1.

1INRODUCTIN OF THE STUDY

In the face of rapid economic and technological changes, today‟s consumer is more curious,
more educated and conversant with what he/she exactly wants. These changes also affect the
needs of firms. Price is the amount a customer pays for a product or the sum of the values that
consumers exchange for the benefits of having or using a product or service (Bearden 2004).
Price means different things to different people; it is interest to lenders, service charged by the
banker, premium to the insurer, fare to the transporter, honorarium to the guest lecturer etc
(Kotler 2008). The importance of price as a purchase stimulus has a key role in price
management since not only does it determine the way prices are perceived and valued, but it also
influences consumer purchase decisions. The greater the importance of price in purchases
decisions, the greater the intensity of information and the greater the amount of comparisons
between competing brands. Considering the nature of the consumer products (frequently
purchased and consumed products, implying medium-low level of consumer-supplier
interaction), the basic is, the customers who usually purchase are more frequently in contact with
prices. Pricing strategy is paramount to every organization involved in the production of
consumer goods and services because it gives a cue about the company and its products, a
company does not set a single price but rather a pricing structure that covers different items in its
line.

price decisions are one of the most important decisions of management because it affects
profitability and the companies return along with their market competitiveness. Thus, the task of
developing and defining prices is complex and challenging, because the managers involved in
this process must understand how their customers perceive the prices, how to develop the
perceived value, what are the intrinsic and relevant costs to comply with this necessity as well as
consider the pricing objectives of the company and their competitive position in the market.

companies which do not manage their prices lose control over them, impairing their profitability
and cost effectiveness mainly due to the customers will on paying a determinate price, which not
only does it depend on the perceived value, but also depends on the prices set by the leading
competitors. Consequently, mistaken or inexistent pricing policies could lead buyers to increase
the volume of information while allowing them to augment their bargaining power thus forcing
price reductions and discounts. The difference between conventional price setting and strategic
pricing consists on setting prices by reacting to the market conditions or managing them
proactively, being their sole purpose to exert the most profitable pricing by generating more
value for customers without the obligation of increasing the business sales volume. Logically,
there is not a unique way for defining prices. Before setting a price, the company must decide
what is going to be the strategy for the product in addition to what will be the proposed
objectives, since the clearer these decisions, the easier it will be to establish prices.

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Customer value-based pricing uses the value that a product or service delivers to a segment of
customers as the main factor for setting prices. Customer value-based pricing is increasingly
recognized in the literature as superior to all other pricing strategies. For example, “the profit
potential for having a value-oriented pricing strategy that works is far greater than with any other
pricing approach”.

Perceived value-based pricing is a pricing practice in which the managers take decisions based
on the perception of benefits from the item being offered to the customer and how these benefits
are perceived and weighted by the customers in relationship to the price they pay. Therefore, as a
cultural orientation of businesses, value-based pricing is derived from a set of routine
philosophies and organizational strategies that a specific company could use in order to focus on
customer satisfaction and, as a result, increases their profitability.

Cost-based pricing is the most simple and popular method for setting prices. Historically, it is the
most common pricing strategy because it carries a sense of financial prudence (Simonet 2008).
This involves adding a profit margin on costs, such as adding a standard percentage contribution
margin to the products and services. First, the sales level (revenue) is determined and then the
unit and total costs are calculated, followed by checking the company‟s profit objectives and
finally establishing the prices. Thus, for the professionals involved in this process, it is necessary
to show to customers enough value on products and commercialized services in order to justify
the prices charged by the company.

1.2 STATEMENT OF THE PROBLEM

The challenge facing most organizations today is stiff competition in the market which is not
only local but also global. There are many retailers in the market who all aim at attracting the
same customer base and therefore for an organization to have a competitive advantage, it has to
come up with good strategies that will ensure that it has a competitive advantage. One of the
strategies that many organizations have to focus on is the pricing strategies. Many organizations
do not understand how price influences consumer purchase decision . In his quest to explain the
nature of relationship between price and consumer purchase decision , Smithet al., (2000) argues
that creating a price perceived by the consumer to be too high may lead the consumer to a
competitor. On the other hand, pricing too low may bring the wrong type of consumer (Smith et
al., 2000). An organization should consider other factors when coming up with a pricing strategy
because the pricing strategy an organization chooses must blend with the goals ,culture, and
market of the organization (Shoemaker, 2003). Pricing must also provide a perception of value to
a consumer in order to influence their purchase decision (Hellier, 2002; Nagle &Cressman, 2002;
Shoemaker, 2003).

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This study will be beneficial to know on how pricing strategies influence consumer purchase
decision. It will also helps to know how competitors adopt similar pricing strategies and
therefore they will be able to position themselves competitively. Secondly, the study will provide
knowledge to the retail managers on the influences of Everyday Low pricing Strategy and High-
low pricing strategy on consumer purchase decision and therefore they will be able to adopt the
right pricing strategy for their target market. Customers and the public in general are also likely
to benefit from the research by understanding the various pricing strategies that are available.
This will come in handy when they are making decision in regard to what products they want to
purchase, where to purchase and the amount they will purchase.

1.3 NEED FOR THE STUDY

 The project will provide a value insight on the topic Effectiveness of Price Determination
on consumers.
 The project contributes to knowledge in series of issues associated with Pricing Policy of
the organization.
 The project helps the organization to know about the factors affecting Consumer buying
behavior.
 The project will help to give knowledge about consumers‟ needs and expectations
 The project helps the organization to respond to the requirements of consumers in a cost
efficient and timely manner.
 The project intended to answer how customers perceive the Cost-based pricing concept of
the organization.

1.4 SCOPE OF THE STUDY

The study focused on how consumers respond to different prices of different quality of products.
25 customers were studied and they provided data on consumer reaction to the pricing strategy.
The study was limited to 25 sample study.

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1.5 OBJECTIVE OF THE STUDY

 To find out how consumers respond to different prices of different quality of products.
 To understand the extent upto which the consumers perceive the Cost-based pricing
strategies of the company.
 To find out the existing Pricing Techniques used by the organization.
 To measure the level of influence Pricing Policy has on Consumer behaviour.

 To measure the level of Consumer satisfaction on the existing Pricing Policies

1.6 LIMITATIONS OF THE STUDY

Any research study will be restricted in scope by particular inherent limitations that are
participated by the choice of the research design, sampling procedure and respondent selection.
This study has the following limitations.

 Sample size of the consumers is limited.

 This study described a small subset of consumers of an organization and cannot be
generalized.
 Consumers rarely apply in the same way for every product.
 Many consumers do not give the exact picture of their opinion.
 The Time period for conducting the survey was limited.

1.7 RESEARCH METHODOLOGY

The research design refers to the overall strategy to integrate the different components of the
study in a coherent and logical way, thereby, ensuring the effective address to the research
problem. It constitutes the blueprint for the collection, measurement and analysis of data.
Research design provides the glue that holds the research project together. A design is used to
structure the research, to show how all of the major parts of the research project the samples or
groups, measures, treatments or programs and methods of assignment work together to try to

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address the central research questions. In the major types of designs, a major distinction is
between the experimental designs that use random assignment to groups or programs and the
quasi-experimental designs that don't use random assignment. Understanding the relationships is
important in making design choices and thinking about the strengths and weaknesses of different
designs. Then, the art form of research gives some ideas about the design task.

A research design is a systematic plan to study a scientific problem. The design of a study
defines the study type and sub-type (e.g., descriptive-longitudinal case study), research question,
hypotheses, independent and dependent variables, experimental design, and if applicable, data
collection methods and a statistical analysis plan. Research design is the framework that has been
created to seek answers to research questions.

1.8 Types of Research

There are many ways to classify research designs, but sometimes the distinction is artificial and
other times different designs are combined as;
• Descriptive (e.g., case-study, naturalistic observation, survey)
• Correlational (e.g., case-control study, observational study)
• Semi-experimental (e.g., field experiment, quasi-experiment)
• Experimental (Experiment with random assignment)
• Review (Literature review, Systematic review)
• Meta-analytic (Meta-analysis i.e., using statistical methods for contrasting and combining
results from different studies to identify patterns among study results, sources of disagreement
among those results or other interesting relationships that may come to light in the context of
multiple studies)

1.9 RESEARCH DATA SOURCE

Researchers need to consider the sources on which to base and confirm their research and
findings. They have a choice between primary data and secondary sources and the use of both

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which is termed triangulation or dual methodology. Primary data is the data collected by the
researcher themselves, i.e.

1. Observation
2. Interview
3. Action research
4. Case studies
5. Life histories
6. Questionnaires
7. Ethnographic research
8. Longitudinal studies

Secondary sources are data that already exists, i.e.

1. Previous research
2. Official statistics
3. Mass media products
4. Diaries
5. Letters
6. Government reports
7. Web information
8. Historical data and information
The primary data are collected following methods:

1. Direct Personal Investigation:

According to this methods the investigator has to collect his information himself
personally form the source concerned. It means the investigator should be at the spot
where the enquiry is being conducted, it is also expected that the investigator should be

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 very polite and courteous. Further he should acquaint himself with the surrounding
situation and must know their local customs and tradition.

Advantages:

1. The information collected by these methods is reliable and accurate

2. It is a good method for intensive investigation
3. This method gives a satisfactory result provided the scope of inquiry is narrow.

Disadvantages:

1. This methods is not suitable for extensive inquiry

2. Its required a lot of expenses and time
3. The bias on the part of investigator can damage the whole inquiry
4. Sometimes the informant may be reluctant to answered the question

2. Investigation through questionnaire:

According to this method a standard list of questions relating to the particular investigation is
prepared. This list of questions is called a questionnaire. The data are collected “By sending the
questionnaire to the informants and requesting them to return the questionnaire after answering
the questions.” This method is an important one and is usually used by research workers, non-
official bodies and private individuals.

Choice of Questionnaire

The success of the investigation largely depends upon the proper choice the questions to be put
to the informants. While preparing a questionnaire the following points should be kept in mind:

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a) Short and clear: - The questions should be short and clear so as to be easily intelligible to
every man. There should be no ambiguity in the questions. If some technical terms are used in
the questionnaire, their definitions should be given.
b) Few in number and easy: The questions should be few in number. A large number of the
questions would harm the informants because they take much time to answer, with the result they
would not pay much attention to ever question and would try to save their akin by giving vague
answers. Moreover the questions should be easy to answer.
c) Definiteness: The questions should be such the answers of which are definite and exact.
Preferably the questions should be such the replies of which are in the form of “Yes” or “No”
Such questions should not be framed the replies of which are vague in nature because such
replies are of no use to a statistician.
d) Corroborating in nature: The questions should be such that their replies check the value
replies and truth can be easily verified from them.
e) Non-confidential information: The questions framed should not be which call the
confidential information of the informants. This will injure the feelings with the result that they
would not give proper answer.

Collection of Secondary Data

The secondary data are those which have already been collected by someone other than the
investigator himself, and as such the problems associated with the original collection of data do
not arise here. The secondary data can be collected directly either form published or unpublished
sources. The following are the sources of published secondary data.
 Company records
 Company websites
The secondary data are also available from the unpublished data. Type of material can be
obtained from the chamber of commerce, trade associations, labor bureaus and research workers.

Scrutiny of Secondary Data

In the words of Bowley, “It is never safe to take published statistics at their face value without
knowing their meaning and limitations and it is always necessary to criticize arguments that can

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be based on them.” Thus the data collected by some other person should not be fully depended as
they might have pitfalls. Thus it becomes necessary to find out the inconsistencies probable
errors and omissions in the data. This necessities the scrutiny of secondary data because it is just
possible that the data might be inaccurate, inadequate or even unsuitable for the purposes of
investigation. Hence the secondary data should possess the following qualities:
1. Reliability
2. Suitability
3. Adequacy

Primary Data

are information collected by a researcher specifically for a research assignment. In other words,
primary data are information that a company must gather because no one has compiled and
published the information in a forum accessible to the public. Companies generally take the time
and allocate the resources required to gather primary data only when a question, issue or
problem presents itself that is sufficiently important or unique that it warrants the expenditure
necessary to gather the primary data. Primary data are original in nature and directly related to
the issue or problem and current data. Primary data are the data which the researcher collects
through various methods like interviews, surveys, questionnaires etc.
Secondary Data

are the data collected by a party not related to the research study but collected these data for
some other purpose and at different time in the past. If the researcher uses these data then these
become secondary data for the current users. These may be available in written, typed or in
electronic forms. A variety of secondary information sources is available to the researcher
gathering data on an industry, potential product applications and the market place. Secondary
data is also used to gain initial insight into the research problem. Secondary data is classified in
terms of its source – either internal or external. Internal or in-house data is secondary information
acquired within the organization where research is being carried out. External secondary data is
obtained from outside sources.

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1.11 SCALE OF THE STUDY

Likertscale: A Likertscale but more commonly pronounced is a psychometric scale commonly

involved in research that employs questionnaires. It is the most widely used approach to scaling
responses in survey research, such that the term (or more accurately the Likert-type scale) is
often used interchangeably with rating scale, even though the two are not synonymous. The scale
is named after its inventor, psychologist Rensis Likert. Likert distinguished between a scale
proper, which emerges from collective responses to a set of items (usually eight or more) and the
format in which responses are scored along a range. Technically speaking, a Likert scale refers
only to the latter. The difference between these two concepts has to do with the distinction Likert
made between the underlying phenomenon being investigated and the means of capturing
variation that point to the underlying phenomenon. When responding to a Likert questionnaire
item, respondents specify their level of agreement or disagreement on a symmetric agree-
disagree scale for a series of statements. Thus, the range captures the intensity of their feelings
for a given item. A scale can be created as the simple sum of questionnaire responses over the
full range of the scale. In so doing, Likert scaling assumes distances between each item are
equal.

1.12 POPULATION

A research population is a complete set of elements that possess some characteristics

defined by the sampling criteria established by the researcher. It is generally a large collection of
individuals or objects that is the main focus of a scientific query. It is for the benefit of the
population that researches are done. However, due to the large sizes of populations, researchers
often cannot test every individual in the population because it is too expensive and time-
consuming. The entire group of people or objects to which the researcher wishes to generalise
the study findings are target population (universe). The portion of the population to which the
researcher has reasonable access is the accessible population.

1.13 SAMPLING

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Sampling is a process or technique of choosing a sub-group from a population to participate in
the study. It is the process of selecting a number of individuals for a study in such a way that the
individuals selected represent the large group from which they were selected.

Sampling Methods:
Sampling methods are broadly categorized into two groups:
i) Probability sampling methods
ii) Non- probability sampling methods.
In probability sampling methods the universe from which the sample is drawn should be known
to the researcher. Under this sampling design every item of the universe has an equal chance of
inclusion in the sample. It is the best technique and unbiased method. It is the best process of
selecting representative sample. But the major disadvantage is that for this technique we need the
complete sampling frame i.e., the list of the complete items or population which is not always
available. Probability sampling is used when a researcher is seeking a strong correspondence
between their research population and the sample drawn from it. The stronger the
correspondence, the greater the degree of confidence (probability) that trends variations and
patterns found in the sample are representative of trends, variations, and patterns that are present
in the research population. The stronger the correspondence, the more valid are the
generalizations about the research population drawn from the sample.
Probability sampling begins with identifying the sampling frame. This is a collection of data that
lists all of the constituent units of the population (e.g. an electoral register, a telephone directory
or a list of students registered at a particular university). Identifying an adequate sampling frame
is essential for probability sampling as it is from this frame that the subjects of the particular
research study will be selected. There is no exact science for knowing that a sampling frame
exactly captures all of the population and given the limitations of any social data, no exact match
can ever be guaranteed. The researcher has to come to their own judgment about how reliable the
sampling frame is as a summary of the population they are seeking to study.

1.14 SAMPLE SIZE

For this project, our guide Miss Rekha K.G suggests 60 employees as an optimum sample
size.

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1.15 DATA ANALYSIS TOOLS
Data analysis is a process of inspecting, cleansing, transforming, and modelling data with the
goal of discovering useful information, informing conclusions, and supporting decision-making.
Percentage analysis is the method to represent raw streams of data as a percentage for better
understanding of collected data. It is applied to create a contingency table from the frequency
distribution and represent the collected data for better understanding.
A bar graph is a chart that uses bars to show comparisons between categories of data. The bars
can be either horizontal or vertical. It can clearly shows trends in data, meaning that they show
how one variable is affected as the other rises or falls. It helps to make comparison between
different variables very easy to see.
The process of placing classified data into tabular form is known as tabulation. A table is a
symmetric arrangement of statistical data in rows and columns. Rows are horizontal
arrangements whereas columns are vertical arrangements. It may be simple, double or complex
depending upon the type of classification.

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2.1INDUSTRY PROFILE

Indian furniture Industry is considered as a non organised sector with handicraft production
accounts for about 85% percent of the furniture production in India. They also contribute for
the formation of GDP in a small amount. In 2000 India is ranked 48th position in furniture
export and 49th in imports. There are exceptional designs, rich, compact and luxurious trends
in supreme quality in furniture segments. In India tradition is also involved in formulating the
furniture designs which we need. More than 3 lakhs of workers are employed in the furniture
industry and the total production in 2001 and 2002 was USD 3580 million.
The furniture industry comprises of mainly

 Living room furniture

 Bedroom furniture
 Kitchen furniture
 Drawing room furniture
Entry way furniture etc.

2.2ABOUT THECOMPANY

PK Wood Traders started in 1984. Their first shop was at Chokkad , Malappuram by an
entrepreneur couple. , Currently they are the No 1 wholesale dealers of curtain materials and
furnishing materials in Kerala.
Recently they ventured into interior designing field and successful there too. They have a
factory at Industrial Estate,Chokkad ,Malappuram.They mainly deal with furniture works
like kitchen cupboards, wardrobes, tables etc. Apart from this they do contact works for other
companies at sq ft rate .The factory make use of advanced machines and technology on a day
to day basis. Their major clients includes Skyline Developers, Asset Homes, Mathrubhumi,
Heera Developers etc.

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Various Departments Of PK Wood Traders

 Production Department
 Marketing Department
 HRM Department
 Finance Department
 Engineering Department

Production Department

The main raw material needed by the production department is plywood. After finishing each
level of process, raw material needed for next level of process is generated. The production
process starts with the cutting of the plywood accordingly and it ends with the assembling
stage where it is required (offices, houses etc). Normally the production process is completed
at a particular place but here the production process are done mainly as two part , the first at
the factory itself and second part is done according to the choice of the client.

Marketing Department

The marketing department is headed by the marketing manager. The usual processes like
meeting the clients , social media advertising, website management, the publicity given by
the satisfied clients are done there.

HRM Department

Human Resource is one of the most complex and challenging field of endeavour. The scope
of human resource department is very vast. It includes all the major activity in the working
life of a worker from the time of his or her entry to an organization until he or she leaves,
comes under this department. The main activities included:

 Recruitments and selection

 Orientation and placement
 Performance appraisal
 Training and development
 Job evaluation
 Employees and executive remuneration
 Motivation and communication
 Welfare

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  Safety and health
 Job analysis and design

Finance Department

Finance is the most important functions to be carried to achieve the progress of organization.
The function with finance department re diverse with distinct procedures related to personal,
purchase, stores, marketing, costing, budgeting and payment for raw materials and stores
being made in time. The mill is present making all statutory payments in time. The aim of
analysis of the financial department is to analysis whether or not the accounts are prepared
accurately. The computerized accounting transactions are accurate and in a speedy manner. It
helps to save time as well as cost. The objective of analysing the financial statements and
accounts are that the bodies of accounts provide true and fair view of the affairs of the
financial position of the company. If the financial department of a company is accurate and
efficient, it provides a smooth work flow to the company. The finance department is broadly
classified into internal audit and finance and accounts. Under the internal audit section, there
is a technical audit which is headed by the auditor. Under the finance and accounts section
there are five sections which are sales in charge, cost accountant, cashier, chief accountant
and purchase officer.

Engineering Department

Typically engineering department‟s responsibilities include preventive maintenance, repair,

replacement, improvement and modification to furniture, fixtures and equipments. Preventive
maintenance involves routine checks and inspection of the key components of all
equipments. Maintenance of recreational facilities may be part of the engineering
department‟s responsibilities.

MISSION
 PK wood Traders is to excel in the quality of producers and services it provides to
its industrial and customers.
 To excel in the quality of product and services and maximize profits.
 Provides employment opportunities to the people to reduce the gigantic count to
unemployment in our country.
 Increase production capacity and sale.

VISION

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  Its ultimate vision is to produce yarn at lower cost of production and make it available to
the people at lower cost.
 To wide it‟s market networks.
 To achieve 100% on time delivering per customer requirement.

GOALS
 To achieve a minimum compounded growth rate on saleturnover.
 To provide facilities necessary to meet the training need of managerial staff .
 To promote research anddevelopment.
 To enhanceproductivity.
 To ensure optimum use of humanresources.

3.1 THEORETICAL BACKGROUND

PRICING STRATEGY

One of the most difficult, yet important, issues that a firm must decide is how much to
charge for its product/ service. Furthermore, considering the pressure of the developing
technologies that shifts the consumers away from traditional distribution channels towards the
Internet-based distribution channels, determining the most appropriate pricing strategy becomes
a more challenging task. Logically, there is not a unique way for defining prices. Before setting a
price, the company must decide what is going to be the strategy for the product in addition to
what will be the proposed objectives, since the clearer these decisions, the easier it will be to
establish prices.

Pricing strategy refers to method companies use to price their products or services.
Almost all companies, large or small, base the price of their products and services on production,
labor and advertising expenses and then add on a certain percentage so they can make a profit.

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There are several different pricing strategies, such as penetration pricing, price skimming,
discount pricing, product life cycle pricing and even competitive pricing.

According to Monroe (2003), price decisions are one of the most important decisions of
management because it affects profitability and the companies‟ return along with their market
competitiveness. Thus, the task of developing and defining prices is complex and challenging,
because the managers involved in this process must understand how their customers perceive the
prices, how to develop the perceived value, what are the intrinsic and relevant costs to comply
with this necessity as well as consider the pricing objectives of the company and their
competitive position in the market.

Penetration Pricing

A small company that uses penetration pricing typically sets a low price for its product or
service in hopes of building market share, which is the percentage of sales a company has in the
market versus total sales. The primary objective of penetration pricing is to garner lots of
customers with low prices and then use various marketing strategies to retain them. For example,
a small Internet software distributor may set a low price for its products and subsequently email
customers with additional software product offers every month. A small company will work hard
to serve these customers to build brand loyalty among them.

Price Skimming

Another type of pricing strategy is price skimming, in which a company sets its prices
high to quickly recover expenditures for product production and advertising. The key objective
of a price skimming strategy is to achieve a profit quickly. Companies often use price skimming
when they lack financial resources to produce products in volume. Instead, the company will use
the quick spurts of cash to finance additional product production and advertising.

Product Life Cycle Pricing

All products have a life span, called product life cycle. A product gradually progresses
through different stages in the cycle: introduction, growth, maturity and decline stages. During
the growth stage, when sales are booming, a small company usually will keep prices higher. For

17
example, if the company's product is unique or of higher quality than competitive products,
customers will likely pay the higher price. A company that prices its products high in the growth
stage also may have a new technology that is in high demand.

Competitive-Based Pricing

There are times when a small company may have to lower its price to meet the prices of
competitors. A competitive-based pricing strategy may be employed when there is little
difference between products in an industry. For example, when people purchase paper plates or
foam cups or a picnic, they often shop for the lowest price when there is minimal product
differentiation. Consequently, a small paper company may need to price its products lower or
lose potential sales.

Temporary Discount Pricing

Small companies also may use temporary discounts to increase sales. Temporary discount
pricing strategies include coupons, cents-off sales, seasonal price reductions and even volume
purchases. For example, a small clothing manufacturer may offer seasonal price reductions after
the holidays to reduce product inventory. A volume discount may include a buy-two-get-one-free
promotion.

OBJECTIVES OF PRICING

The objectives of pricing should consider:

 the financial goals of the company (i.e. profitability)

 the fit with marketplace realities (will customers buy at that price?)
 the extent to which the price supports a product's market positioning and be consistent
with the other variables in the marketing mix
 the consistency of prices across categories and products (consistency indicates reliability
and supports customer confidence and customer satisfaction)

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 Price is influenced by the type of distribution channel used, the type of promotions used, and
the quality of the product. Where manufacturing is expensive, distribution is exclusive, and the
product is supported by extensive advertising and promotional campaigns, then prices are likely
to be higher. Price can act as a substitute for product quality, effective promotions, or an
energetic selling effort by distributors in certain markets.

From the marketer's point of view, an efficient price is a price that is very close to the
maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of
the consumer economic surplus to the producer. A good pricing strategy would be the one which
could balance between the price floor (the price below which the organization ends up in losses)
and the price ceiling (the price by which the organization experiences a no-demand situation).

Setting prices for products or services doesn't simply come down to a simple calculation.
Prices can be practical tools for making ends meet or they can be marketing tactics for
communicating something about the quality of offerings. To figure out the best way to set prices,
it's worthwhile to examine pricing objectives to develop a clear idea of goal of pricing strategy.

Profit-Oriented Pricing

In a sense, all pricing is profit-oriented because, even if prices are set with other
objectives in mind, it still needs to earn a profit to stay in business. However, profit-oriented
pricing makes profit the top priority when figuring out the ideal price to set. A profit-oriented
pricing strategy looks for the sweet spot that allows charging as much as possible for offerings
without charging so much to alienate potential customers and lose money through missed sales.
This type of pricing objective can either aim to maximize profit per unit relative to cost of goods
sold and other operating costs, or it can aim to maximize overall profit by setting a price that is
competitive enough to increase the overall number of units to sell.

Competitor-Based Pricing

Competitor-based pricing uses the price set to appeal to customers and define niche
relative to the competitors. It doesn't necessarily rely on setting a lower price than other available
options, although this strategy will certainly make products appeal to customers who shop on the
basis of price alone. Competitor-based pricing can also used effectively by setting a price that's

19
in the same ballpark as other products in the same niche, or by choosing a higher price to send
the message that the product is superior and worth extra money.

Market Penetration

A market penetration pricing strategy is geared towards getting a foothold in a

competitive market, usually by offering a low initial price. If it started out by attracting
customers on the basis of price, it can get more people to try the products, and then start building
a reputation and clientele that will allow to eventually charge more. A market penetration
strategy can be risky because customers don't like growing accustomed to a low price and then
being asked to pay more. However, this approach can be successful if the products do have
qualities other than price that will make customers want to buy them, such as unique features or
unusually high quality.

Skimming

A skimming pricing strategy uses the opposite logic from one based on market
penetration. Although market penetration uses low prices to attract attention, skimming uses a
reputation that has already been built to charge high prices from early adopters. If customers are
passionate about products and willing to pay extra to be the first to have them, it can be charged
initial high prices when first introduces a new innovation or a new line, and then lower the prices
once it have already attracted the people who are willing to pay more.

IMPORTANCE OF PRICE DECISIONS

Pricing means the process of selecting the pricing objectives, determining the possible
range of prices, developing price strategies, setting the final price, and implementing and
controlling pricing decision. The determination of price is very important and crucial decision.

Pricing a product or service is one of the vital decisions management makes. Pricing has
been viewed as the major pressure point for managerial decision making hence its importance.

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Munroe examined the environmental pressures that allowed for an increased pressure on the
importance of pricing. The importance of pricing can be examined with faster technological
progress, proliferation of new products, increased demand for service, increased global
competition, the changing legal environment, and economic uncertainty.

As smart consumers, people take into account various factors before purchasing in order
to enjoy more and better goods or services with the same budget. In particular, consumers shop
for items that have the best prices in the market. If the price of a particular item rises, most
consumers will substitute the item with other cheaper and acceptable choices. People tend to
purchase goods or services with lower price increases so as to maximise the level of enjoyment
that can be attained within the same or a smaller budget. This phenomenon is a typical example
of the "price effect" which results in the reduction of demand due to price rises. The price effect
may be further analysed with the "income effect" and the "substitution effect". Although the
terms seem to be abstract, they are related to common spending behaviour and should not be too
difficult to understand.

However, the magnitude of the price effect in different goods and services depends on the
elasticity of demand, such as whether the goods are necessities like food staples. Individual
consumption preferences may also change along with the fluctuations in the price levels of goods
and services. While these changes would occur gradually over time, the cumulative impact on
expenditure patterns will become pronounced over a prolonged period. Specifically, consumer
demand drops for items with faster price increases and the items in turn constitute smaller shares
in the consumption basket, and vice versa.

PRICING STRATEGY THEORY

“Price is the only element in the marketing mix that produces revenues; all others represent
costs” according to Business Link. Choosing right price for product helps to send the correct
price-quality signal. Price-signaling occurs when the cost of something reflects the product‟s
perceived quality. Whether or not product is the best quality for the best price, your pricing
strategy aims to convince the buyer that is the case.

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 Pricing is cost-based, demand-based or competition-based. In cost-based pricing, prices
are set b purely based on production costs and the desired profit without considering the demand.
In demand-based pricing, consumer research helps to ascertain the acceptable price range, then
profit and cost requirements can be determined within that range. In competition-based pricing, y
prices are set based on competitors price. Depending on customer loyalty, or brand differences,
product might be selling at, above or below market price.

Psychological Pricing

Psychological pricing means setting the price so that customers have a positive emotional
reaction. It‟s all about perspective and customers often see odd price values as more attractive or
lower than they really are.

Product Oriented Pricing

Certain product relationships allow changing pricing strategy. Adding optional extras,
such as airline charges for extra baggage or selling products in a bundle, hides the true cost from
your consumer. When product has a partner, such as a razor and blades, price of the initial
purchase (razor) low and recoup the costs with the secondary purchase (unique blades). Finally,
consider promotional pricing such as buy-one-get-one-free to draw customers to product with the
hope that they will continue buying after the promotion ends.

Companies must use effective pricing strategies to sell their products in a competitive
marketplace so they can make a profit. Business managers need to consider a range of factors,
such as prices offered by competitors, costs for production and distribution, product image
positioning in the minds of consumers, and determining the demographics of potential buyers.

Premium Pricing

Businesses use a premium pricing strategy when they're introducing a new product that
has distinct competitive advantages over similar products. A premium-priced product is priced
higher than its competitors. Premium pricing is most effective in the beginning of a product's life

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cycle. Small businesses that sell goods with unique properties are better able to use premium
pricing. To make premium pricing palatable to consumers, companies try to create an image in
which consumers perceive that the products have value and are worth the higher prices. Besides
creating the perception of a higher quality product, the company needs to synchronize its
marketing efforts, its product packaging and even the decor of the store must support the image
that the product is worth its premium price.

Penetration Pricing

Marketers use penetration pricing to gain market share by offering their goods and
services at prices lower than those of the competitors. Marketers want to get their products out in
the market so that the products raise consumer awareness and induce buyers to try the products.
Although this lower price strategy may result in losses for the company at first but marketers
expect that after achieving a stronger market penetration that they will raise prices to a more
profitable level.

Economy Pricing

An economy pricing strategy sets prices at the bare minimum to make a small profit.
Companies minimize their marketing and promotional costs. The key to a profitable economy
pricing program is to sell a high volume of products and services at low prices. Large companies,
such as Walmart, are able to take advantage of this low-price strategy, but small businesses will
have difficulty selling enough products at low prices to stay in business.

Price Skimming

Price Skimming is a strategy of setting prices high by introducing new products when the market
has few competitors. This method enables businesses to maximize profits before competitors
enter the market, when prices then drop.

Bundle Pricing

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 Businesses use bundle pricing to sell multiple products together for a lower price than if
they were purchased separately. This is an effective strategy to move unsold items that are
simply taking up space. Bundling also creates the perception in the mind of the consumer that
he's getting a very attractive value for his money. Bundle pricing works well for companies that
have a line of complimentary products. For example, a restaurant could offer a free dessert with
an entree on a certain day of the week.

Companies need to study and develop pricing strategies that are appropriate for their
goods and services. Certain pricing methods work for introducing new products whereas other
strategies are implemented for mature products that have more competitors in the market.

UNDERSTANDING PRICING STRATEGY

Pricing strategy revolves around three main points: cost and profit objectives, consumer
demand and competition. To set a price, first add all your costs together and subtract any other
sources of revenue, this is the minimum profit you need to break even, so this number defines
minimum price. Consider customers and the demand for product to determine maximum selling
price. For a price range, use profit objectives and information about competition to choose the
best price.

THEORETICAL APPROACHES TO PRICING

One of the major theories explaining the impact of pricing strategies on consumer
behaviour, which ultimately determines the sales volume, is the customer utility theory. The core
postulate of this theory is that customers would use their limited financial resources to maximise
their satisfaction (Fjermestad and Robertson, 2015). Thus, the best-selling goods would be those
delivering the greatest customer value at the lowest cost. Gilbride (2016) found that the expected
utility reliably predicted consumer choices on an online electronics vendor‟s website. However,
the underlying assumption of this theory about consumer decision-making as being fully rational

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is challenged by the abundant evidence of customers‟ frequently making apparently irrational
decisions (Morgan et al., 2015).

Another influential conceptual framework is the Theory of Planned Behaviour (TPB).

According to this concept, consumer decision-making is guided by the subjective norm, attitude
and perceived behavioural control. In application to pricing, the customer would be willing to
purchase a particular good when its price is not much different from what they consider as
„normal‟ or „reasonable‟ for this good. Therefore, the TPB explains the phenomenon of
prestigious pricing and the intention of customers to be discouraged by the prices they
considered too low for a specific product. The limitation of the TPB is that it cannot be used for
designing pricing strategies in real consumer markets where it is often not feasible to determine
each customer‟s subjective norm.

The two common approaches to pricing are cost-based and value-based, with the latter
being considered as more sophisticated and more compatible with revenue maximization.
However, the cost-based approach has important advantages of being more feasible to implement
and enabling the company to secure its profit margins. Some scholars also single out competitive
pricing as an independent pricing approach, which is the determination of prices on the basis of
those set by competitors in the market (Boone and Kurtz, 2010). Competitive pricing is relatively
easy to implement, but it involves the danger of selling at a loss when the company has higher
costs than competitors do.

APPRAISAL THEORY, CONSUMER CHOICE AND THE VALENCE OF

PRICE EFFECT

Appraisal theory spells out the antecedents and consequences of distinct affective
responses. According to appraisal theory, individuals appraise surrounding events in terms
consequences for their physical or psychological well-being. This implies that emotions arise
from the cognitive appraisal of an event rather than from the event itself. Basic emotional
responses (negative affect and positive affect) are driven by two sorts of primary appraisals,
namely (i) Whether individuals care about an event at all (Do I Care) and if so, (ii) Whether this
event is good or bad for them.

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 First, the Do I Care appraisal refers to the notion of goal relevance. In making the Do I
Care appraisal, decision-makers evaluate a target event (e.g., a price increase) against their
subject specific concerns (e.g., the desire to consume more rather than less). Here, concerns refer
to an individual‟s disposition to prefer or dislike particular events. Specifically, concerns are
mental representations of desired end states. They serve as a standard of comparison against
which outcomes are judged. If no concern is at stake, individuals will perceive a given event as
irrelevant to their well-being. Thus, no affective responses are triggered. By contrast, events that
are perceived as relevant to an individual‟s well-being will give rise to emotional reactions.

Second, the Good or Bad appraisal is tied to the concept of goal congruence. In making
the Good or Bad appraisal, individuals evaluate whether a particular event is beneficial or
harmful, given their concerns. Events appraised as harmful will engender negative emotions
(e.g., anger or fear). Conversely, events appraised as beneficial will produce positive emotions
(e.g., joy or hope). Other appraisal scholars have suggested similar match-mismatch
conceptualizations of the antecedents of affect. For example, Roseman have proposed the core
appraisal dimension of situational state. In making an appraisal of their situational state,
individuals broadly classify events as motive-consistent or motive-inconsistent. Events that are
motive-consistent (e.g., a perceived price decrease) will give rise to positive emotions. Similarly,
events that are motive-inconsistent (e.g., a perceived price increase) will produce negative
emotions. Overall, events that are relevant to a decisionmaker will give rise to emotions. The
valence of these emotional responses depends on whether a particular event is congruent, or
incongruent respectively, with a decision-makers‟ motives and goals.

From a consumer perspective, consuming more is better. Thus, one of the major concerns
against which events are judged is the desire to consume more rather than less. That is,
consumers care about a change in relative prices because their current level of consumption is at
stake. Here, it is important to note that consumers‟ purchasing power is driven by both income
and prices. Thus, a price decrease enables consumers to buy, and consume, more of a given
product or service. Conversely, a price increase forces consumers to buy and consumes less. It
follows that a perceived price decrease is a goal-congruent, or motive-consistent, event. It will
arouse more positive price affect and less negative price affect. Analogously, a perceived price

26
increase is a goal-incongruent or motive-inconsistent event. It will induce more negative price
affect and less positive price affect.

THE INFLUENCE OF PRICE AFFECT ON CONSUMER BEHAVIOR

For price affect to be a relevant construct, it has to meet two conditions. First, it should be
involved in consumers‟ processing of price information. Second, it should predict consumer
behavior in a theory-consistent manner. Appraisal theory proposes a close link between emotions
and behavior. According to Frijda (1986), emotions changes in action readiness, i.e. the tendency
to engage in, or disengage from, particular situations. Positive emotions are related to action
tendencies like approach or activation. Conversely, negative emotions (e.g., fear) are associated
with avoidance or inhibition. Lazarus (1991) has proposed a similar mechanism through which
cognitive appraisal translates into behavior. Individuals are presumed to cope with their emotions
resulting from cognitive appraisal either in a problem-focused or emotion-focused way. Problem
focused coping involves planned actions to change unfavorable situations for the better and to
maintain, or enhance, favorable ones. By contrast, emotion-focused coping is directed at altering
one‟s cognitions about a given situation. Yet, coping is not restricted to negative effect with
regard to positive effect, coping or capitalizing on may take the form of expressive behavior,
efforts to continue or increase rewards and savoring the experience.

Affect evaluation and affect regulation theories offer a complementary perspective on

how affect influences behavior. In affect evaluation, an individual‟s feelings bias information
processing, evaluation and behavior in a consistent manner. Specifically, positive affect triggers
more favorable evaluations which in turn stimulate proactive behavior such as higher purchase
intent. Negative emotions have a contrary effect. In affect regulation, individuals who feel bad
will try to achieve and then safeguard a state of positive affect. From this perspective, negative
affect e.g., due to a price increase will prompt particular actions such as leaving the store or
expressing lower purchase intent in anticipation of the mood-lifting consequences of such
behavior. Similarly, positive affect e.g., due to a price decrease will block certain actions such as
turning to more expensive items in anticipation of the mood-threatening consequences of such
behavior. Empirically, the influence of affect on consumer behavior is well-documented. This is

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particularly true with respect to the marketing-exogenous moods and feelings that consumers
bring to the marketing encounter. For example, Isen, Shalker, Clark and Karp found individuals
in a positive affective state to rate consumer goods more favorably than subjects in a neutral or
negative mood. Also, Lerner, Small and Lowenstein (2004) have provided evidence of a
carryover effect of induced affect on consumers‟ willingness to pay. In the context of emotions
triggered by marketing action, ad-evoked affect represents a valuable analog to price affect. Both
represent marketing-induced pre-purchase affect. In this regard, scholars have found ad-induced
emotions to predict purchase intent and attitude toward the ad and/or brand.

The interplay between price information, price cognitions, price effect and
consumer behavior:

Appraisal theory not only establishes a contingency between events and emotions as well as
emotions and behavior. It also explicates the processes by which events translate into behavior.
The perception of an event (e.g., a price increase) will give rise to cognitions (e.g., perceived
price unfairness). Specifically, is the cognitive appraisal of an event, rather than the event itself,
that will trigger an emotional reaction. Thus, price cognitions will mediate the effect of price
information on price affect. Similarly, neither events nor cognitions are presumed to directly
alter behavior. Rather, an individual‟s effort to cope with his or her emotional reaction resulting
from the cognitive appraisal of an event (e.g., perceived price unfairness due to a price increase)
will lead to changes in behavior (e.g., lower purchase intent). Thus, price affect will mediate the
effect of price cognitions on consumer behavior. Thus,

 Price cognitions will mediate the effect of price information on negative price affect and
positive price affect.
 Negative price affect and positive price affect will mediate the effect of price cognitions
on consumer behavior.

CONSUMER REFERENCE PRICES

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 Consumers typically maintain reference prices for products. These are typically based on
prices they have seen or paid in the past or perceived fairness of prices. There are two kinds of
reference prices:

(1) Internal reference prices are price expectations based on the consumer's experience.
These are:
 Typically lower than actual retail prices; thus, consumers frequently experience
"sticker shock" when shopping for certain products.
 Frequently updated, but somewhat difficult to change dramatically.
 Confined to a narrower range for some products than others.
(2) External reference prices are prices supplied by a marketer as a means of influencing a
consumer's price expectations: e.g., "Regularly $3.99; Now $2.99." Although one might
think that an implausible (unbelievable) external reference price would suggest to the
consumer that the retailer is lying, research has shown that clearly implausibly high
external reference prices actually increase internal reference prices.

Customer Decision Making Criteria and the Importance of Price

Understanding customer decision making is crucial to profitable growth, and particularly

so in driving product development or sales and marketing investment decisions. Many
organizations spend significant resources to identify customer needs precisely and early to stay
ahead of competition. Traditionally, the customer decision making process has revolved around
price, product quality and customer service. With advancements in technology, attributes of
products and services have changed and have led to changes in the decision-making process as
well. End consumer decisions are driven by price and quality of products. When examining
decision maker motivation, purchasing decisions of consumers revolved around optimizing price,
quality and durability. Price remains the main decision driver with 50% of consumers
acknowledging it as one of their top three considerations. Factors such as comfort, fit,
convenience and customer service act as secondary drivers.

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PRICE DISCRIMINATION

Price discrimination is the practice of setting a different price for the same product in
different segments to the market. For example, this can be for different classes, such as ages, or
for different opening times. Price discrimination may improve consumer surplus. When a firm
price discriminates, it will sell up to the point where marginal cost meets the demand curve.
There are 3 conditions needed for a business to undertake price discrimination, these include:

 Accurately segment the market

 Prevent resale
 Have market power
There are three different types of price discrimination which revolve around the same
strategy and same goal – maximize profit by segmenting the market, and extracting additional
consumer surplus.

 First-degree price discrimination: The business charges every consumer exactly how
much they are willing to pay for the product.
 Second-degree price discrimination: The business uses volume discounts which allow
buyers to purchase a higher inventory at a reduced price. While this benefits the high-
inventory buyer, it obviously hurts the low-inventory buyer who is forced to pay a higher
price. This buyer may then be less competitive in the downstream market.
 Third-degree price discrimination: This occurs when firms segment the market into
high demand and low demand groups.
Firms need to ensure they are aware of several factors of their business before proceeding
with the strategy of price discrimination. Firms must have control over the changes they make
regarding the price of their product by which they can gain profitability depending on the amount
of sales made. The price can be increased or decreased at any point depending on the fluctuation
of the rate of buyers and consumers. Price discrimination strategy is not feasible for all firms as
there are many consequences that the firms may face due to the action. For example, if a firm
sells a product to their customer for a cheaper price and that customer resells the product
demanding a higher price from another buyer then the chances of the firm failing to make a

30
higher profit is predicted because they could have sold their product at a higher rate than the
reseller and made further profit.

NINE LAWS OF PRICE SENSITIVITY AND CONSUMER PSYCHOLOGY

Thomas Nagle and Reed Holden outline nine laws or factors that influence how a consumer
perceives a given price and how price-sensitive they are likely to be with respect to different
purchase decisions. They are:

1. Reference Price Effect – buyer's price sensitivity for a given product increases the
higher the product's price relative to perceived alternatives. Perceived alternatives can
vary by buyer segment, by occasion and other factors.
2. Difficult Comparison Effect – buyers are less sensitive to the price of a known or more
reputable product when they have difficulty comparing it to potential alternatives.
3. Switching Costs Effect – the higher the product-specific investment a buyer must make
to switch suppliers, the less price sensitive that buyer is when choosing between
alternatives.
4. Price-Quality Effect – buyers are less sensitive to price the more that higher prices
signal higher quality. Products for which this effect is particularly relevant include:
image products, exclusive products and products with minimal cues for quality.
5. Expenditure Effect – buyers are more price-sensitive when the expense accounts for a
large percentage of buyers' available income or budget.
6. End-Benefit Effect – the effect refers to the relationship a given purchase has to a larger
overall benefit, and is divided into two parts:
 Derived demand: The more sensitive buyers are to the price of the end benefit,
the more sensitive they will be to the prices of those products that contribute to
that benefit.
 Price proportion cost: The price proportion cost refers to the percent of the total
cost of the end benefit accounted for by a given component that helps to produce
the end benefit. The smaller the given components share of the total cost of the
end benefit, the less sensitive buyers will be to the components' price.

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7. Shared-cost Effect – the smaller the portion of the purchase price buyers must pay for
themselves, the fewer prices sensitive they will be.
8. Fairness Effect – buyers are more sensitive to the price of a product when the price is
outside the range they perceive as fair or reasonable given the purchase context.
9. The Framing Effect – buyers are more price sensitive when they perceive the price as a
loss rather than a forgone gain, and they have greater price sensitivity when the price is
paid separately rather than as part of a bundle.

3.2 LITRATURE REVIEWS

(Cooper, 1970) emphasized that consumers might have a subjective value for money,
and introduced “the begrudging index” meaning ease or lack of ease spending. Money
spent on bread is evaluated differently than money spent on meat.

(Tull, 1972) suggested that consumers rely on price when uncertain about quality.
Consumers may have difficulties in judging quality or have limited information with
about the product quality

(Jacoby & Olson, 1978) analyzed framework for studying psychological response to
price is an appropriate basis for organizing this literature. The task of classifying a given
concept or measure in to the categories of this schema, however, is not always
straightforward. In particular, the stages of forming perceptions of prices, and forming
attitudes toward prices are often confusingly similar. For example, when such concepts
as "price acceptability" or "perceived value for the money" are classified as attitudinal
responses, they seem to share much in common with concepts such as "perceived
savings," which is described by Zeithaml as perceptual response. In both cases, the

32
consumer is making judgments about a given price relative to other prices (i.e., savings
relative to prior or usual prices; value-for-money implies more standard of comparison).

(Donald R Lichtenstein, 1981) examined that the cognitive tradeoff between price and
product quality is used as a basis for hypothesizing interrelationships between two
individual difference variables and two price-related responses. Results of a correlational
study support the hypothesis of an inverse relationship between price consciousness and
product involvement and the hypotheses that price consciousness and product
involvement have opposite implications for several price-related constructs. Results also
indicate a positive relationship between price acceptability level and the width of the
latitude of price acceptance.

(Manohar U Kalwani and Chi Kin Yim, 1987) reported that the results from a
controlled experiment designed to investigate the impact of a brand's price promotion
frequency and the depth of promotional price discounts on the price consumers expect to
pay for that brand. A key feature of the work is that expected prices elicited directly from
respondents in the experiment are used in the analysis, as opposed to the latent or
surrogate measures of expected prices used in previous studies. As hypothesized, both
the promotion frequency and the depth of price discounts are found to have a significant
impact on price expectations. Evidence also supports a region of relative price
insensitivity around the expected price, such that only price changes outside that region
have a significant impact on consumer brand choice. Further, the authors find that
consumer expectations of both price and promotional activities should be considered in
explaining consumer brand choice behavior.

(Tung Zong Chang & Albert R Wildt, 1994) stated that price, nonprice product
information, and purchase intention, together with the intervening variables of perceived
price, perceived quality, and perceived value, are empirically examined. The results
indicate that perceived price is positively influenced by objective price and negatively
influenced by reference price. They support the positive price-perceived quality
relationship found in previous studies and, further, show that the influence of price on
perceived quality is lessened in the presence of substantial direct product information.

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Finally, the results demonstrate that a trade-off between perceived price and perceived
quality leads to perceived value, and perceived value is a primary factor influencing
purchase intention.

(Glenn B Voss, A Parasuraman & Dhruv Grewal, 1998) examined the roles that
price, performance, and expectations play in determining satisfaction in a discrete service
exchange. The authors maintain that the price fluctuations common to the many service
industries that implement demand-oriented pricing, combined with the inherent
heterogeneity of service performance, likely result in price-performance combinations
that vary widely. Furthermore, the authors propose that the level of price-performance
consistency in a service exchange moderates the relationship between performance
expectations and subsequent performance and satisfaction judgments. When price and
performance are consistent, expectations have an assimilation effect on performance and
satisfaction judgments; when price and performance are inconsistent, expectations have
no effect on performance and satisfaction judgments. To examine these issues, the
authors develop a contingency model that they estimate using data from a multimedia
experimental design. The results generally support the contingency framework and
provide empirical support for normative guidelines that call for creating realistic
performance expectations and offering money-back service guarantees.

(Roegner and Craig, 1999) says that customers are less sensitive to the price of a
known / more reliable product so they would have complexity of comparing it to
possible alternatives.

Dhruv Grewal, 2000) expanded and integrated prior price-perceived value models
within the context of price comparison advertising. More specifically, the conceptual
model explicates the effects of advertised selling and reference prices on buyers' internal
reference prices, perceptions of quality, acquisition value, transaction value, and
purchase and search intentions. Two experimental studies test the conceptual model. The
results across these two studies, both individually and combined, support the hypothesis
that buyers' internal reference prices are influenced by both advertised selling and
reference prices as well as the buyers' perception of the product's quality. The authors

34
also find that the effect of advertised selling price on buyers' acquisition value was
mediated by their perceptions of transaction value. In addition, the effects of perceived
transaction value on buyers' behavioral intentions were mediated by their acquisition
value perceptions. The authors suggest directions for further research and implications
for managers.

(Maxwell, 2002) suggested that a concept of price fairness should be understood in a

larger context than in the sense of a low price (good deal, gain) only. It has a social
utility which is different from the economic utility of a low price. Feelings of fairness
stimulate the reward system and enhance happiness.

(Maarten C W Janssen, 2004) examined an oligopoly model where some consumers

engage in costly non-sequential search to discover prices. There are three distinct price-
dispersed equilibrium characterized by low, moderate and high search intensity. The
effects of an increase in the number of firms on search behaviour, expected prices, price
dispersion and welfare are sensitive (i) to the equilibrium consumers' search intensity,
and (ii) to the status quo number of firms. For instance, when consumers search with low
intensity, an increase in the number of firms reduces search, does not affect expected
price, leads to greater price dispersion and reduces welfare. Incontrast when consumers
search with high intensity, increased competition results in more search and lower prices
when the number of competitors in the market is low to begin with, but in less search and
higher prices when the number of competitors is large. Duopoly yields identical expected
price and price dispersion but higher welfare than an infinite number of firms.

(Mazumdar, 2005) states that the consumer‟s product portfolio sampling and price
retrieval are likely to be biased and imperfect “as a result of erroneous sampling caused
by the relative familiarity of different product categories and retail promotional
strategies.”

(Kotler, 2007) defines price as a cost of producing, delivering and promoting the product
charged by the organization and Zeithaml (2008) is of the view that monetary cost is one
of the factors that influence consumer„s perception of a product„s value. Price can be

35
stated as the actual or rated value of a valuable product which is up for exchange; other
explanations were further expounded as the amount of money paid for product

(Sharma & Iyer, 2011) says that It is important to note that price bundling of two or
more products which are not inseparable from the customers‟ perspective also requires
discounting. However, this type of discounting is not in conflict with value pricing per
se, as there is no additional value perceived by the customer which would demand a
premium.

(Bernie Neenan & Richard N Boisvert, 2012) says that most customers prefer
accommodating program features, such as guaranteed payment levels and no penalties
for non-compliance to calls for curtailments. A good prospective participant often has
previous experience with some form of load management program, but any lack of
experience can be overcome through appropriate education

(Margaret C Campbell, 2013) says that the perceptions of price unfairness give rise to
consumer resistance to prices and result in decreased profit to the firm. However, it is as
yet unclear what factors influence perceptions of unfairness. Answers the question,
“What is fair?” by proposing that consumers sometimes infer a firm‟s motive for a price
and that the inferred motive influences perceived price fairness. The study provides
evidence that consumers use contextual information to infer a firm‟s motive. When
consumers infer a negative motive, the price is perceived to be unfair and when
consumers do not infer a negative motive, the same price is perceived to be fair. Suggests
that marketers should provide reasons for prices; consider consumers‟ likely inferences
of motive and either avoid taking actions that are likely to give rise to inferences of
negative motive or manage the motive inferred; and consider the inferences that
consumers may make for other marketing actions in addition to price.

(Ju Young Kim, 2014) stated that Pay what you want (PWYW) is a new participative
pricing mechanism that delegates the whole price determination to the buyer. Previous
research on PWYW suggests that the final prices paid are not only affected by consumer

36
 characteristics but also by varying conditions, such as social distance within buyer–seller
relationships and the provision of reference prices. Through an online survey and two
field experiments, we test varying conditions of PWYW, such as social distance (buyer–
seller relationship), provision of external reference price, product value, level of
reputation, and duration of an application of PWYW. The results indicate that the
provision of an external reference price is advantageous for the seller as the prices paid
increase. The seller should also avoid offering products with high product value under
PWYW conditions. Furthermore, increasing social distance may decrease the prices paid.
Finally, a high level of reputation may be beneficial.

(Manika Rodiger2015) examined that in order to identify the current state of research
and research gaps, The publications were classified into stimulus–response or stimulus–
organism–response paradigm based studies. Organism-internal processes were further
divided into „affective‟, „cognitive‟ and „intentional‟ processes. Moreover, for a
systematic review the categories „price elasticity‟, „price perception and evaluation‟,
„price knowledge‟, and „willingness-to-pay‟ were built. The majority of studies were
based on a stimulus–organism–response paradigm. 20 studies in the sample analysed the
price elasticity of demand and reported partly contradictory results. There were no
studies on affective processes in the sample. A solid body of knowledge exists on the
cognitive processes „price perception and evaluation‟ while very few studies investigate
„price knowledge‟. The majority of studies were concerned with the willingness-to-pay
for organic food and yielded mixed and contradictory results. The explanatory power and
conclusiveness of research is impaired by weak sampling techniques and data collection
methods. The improvement of sampling techniques, the increase of comparability of
results and the deepening of analyses is recommended.

(Tser yieth Chen, 2016) states that the purpose of this work is to elucidate how price,
brand cues and customer value are related, and to explore the influence of price and brand cues
through service quality and perceived risk on customer value, focusing specifically on Taiwan.

(Avila and Dodds, 2017) found that purchasing managers ranked price as the least
important criteria in the decision making process. Sales managers, on the other hand,

37
 perceived price much higher on the list of criteria. This demonstrates their lack of
understanding of what is critical in the purchasing process

DATA ANALYSIS AND INTERPRETATION

Table : 4.1 showing gender of customers

GENDER NO OF PERSONS PERCENTAGE (%)

Male 37 62
Female 21 35
Transgender 0 0
Prefer not to say 0 0
Other 2 3
Total 60 100

Diagram : 4.1 showing gender of customers

70%

60%

50%

40%

30%

20%

10%

0%
MALE FEMALE TRANSGENDER OTHER PREFER NOT TO
SAY

Interpretation:

38
Upon the interviewed customers of lakshmi mills , about 62% are males, 35% are females and
3% of them preferred not to mention their gender.

Table : 4.2 showing annual income of customers

OPINION NO OF PERSONS PERCENTAGE (%)

Poor 1 2
Low income 9 15
Middle income 47 78
Upper-middle income 3 5
High income 0 0
Total 60 100

Diagram : 4.2 showing annual income of customers

90.00%

80.00%

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
POOR LOW INCOME MIDDLE INCOME UPPER MIDDLE HIGH INCOME
INCOME

39
Interpretation:

About 2% of the customers are poor, 15% falls under low income category, 78% are middle
income customers, 5% falls under upper middle income family and none of them marked as high
income customers.

Table : 4.3 shows the main factor which affects customer selection

OPINION NO OF PERSONS PERCENTAGE (%)

Want/need 13 22
Comfort/easiness 15 24
Discounts 10 17
All of the above 22 37
None of the above 0 0
Total 60 100

Diagram : 4.3 shows the main factor which affects customer selection

40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%

40
Interpretation:

About 21.66% customer‟s selection is affected by want/need, 25% customers states that their
selection is affected by comfort/easiness and 16.66% opted discounts. For 36.68% customers all
the above mentioned factors affects their selection.

Table 4.4 showing whether products need to come with better quality

OPINION NO OF PERSONS PERCENTAGE (%)

Strongly agree 3 5
Agree 8 13
Neutral 23 38
Disagree 24 41
Strongly disagree 2 3
Total 60 100

Diagram : 4.4 showing whether products need to come with better quality

45.00%

40.00%

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
STRONGLY AGREE AGREE NEUTRAL DISAGREE STRONGLY
DISAGREE

41
Interpretation:

Only 5% strongly agree and 13.33% agree with the statement that products need to come with
better quality. Means, they are somewhat not satisfied with the quality of products. 38.33%
expressed as neutral and 40% disagreed with the statement. However, 3.33% of the respondents
answered strong disagreement.

Table : 4.5 shows the extent upto which products meets customer needs

OPINION NO OF PERSONS PERCENTAGE (%)

Very well 51 85
Slightly 2 3
Neither 0 0
Does not 0 0
Not sure 7 12
Total 60 100

Diagram : 4.5 shows the extent upto which products meets customer needs

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
VERY WELL SLIGHTLY NEITHER DOES NOT NOT SURE

42
Interpretation:

Out of 60 customers 85% agreed that the products meets their needs very well, 3.33% slightly
agree to the statement and 11.67% are not sure about the answer. No customers opted „neither‟
and „does not‟ column.

Table : 4.6 showing whether discounted prices and offers enables customers to buy
products

OPINION NO OF PERSONS PERCENTAGE (%)

Always 32 53
Most of the time 9 15
Sometimes 3 5
Never 0 0
Unsure 16 27
Total 60 100

Diagram : 4.6 showing whether discounted prices and offers enables customers to buy
products

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
ALWAYS MOST OF THE SOMETIMES NEVER UNSURE
TIME

43
Interpretation:

About 53.33% customers agree that discounted prices and offers always enables them to buy
products, 26.67% are unsure about the answer, no customers chose „never‟ as an option. About
15% opted „most of the time‟ and 5% opted „sometimes‟.

Table : 4.7 showing whether the products are easily accessible

OPINION NO OF PERSONS PERCENTAGE (%)

Strongly agree 10 17
Agree 46 77
Neutral 4 6
Disagree 0 0
Strongly disagree 0 0
Total 60 100

Diagram : 4.7 showing whether the products are easily accessible

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
STRONGLY AGREE AGREE NEUTRAL DISAGREE STRONGLY
DISAGREE

Interpretation:

44
Out of 60 employees 16.67% strongly agree and 76.66% agree to the statement products are
easily accessible, 6.67% customers marked as neutral, no person marked in favour of „disagree‟
and „strongly disagree‟ options.

Table : 4.8 showing importance of price on the products

OPINION NO OF PERSONS PERCENTAGE (%)

Very important 7 12
Important 36 60
Somewhat important 6 10
Not important 2 3
Don‟t know 9 15
Total 60 100

Diagram : 4.8 showing importance of price on the products

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
VERY IMPRTANT IMPORPTANT SOMEWHAT NOT IMPORTANT DON'T KNOW
IMPORTANT

45
Interpretation:

Out of 60 sample size 11.66% customers says that price is very important on product selection
and 60% says as price is important on products. 10% marked „somewhat important‟, 3.34% for
„never‟ and 15% opted for „unsure‟ options.

Table : 4.9 showing how familiar are the customers with the pricing information of the
products

OPINION NO OF PERSONS PERCENTAGE (%)

Very familiar 0 0
Familiar 14 23
Somewhat familiar 19 32
Neutral 22 37
Unfamiliar 5 8
Total 60 100

Diagram : 4.9 showing how familiar are the customers with the pricing information of the
products

46
 40.00%

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
VERY FAMILIAR FAMILIAR SOMEWHAT NEUTRAL UNFAMILIAR
FAMILIAR

Interpretation:

About 31.66% of customers marked „somewhat familiar‟ and 36.66% marked „neutral‟ options.
8.34% marked „unfamiliar‟ and 23.34% marked „familiar‟. No person marked as „very familiar‟.

Table : 4.10 shows whether the change in price of products affects customer preference

OPINION NO OF PERSONS PERCENTAGE (%)

Always 8 13
Most of the time 6 10
Sometimes 35 58
Never 0 0
Unsure 11 19
Total 60 100

Diagram : 4.10 shows whether the change in price of products affects preference of
customers

47
 70%

60%

50%

40%

30%

20%

10%

0%
ALWAYS MOST OF THE SOMETIMES NEVER UNSURE
TIME

Interpretation:

About 13.33% of customers agreed that change in price of products always affects customer‟s
preference. 10% marked „most of the time‟, 58.33% marked „sometimes‟ option to the question
and rest 18.34% are unsure about their opinion. No one opted for „never‟.

Table : 4.11 showing features or ad-ons considered by customers for paying extra

OPINION NO OF PERSONS PERCENTAGE (%)

Quality 2 3
Quantity 29 48
Value for money 26 44
Availability 3 5
Other 0 0
Total 60 100

Diagram : 4.11 showing features or ad-ons considered by customers for paying extra

48
 60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
QUALITY QUANTITY VALUE FOR AVAILABILITY OTHER
MONEY

Interpretation:

Out of 60 customers only 3.33% agree that quality would be considered for paying extra, 48.33%
is ready to pay extra on the basis of quantity, for 43.34% it is value for money which is
considered for paying extra and 5% opted „availability‟. Nobody considered „other‟ option.

Table : 4.12 shows the factor which will change customer buying decision, incase if the
company launch different promotional schemes on products

OPINION NO OF PERSONS PERCENTAGE (%)

Money back offer 22 37
Coupens 2 3
Combo offer 31 52
Bumper prize 2 3
Other 3 5
Total 60 100

Diagram : 4.12 shows the factor which will change customer buying decision, incase if the
company launch different promotional schemes on products

49
 60%

50%

40%

30%

20%

10%

0%
MONEY BACK COUPENS COMBO OFFER BUMPEPR PRIZE OTHER
OFFER

Interpretation:

36.66% of customers agree that money back offer changes their buying decision. 3.33% opted
coupens and bumper prizes, 51.67% favoured combo offers and about 5% had other
considerations.

Table : 4.13 showing whether the image of the brand does not get affected by low priced
products

OPINION NO OF PERSONS PERCENTAGE (%)

Strongly agree 5 8
Agree 38 63
Neutral 7 12
Disagree 8 14
Strongly disagree 2 3
Total 60 100

Diagram : 4.13 showing whether the image of the brand does not get affected by low priced
products

50
 70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
STRONGLY AGREE AGREE NEUTRAL DISAGREE STRONGLY
DISAGREE

Interpretation:

Out of 60 customers 8.34% strongly agree and 63.33% agree that the image of brand does
not get affected by low priced products. 13.34% disagreed and 3.33% strongly disagreed to the
question and rest 11.66% marked „neutral‟.

Table : 4.14 shows at what price the products starts to look so cheap that, it couldn’t be of
good quality

OPINION NO OF PERSONS PERCENTAGE (%)

5 – 10 % less 2 3
10 – 15 % less 13 22
15 – 20 % less 34 57
At the same price 0 0
No opinion 11 18
Total 60 100

Diagram : 4.14 shows at what price the products starts to look so cheap that, it couldn’t be
of good quality

51
 60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
5-10 % LESS 10-15 % LESS 15-20 % LESS AT THE SAME NO OPINION
PRICE

Interpretation:

For the question at what price would the products starts to look so cheap, about 3.33% customers
marked „5-10% less‟, 21.67% marked „10-15% less‟, 56.66% marked „15-20% less‟ and 18.34%
marked „no opinion‟ option. No one stated that the products look cheap at the same price.

Table no : 4.15 showing whether the cutomers are willing to pay more on same products

OPINION NO OF PERSONS PERCENTAGE (%)

Always 7 12
Sometimes 31 52
Most of the time 8 13
Never 5 8
Unsure 9 15
Total 60 100

Diagram : 4.15 showing whether the cutomers are willing to pay more on same products

52
 60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
ALWAYS SOMETIMES MOST OF THE NEVER UNSURE
TIME

Interpretation:

11.67% customers are always willing to pay more on same products means they are
highly satisfied with products. 51.66% answered „sometimes‟, 13.34% answered „most of the
time‟, 8.33% answered „never‟ and 15% customers were unsure about their answer.

Table : 4.16 showing customers opinion about value for money of the products

OPINION NO OF PERSONS PERCENTAGE (%)

Excellent 21 35
Above average 29 48
Average 10 17
Below average 0 0
Poor 0 0
Total 60 100

Diagram : 4.16 showing customers opinion about value for money of the products

53
 60%

50%

40%

30%

20%

10%

0%
EXCELLENT ABOVE AVERAGE AVERAGE BELOW AVERAGE POOR

Interpretation:

Value for money of the product is rated as „excellent‟ by 35% customers, 48.33% rated „above
average‟ and 5% rated „average‟. No person opted „below average‟ and „poor‟ options.

Table : 4.17 showing the extent of satisfaction of customers with respect to the discounts
made on the products

OPINION NO OF PERSONS PERCENTAGE (%)

Delighted 4 67
Very satisfied 9 15
Satisfied 42 70
Somewhat satisfied 3 5
Not at all satisfied 2 3
Total 60 100

Diagram : 4.17 showing the extent of satisfaction of customers with respect to the discounts
made on the products

54
 80%

70%

60%

50%

40%

30%

20%

10%

0%
DELIGHTED VERY SATISFIED SATISFIED SOMEWHAT NOT AT ALL
SATISFIED SATISFIED

Interpretation:

Out of 60 customers 6.67% are delighted and 70% are satisfied with respect to the discounts
made on the products. 15% answered „very satisfied‟, 5% answered „somewhat satisfied‟ and
3.33% marked „not at all satisfied‟ options.

Table : 4.18 showing customers possibility to continue using the products at the same price

OPINION NO OF PERSONS PERCENTAGE (%)

Very likely 15 25
Likely 30 50
Neutral 13 22
Unlikely 2 3
Very unlikely 0 0
Total 60 100

Diagram : 4.18 showing customers possibility to continue using the products at the same
price

55
 60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
VERY LIKELY LIKELY NEUTRAL UNLIKELY VERY UNLIKELY

Interpretation:

Likeness to continue using the products are rated „very likely‟ by 25% customers and „likely‟ by
50% customers, 21.67% rated „neutral‟. No person opted „unlikely‟ and „very unlikely‟ options.

Table : 4.19 showing customers possibility to recommend the products to someone

OPINION NO OF PERSONS PERCENTAGE (%)

Definitely well 10 17
Probably well 31 51
Might/might not 19 32
Probably will not 0 0
Definitely will not 0 0
Total 60 100

Diagram : 4.19 showing customers possibility to recommend the products to someone

56
 60%

50%

40%

30%

20%

10%

0%
DEFINITELY WELL PROBABLY WELL MIGHT/MIGHT PROBABLY WILL DEFINITELY WILL
NOT NOT NOT

Interpretation:

16.67% agree that based on their experience, they will definitely recommend these products to a
friend/colleague, 51.66% stated that they will probably recommend and 31.67% answered
„might/might not‟. No person marked „probably will not‟ and „definitely will not‟ options.

Table : 4.20 showing customers overall satisfaction with the products

OPINION NO OF PERSONS PERCENTAGE (%)

Very satisfied 18 30
Satisfied 19 32
Neutral 23 38
Dissatisfied 0 0
Very dissatisfied 0 0
Total 60 100

Diagram : 4.20 showing customers overall satisfaction with the products

57
 45.00%

40.00%

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
VERY SATISFIED SATISFIED NEUTRAL DISSATISFIED VERY
DISSATISFIED

Interpretation:

Overall satisfaction with the product is rated „very satisfied‟ by 30% customers, 31.67% marked
„satisfied‟ and 38.33% customers marked „neutral‟. No person marked „dissatisfied‟ and „very
dissatisfied‟ options.

4.21 showing opinion about importance of changing pricing annually

OPINION NO OF PERSONS PERCENTAGE (%)

Very importent 8 13.4
Important 31 51.6
Neutral 8 13.4
Not important 3 5
Unsure 10 16.6
Total 60 100

Diagram : 4.21 showing showing opinion about importance of changing pricing annually

58
 60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
very important Important neutral not important UNSURE

Interpretation:

13.4% customers are opted very important that changing price annually. 51.6% answered
„importent‟, 13.4% answered „neutral‟, 5% answered „not important‟ and 16.6% customers were
unsure about their answer.

Table : 4.22 shows from where the customers learn about the products

OPINION NO OF PERSONS PERCENTAGE (%)

Media 26 44
Friend/colleague 27 45
Internet 0 0
Trade vendors 5 8
Other 2 3
Total 60 100

59
Diagram : 4.22 shows from where the customers learn about the products
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Interpretation:

About 43.34% of the customers learn about the products in the media, 45% learn through friends
and colleagues, 8.33% learn through trade vendors and 3.33% learn from other sources.
Customers interviewed had not marked internet as a learning source

60
FINDINGS
Following are the findings based on data analysis and interpretation:

 It is found that Quality is a critical factor for an organization to satisfy customers and to
retain their future loyalty. 82% of the interviewed customers are satisfied with the quality
of products . Also, 31% of them are willing to pay more for quality products.

 It is found that correct Pricing Strategy is crucial to a brand‟s success. Price is an

important consideration in the consumer decision-making process. It shapes consumer
perceptions of a brand and changes in price can change demand for the brand.

 Majority of the customers are satisfied with the existing pricing techniques used by the
organization and they rated the „value for money‟ of products as above average.

 It is found that 62% of customers are fully satisfied with products of Lkshmi mills . 82%
are very satisfied with the discounts made on products and 68% shall probably
recommend these products to their friends and colleagues, which implies the influence of
pricing policy has on consumer behavior.

SUGGESTIONS
 Based on the analysis, the following suggestions have been drawn up to help the firm
to effectively price their products:

 Price is among the main factors or criteria considered by customers when they make a
purchase. Customers always wish to see products offered for low prices. 83% of the
interviewed customers want to see products offered below current price. Also, 50%
among them are likely to continue using products at the same price. Hence if possible, it
will be good for the company if they make any decrease in current prices to motivate
consumers to buy more. If it is not possible, then following current pricing strategy is
recommended.

 It is to be noted that no one among the interviewed customers marked that they are
„very familiar‟ with the pricing information of The companay products. Also, 77% of
them are not „familiar‟ with the pricing information provided by the company. So it
should be further considered in future by giving emphasis on this.

61
CONCLUSION

This project is about “A STUDY ON EFFECTIVENESS OF PRICE DETERMINATION ON

CONSUMERS” and has been conducted PK WOOD TRADERS . This study has contributed to
knowledge in series of issues associated with pricing strategies of organization and purchase
decision process of customers. Issues on price sensitivity have been examined. Analysis revealed
that the prices of competitor‟s products can affect the demand for a specific product, they may be
aware of additional value but will take into consideration the prices of competitors.

There is a general consensus among various authors that consistency in prices retains
customer‟s loyalty to organizational products. This means that frequent price changes could
encourage brand switch. Customers will pay more for a product if they believe it is
commensurate with the value they place on the product which may be as a result of extra benefits
derived or enjoyed from consumption of the product. Proper pricing strategies or a blend of
strategies also increase demand. The rapid growth in technology has added more forms of
pricing and has created a platform for customer‟s orientation of products.

From this study majority of customers are satisfied with this products and current pricing
policies of the company, so management should take proper arrangements to maximize the
customer satisfaction level. It can increase the demand of products and thereby maximize the
company‟s productivity.

62
63