costs $29. As you are
about to make the purchase, a friend tells you that
the same model is available at another store (10
minutes away) for $19. Would you go to the other
store to buy the Walkman?
• A Sony Camcorder you want costs $495. As you
are about to make the purchase, a friend tells you
that the same model is available at another store
(10 minutes away) for $485. Would you go to the
other store to buy the Camcorder?
Consumer Behavior
Product and price programs
The meaning of value
• value as low price: focus on finding the lowest
price, getting a deal, buying on promotion, etc.;
• value as subjective utility: focus on aspects of the
product that satisfy a consumer’s needs and wants;
• value as a tradeoff between a product’s quality
and price: focus on one “get” component
(quality) and one “give” component (price);
• value as a tradeoff between what is received and
what is given: focus on all salient “get” and
“give” components;
Consumer Behavior
Product and price programs
Perceived value and purchase behavior
• the meaning of value is highly variable and
depends on the consumer, the product, and
the context (e.g., POP vs. consumption);
• value is a function of perceived quality and
price, but other (extrinsic) attributes might
also serve as “value signals” for consumers;
• value as a determinant of willingness to
purchase;