Managing Business Through Human Psychology - “A Handbook for Entrepreneur” by Ashish Bhagoria - HTML preview

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Price and Psychology

Price is the value of a product in terms of money, at which the product would be sold. Based upon the business model the entrepreneur has two options either to decide the price or to sell in the fixed price. Three factors for deciding the price are the cost incurred from development to delivery of the product, economic policies of the region and the profit margin. The price of a product also varies based upon the demand and supply in the market. The product according to the market could be over priced, under priced or reasonably priced. While paying the price of the product the customer should feel that they are getting value for their money. There are three prices under which a product can be sold, premium, discount or at par.

Premium Pricing

A product that is priced at premium, have features that give value for money. There are also value additions in the product. Pricing product at premium is a difficult task but if the customers feel that they are getting value for money then they will buy the product. Selling a product at a premium price also creates high value for the brand. Usually luxury items are sold at premium prices but essential commodities cannot be sold at premium. Products which have premium pricing have low volume of sales but it does not decrease the profit. The competition in this segment is usually less and availability of the products is less. Premium price market is quality conscious and does not compromise on quality. Another reason for a product to be priced at premium could be higher demand than the supply.

Discounted Pricing

Discount on the price of a product is given either to lure customers to try a product or to increase the volume of sales. Discount is given during launch of a new product where the company wants customers to try a product. Another time is festive discounts which are given to boost the sales and increase the volume. Till the time discounts are given for above two reasons it is good but if discount becomes a regular feature to sell a product then it’s an alarming situation. Some companies always give discount on their products such companies are not looked upon nicely. It is considered that they are not able to handle their competition. A product which is sold only on discounts raises questions of quality in the minds of customers. Also when a company gives heavy discounts or comes up schemes like buy one get four free, customer feels cheated and thinks that the product is overpriced. After giving discount there should be a hike in the sales that must compensate the amount of discount and increase the profit through volume. Any discount that does not show increase in sales should be immediately stopped and some other strategy should be adopted.

At Par Pricing

When a product is sold at par, it builds trust among the customers about the quality of the product. It brings uniformity in sales and growth of the organization. When a company sells its product at par and does not give discounts it shows the company’s confidence in the quality of its product. If the competition gives discount to get the customer, they would be incurring loss in revenue. Also, the competition would lose their image because of the regular discounts. If the competition also decides to keep the price at par then the competition would healthy and on quality not on price which would be beneficial for everyone.