EFFECTS OF PRICING ON CONSUMER BUYING

DECISIONS AMONG MAJOR SUPERMARKETS IN

NAIROBI COUNTY, KENYA

BY

AKASH MEHTA

UNITED STATES INTERNATIONAL UNIVERSITY-

AFRICA

SUMMER, 2021
 EFFECTS OF PRICING ON CONSUMER BUYING
DECISIONS AMONG MAJOR SUPERMARKETS IN
NAIROBI COUNTY, KENYA

BY

AKASH MEHTA

A Research Project Report Submitted to the Chandaria

School of Business in Partial Fulfillment of the Requirement
for the Degree of Masters in Business Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY-

AFRICA

SUMMER, 2021
 STUDENT’S DECLARATION
I, the undersigned, declare that this is my original work and has not been submitted to any
other college, institution, or university other than the United States International
University – Africa for academic credit

Signed: _____________________________ Date: _________________________

Akash Devang Mehta (ID 648431)

This research project report has been presented for examination with my approval as the
appointed supervisor.

Signed: _____________________________ Date: _________________________

Professor Peter Kiriri

Signed: _____________________________ Date: _________________________

Dean, Chandaria School of Business

ii
 COPYRIGHT
© Copyright by Akash Mehta, 2021

All Rights Reserved

iii
 ABSTRACT
The general objective of the study was to determine the effects of pricing on consumer
buying decisions among major supermarkets in Nairobi County, Kenya. The study was
guided by the following specific objectives; to determine the effects of discount pricing
on consumer buying decisions among major supermarkets; to establish the effects of
bundle pricing on consumer buying decisions among major supermarkets and to assess
the effects of psychological pricing on consumer buying decisions among major
supermarkets.

The research used descriptive research design which was appropriate in answering the
study questions. For the purpose of this study, the target population was 1930 customers
with loyalty card/ bonus card from Carrefour, Naivas, Chandarana and Quickmart. In this
study, stratified random sampling was adopted. The sample size of 331 respondents was
obtained using the Yamane formula. The data was collected using self-administered
questionnaires; the collected data was analysed using Statistical Package for Social
Sciences (SPSS) software Version 24. The results of the study were analysed using
descriptive analysis that included frequencies, means and standard deviations. Inferential
analysis including correlation and regression analysis was also used in the study. The
results were presented using figures and tables.

The study showed that price discounts motivated new customers to try products being
offered, and it was revealed that discount pricing was significant to consumer buying
decisions (r=544, p<0.05). The study showed that discount pricing could be used to
explain 29% of the variance in consumer buying decisions, and the study variables were
linearly related since a unit improvement in discount pricing would change consumer
buying decisions by a mean index of 0.592.

The study showed that pure bundling limited the decision variety for the customer, and it
was revealed that bundle pricing was significant to consumer buying decisions (r=366,
p<0.05). The study revealed that bundle pricing could be used to explain 13% of the
variance in consumer buying decisions, and the study variables were linearly related since

iv
a unit improvement in bundle pricing would change consumer buying decisions by a
mean index of 0.382.

The study revealed that psychological pricing influenced consumers' decision-making

processes over time, and that psychological pricing was significant to consumer buying
decisions (r=560, p<0.05). It was shown that psychological pricing could be used to
explain 31% of the variance in consumer buying decisions, and that the study variables
were linearly related since a unit improvement in psychological pricing would change
consumer buying decisions by a mean index of 0.521.

The study concludes that price discounts motivated new customers to try products being
offered, and that high price discount did not show consumers that they were receiving
low-quality products or services. Price bundling increased profits because it promoted the
purchase of more than one item, however, high-end customers were less sensitive to
mixed-leader bundling strategies. Higher price points provided customers with the
impression that the products they were purchasing were of a high-value because the price
of a product reflected the level (the social class) of consumers.

This study recommends the managers of supermarkets to ensure that they provide
discounts within their businesses to attract customers. They should ensure that these
discounts are not so high to the point where their customers would doubt the quality of
the products they are buying. They need apply the price bundling strategy to facilitate
their ability to sell lots of items at higher margins while providing consumers a discount
at the same time. They also need to ensure that they provide mixed prices for their
products. They should ensure that products under the category of leisure items are highly
priced, while the prices for basic commodities are affordable.

v
 ACKNOWLEDGEMENT

I would like to show my gratitude to Almighty God for being my mentor throughout my
academic career. I'd also like to express my gratitude to United States International
University- Africa’s management, administrative staff, and professors for their
unwavering efforts and trust to academic excellence.

Prof. Peter Kiriri, my supervisor, deserves special gratitude for his excellent advice and
enthusiasm throughout the project writing process. Finally, I thank every one of my
family and friends for their words of encouragement and for providing me strength during
the research paper writing process.

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 TABLE OF CONTENTS
STUDENT’S DECLARATION ........................................................................................ii
COPYRIGHT ....................................................................................................................iii
ABSTRACT ....................................................................................................................... iv
ACKNOWLEDGEMENT ................................................................................................ vi
TABLE OF CONTENTS ................................................................................................vii
LIST OF TABLES ............................................................................................................ ix
LIST OF FIGURES .......................................................................................................... xi

CHAPTER ONE ................................................................................................................ 1

1.0 INTRODUCTION........................................................................................................ 1
1.1 Background of the Study ............................................................................................... 1
1.2 Statement of the Problem ............................................................................................... 5
1.3 General Objective .......................................................................................................... 6
1.4 Specific Objectives ........................................................................................................ 6
1.5 Significance of the Study ............................................................................................... 6
1.6 Scope of the Study ......................................................................................................... 7
1.7 Definition of Terms........................................................................................................ 8
1.8 Chapter Summary .......................................................................................................... 8

CHAPTER TWO ............................................................................................................. 10

2.0 LITERATURE REVIEW ......................................................................................... 10
2.1 Introduction .................................................................................................................. 10
2.2 Discount Pricing and Consumer Buying Decisions ..................................................... 10
2.3 Bundle Pricing and Consumer Buying Decisions ........................................................ 15
2.4 Psychological Pricing and Consumer Buying Decisions ............................................. 20
2.5 Chapter Summary ........................................................................................................ 25

CHAPTER THREE ......................................................................................................... 26

3.0 RESEARCH METHODOLOGY ............................................................................. 26
3.1 Introduction .................................................................................................................. 26
3.2 Research Design........................................................................................................... 26

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3.3 Population and Sampling Design ................................................................................. 26
3.4 Data Collection Methods ............................................................................................. 28
3.5 Research Procedures .................................................................................................... 29
3.6 Data Analysis Methods ................................................................................................ 31
3.7 Chapter Summary ........................................................................................................ 32

CHAPTER FOUR ............................................................................................................ 33

4.0 RESULTS AND FINDINGS ..................................................................................... 33
4.1 Introduction .................................................................................................................. 33
4.2 Response Rate and Background Information .............................................................. 33
4.3 The Effects of Discount Pricing and Consumer Buying Decisions ............................. 35
4.4 Bundle Pricing and Consumer Buying Decisions ........................................................ 39
4.5 Psychological Pricing and Consumer Buying Decisions ............................................. 43
4.6 Chapter Summary ........................................................................................................ 49

CHAPTER FIVE ............................................................................................................. 50

5.0 DISCUSSION, CONCLUSION, AND RECOMMENDATIONS ......................... 50
5.1 Introduction .................................................................................................................. 50
5.2 Summary ...................................................................................................................... 50
5.3 Discussion .................................................................................................................... 51
5.4 Conclusion ................................................................................................................... 58
5.5 Recommendations ........................................................................................................ 59
REFERENCES ................................................................................................................. 61

APPENDICES .................................................................................................................. 69
APPENDIX I: INTRODUCTION LETTER ................................................................. 69
APPENDIX II: QUESTIONNAIRE .............................................................................. 70
APPENDIX III: IRB PERMIT ....................................................................................... 74
APPENDIX IV: NACOSTI PERMIT ............................................................................ 75

viii
 LIST OF TABLES
Table 3.1: Population Distribution..................................................................................... 27

Table 3.2: Sample Size ...................................................................................................... 28

Table 3.3: Reliability Test.................................................................................................. 30

Table 4.1: Discount Pricing on Buying Decisions ............................................................. 36

Table 4.2: Seasonal Discounts on Buying Decisions......................................................... 36

Table 4.3: Promotional Discounts on Buying Decisions ................................................... 37

Table 4.4: Correlations Between Discount Pricing and Consumer Buying Decisions ...... 37

Table 4.5: Model Summary Between Discount Pricing and Consumer Buying Decisions
............................................................................................................................................ 38

Table 4.6: ANOVA Between Discount Pricing and Consumer Buying Decisions ........... 38

Table 4.7: Regression Coefficients Between Discount Pricing and Consumer Buying
Decisions ............................................................................................................................ 39

Table 4.8: Bundle Pricing on Buying Decisions ................................................................ 40

Table 4.9: Pure Bundling on Buying Decisions................................................................. 40

Table 4.10: Mixed Bundling on Buying Decisions ........................................................... 41

Table 4.11: Correlations Between Bundle Pricing and Consumer Buying Decisions ....... 41

Table 4.12: Model Summary Between Bundle Pricing and Consumer Buying Decisions 42

Table 4.13: ANOVA Between Bundle Pricing and Consumer Buying Decisions ............ 42

Table 4.14: Regression Coefficients Between Bundle Pricing and Consumer Buying
Decisions ............................................................................................................................ 43

Table 4.15: Psychological Pricing on Buying Decisions ................................................... 43

Table 4.16: Prestige Pricing on Buying Decisions ............................................................ 44

Table 4.17: Odd-Even Pricing on Buying Decisions ......................................................... 44

Table 4.18: Price Anchoring on Buying Decisions ........................................................... 45

Table 4.19: Correlations Between Psychological Pricing and Consumer Buying Decisions
............................................................................................................................................ 46

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Table 4.20: Model Summary Between Psychological Pricing and Consumer Buying
Decisions ............................................................................................................................ 46

Table 4.21: ANOVA Between Psychological Pricing and Consumer Buying Decisions . 46

Table 4.22: Regression Coefficients Between Psychological Pricing and Consumer

Buying Decisions ............................................................................................................... 47

Table 4.23: Correlations Between Pricing Variables and Consumer Buying Decisions ... 47

Table 4.24: Model Summary Between Pricing Variables and Consumer Buying Decisions
............................................................................................................................................ 48

Table 4.25: ANOVA Between Pricing Variables and Consumer Buying Decisions ........ 48

Table 4.26: Regression Coefficients Between Pricing Variables and Consumer Buying
Decisions ............................................................................................................................ 49

x
 LIST OF FIGURES

Figure 4.1: Response Rate ................................................................................................. 33

Figure 4.2: Respondents’ Gender ...................................................................................... 34
Figure 4.3: Respondents’ Age Bracket .............................................................................. 34
Figure 4.4: Respondents’ Level of Education.................................................................... 35

xi
 CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the Study
Global consumer pressure exists for improved price and product quality. The international
market is dynamic, and these new customer demands are now forcing many companies to
adopt pricing practices for better results and survival (Kotler & Keller, 2016). Consumers
are far more quality-oriented and tend to pay a higher price for the efficient delivery of a
quality good or service. Affordable pricing leads to greater market share than high-
pricing of products. Pricing has become a vital competitive instrument that a company
can use to survive competitive pressure, increase sales and boost its market position.
Pricing has emerged as part and parcel of modern-day marketing strategies and now
considered a key organizational asset (Al-Hakim & Chen, 2014).

According to Al-Salamin and Al-Baqshi (2015) the price of well-known brand products
affects the purchase process negatively. 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 decision. Simon (2015)
points out that price is central to consumer purchase decision due to its presence in all
purchasing situations. Marketers realize that consumers use price to differentiate products
with almost similar characteristics and therefore they use pricing as a differentiating
element between substitute products. Organizations shifting they’re from a product or
market point of view to consumer or customer focus reflect the evolution of marketing.

Hinterhuber and Liozu (2020) indicate that oorganizations spend a lot of time and
resources figuring out the best pricing strategy for their products because a wrong
strategy can cost them important customers and therefore result into loss of revenue.
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
because a company does not set a single price but rather a pricing structure that covers
different items in its line. A pricing strategy takes into account segments, ability to pay,
market conditions, competitor actions, trade margins and input costs. Organizations
remaining indifferent or frustrated around pricing strategies stay behind by allowing the
competition to set market prices. This may have a negative influence on the way
1
consumers view them because they have to go by the prices fixed by their competitors
otherwise their market share will be affected adversely. A good pricing strategy also
includes the perspectives of the consumer, the organization, and the competition thus
ensuring that an organization has a sustainable competitive advantage (Simon, 2015).

Khaniwale (2015) allude that successful businesses understand how to leverage the
different factors that influence consumer buying behavior to effectively market their
products and maximize sales. In this era of competition every organization wants to
increase or at least maintain their products sale in the market. Every organization wants to
know how the purchase decision of customers can be evaluated. Customers have a very
crucial role in the success of any organisation since they are the people who generate
revenue for the organisation by buying, using and influencing others to buy their products
and services. Organizations expect that by understanding what causes the consumers to
buy goods and services, they will be able to determine the best price for their products,
the price that will make them have a competitive edge over their rivals (Kotler & Keller,
2016).

Simon (2015) affirm that price expectations are used as reference points to compare
prices and make purchasing decisions. Most customers naturally choose the lowest priced
products and companies use this to their advantage by creating lines of products that are
similar in appearance and functionality, but are offered with slightly different features and
at difference price points. Generally, customers often set their price expectations prior to
purchasing a product or service. According to Zale (2017) choosing a pricing objective
and associated strategy is an important function of the business owner and an integral part
of the business plan or planning process. It is more than simply calculating the cost of
production and adding a mark-up. Therefore, assigning product prices is a strategic
activity and the price or prices assigned to a product or range of products will have an
impact on the extent to which consumers view the firm’s products and determine its
subsequent purchase.

Research by Komaladewi and Indika (2017) indicated that most consumers consider price
as an important factor influencing their purchase decisions. The impact of price and
purchase behaviour depends on the choice of the decisions, but, other factors can also
2
influence, such as testimonials, price insensitivity, and willingness of a brand to be the
favourite. Price has a relative effect: some consumers are sensitive to price, whereas
others do not consider the price when making a purchase decision (Kotler & Keller,
2016). Price frames affect perceptions of consumers’ promoted price and the value they
carry at the promoted price. Price perception greatly affects a consumer's decision to
purchase a product. The perception of price explains information about a product and
provides a deep meaning for the consumers (Kotler & Keller, 2016). Hence, price is an
important factor in the purchasing decision, especially for products that are frequently
purchased, and in turn, influences the choices of which store, product, and brand to
patronize (Faith & Agwu, 2014). Consumers are very rational when it comes to judging
what benefits they wish to get from buying products or services they pay for.

Globally, Al-Salamin and Al-Hassan (2016) examined the impact of pricing on consumer
buying behavior in Saudi Arabia. The findings showed that there is a positive relationship
between prices and consumer buying behavior. It also showed that there is no statistically
significant difference between the responses of individuals due to age, gender, marital
status, qualification and monthly salary about the research's questions related to the three
pricing strategies (Odd pricing strategy, Bundle pricing strategy and Discount pricing
strategy) except there is a statistically significant difference between the responses of
individuals due to gender about the odd pricing strategy.

In Indonesia Usman and Nadila (2019) studied the effect of products, promotion, price
and location of buying decisions. The research was carried out for two months, starting in
November to December 2019. The results showed that each variable has the same effect.
It can be said, if the high buying decision will affect the product, promotion, price and
locations to purchase. Effect of product, promotion, price and good location will certainly
increase the high purchasing decisions. The description above shows that there are
significant jointly and significant correlation between product, promotion, price and
location.

In Nigeria, Dudu and Agwu (2014) examined the effect of pricing strategies on the
purchase of consumer goods. Also examined in the research was the effect of internet
(online presence) on informed purchase decision. The research intended to answer
3
questions on the extent to which competitors price affects purchase of products, how
customers perceived the value-based pricing concept of firms and the extent to which
online pricing informed customer purchase decision. Findings indicated that consumer
have a perception of value reflected in prices of firms’ products. It also showed that
competitor’s price affected the purchase of firm products and that online pricing informs
and affects purchase decision. The study contributes to knowledge in series of issues
associated with pricing strategies and purchase decision process.

Rebaï and Flacher (2015) conducted a research on price complexity and consumer choice
in the telecommunication service sector in Tunisia. An original survey of 1,500
representative consumers of the Tunisian population in 2007–2008 showed the existence
of “price complexity” in the telecommunications services sector: the surveyed consumers
reveal themselves to be ill-informed of prices, and their behavior appears more rational
(in terms of cost minimization) when the prices are clearly communicated. The results
showed a need to create a basis for a new form of price-complexity regulation in the
sector. Price complexity results not only from the variety of prices associated with a
bundle of services. Because it induces cognitive and informational bias, price complexity
can be characterized by a modification of the consumer’s rational and informed ability to
choose.

In Kenya, Wangari and Wagoki (2018) studied the influence of product pricing strategies
on competitiveness of Airtel company voice network service provider in Kenya. The
study established that product pricing strategies had significant relationship with
competitiveness of Airtel Company. As such, product pricing strategies was important in
determining competitiveness of Airtel Company. Munyoki (2007) analysed the factors
affecting pricing strategies of selected consumer goods in the retail market: a case study
of supermarkets in Nairobi, Kenya. Results indicated that competition was the most
important factor affecting pricing strategies, followed by handling and selling costs, and
demand consideration, respectively. The study also found that most of the known pricing
strategies are applied at varying degrees among the supermarkets depending on their age
size or location. Prices of the consumer goods studied were found to vary according to the
age size and location of the supermarkets and in particular it was established that prices of
small supermarkets tended to be slightly higher than those of large supermarkets.
4
1.2 Statement of the Problem
Customers have increasingly become price conscious and dealers with competitive prices
tend to attract more customers (Gupta, 2014). Today’s companies face fierce 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. Understanding how pricing strategies affect
consumer purchase decision is very important for retailers because it allows organizations
to develop appropriate strategies (Hinterhuber & Liozu, 2020).

There are studies which have used different methodologies when looking at the influence
of pricing strategies on consumer purchase decision in the past. Li and Peng (2020)
studied how heterogeneous consumer behavior affect pricing strategies of retailers. The
results showed that the strategic behavior of heterogeneous consumers does not always
have a negative impact on the profits of two retailers. The offline retailers can
strategically choose to set higher prices to increase profits, and online retailers can also
reduce the impact of heterogeneous consumer behavior by disclosing product attribute
information. Similarly, Ni (2019) studied pricing model for group buying based on
network effects. The study found that group buying strategy dominates individual buying
strategy when the positive network effect is sufficiently high or the proportion of
consumers with low valuation is relatively large. The study also found that mix strategy
offering both individual buying and group buying is always better than individual buying,
while the relationship between mix and group buying depend on actual market situations.

In their quest to explain the nature of relationship between price and consumer purchase
decision, Nyaga and Muema (2017) studied the effect of premium pricing strategy on the
profitability of insurance firms in Kenya. These results implied that premium pricing has
a positive effect on the profitability of insurance companies. Njeru (2017) examined
factors influencing pricing strategies on consumer purchase decision in supermarkets in
Nairobi County. Results showed that pricing strategies were significant in explaining
product choice, store choice, purchase amount, and purchase timing. Kane (2007) studied
5
the effect of different pricing strategies on consumer purchase decision in the insurance
industry and concluded that the behavior of consumers is influenced by the pricing
strategy the insurance company adopts.

Karanja (2012) explains that the supermarkets sector in Kenya is characterized by stiff
and increasing competition and therefore a good pricing strategy is ideal to make any
supermarket have a competitive advantage. Since supermarkets act as the link between
the manufacturer and the consumer they are expected to come up with pricing approaches
that foremost reflect the manufacturer's recommended price, and then provide a margin
for their profits or whatever is their pricing objective. These different prices among the
supermarkets are a manifestation of different pricing strategies (Hellsten, Chu, Crump,
Yu & Sutherland, 2016). What effect does they have on consumer purchase decision?
From the above studies a gap in research clearly comes out as these questions seem not to
have been addressed and this is the principle of this study. In that regard, this study
sought to determine the effects of pricing on consumer buying decisions particularly in in
the retail industry in Nairobi County.

1.3 General Objective

The general objective of this study was to determine effects of pricing on consumer
buying decisions among major supermarkets in Nairobi County, Kenya.

1.4 Specific Objectives

1.4.1 To determine the effects of discount pricing on consumer buying decisions among
major supermarkets
1.4.2 To establish the effects of bundle pricing on consumer buying decisions among
major supermarkets
1.4.3 To assess the effects of psychological pricing on consumer buying decisions
among major supermarkets.

1.5 Significance of the Study

1.5.1 Retail Managers
This study may be beneficial to retail outlet managers with strategic knowledge on how
pricing strategies influence consumer purchase decision. It may also enable them know
6
how many of their competitors adopt similar pricing strategies and therefore they may be
able to position themselves competitively and therefore they may be able to adopt the
right pricing strategy for their target market. This study would be significant to the
management of the retail sector in that the findings may help them in improving on their
marketing strategies as well as their current policies on customer management.

1.5.2 Customers
Customers and the public in general are also likely to benefit from the research by
understanding the various pricing strategies that are available. This may come in handy
when they are making decision in regard to what products they want to purchase, where
to purchase and the amount they may purchase.

1.5.4 Academicians & Researchers

This study may help in filling the existing knowledge gap on elements of consumer
purchase decision. The study may benefit academicians searching for information in this
area of marketing by providing yet another method of analysing the pricing strategies and
consumer purchase decision variables. Future scholars may also benefit from this study as
they continue in the pursuit of further studies in this topic.

1.6 Scope of the Study

The study specifically discussed the effects of pricing on consumer buying decisions
among major supermarkets in Nairobi County, Kenya. Therefore, the scope of the study
were the major retail supermarkets in Nairobi County, namely Carrefour, Naivas,
Quickmart and Chandarana in Nairobi County. The study focused on the customers of
these retail supermarkets. The study was limited to Nairobi area therefore this study did
not include nor addressed customers outside of study area. The actual fieldwork took
place between June 2021 to July 2021. The limitation of the study was the data collection
process where the respondents took a while to respond to the questionnaire. This
challenge was addressed by consistent follow-up with the respondents.

7
1.7 Definition of Terms

1.7.1 Pricing
Price is the amount of money charged for product or services. It is the sum of all values
that consumers exchange for the benefits of having or using the product or service
(Kotler, Armstrong, Trifts & Cunningham, 2019).

1.7.2 Discount Pricing

Discount pricing is a technique where items are offered at a reduced cost (Sheng &
Nakamoto, 2015).

1.7.3 Price Bundling

Price bundling refers to packages sold at a discount without any integration of the goods
and services involved (Vamosiu, 2017).

1.7.4 Psychological Pricing

Psychological pricing means changing prices in a way that leads to a psychological
impact on the consumer, thus changing his behavior directly, or in other words, exploiting
the psychological aspects and mental trends of the customer in order to make him think
that the price is less than it should be, or motivate him to pay more or to convey a
message about the product (Kotler & Keller, 2016).

1.7.5 Consumer Buying Behavior

Consumer buying behavior is the study of the ways of buying and disposing of goods,
services, ideas or experiences by the individuals, groups and organizations in order to
satisfy their needs and wants (Kotler & Keller, 2016).

1.8 Chapter Summary

This chapter is an introduction to the proposed study. It gives an elaborate discussion of
the background of the effects of pricing on consumer buying decisions. A pricing strategy
takes into account segments, ability to pay, market conditions, competitor actions, trade
margins and input costs. Also, the introduction section contains the statement of the
problem, specific objectives, and significance of the study, scope, and definition of key
terms. Chapter two involves a review of the literature in line with the objectives of this
8
study. The literature review focuses on studies on the effect of discount pricing, bundle
pricing and psychological pricing on consumer buying decisions. The third chapter
provides the methodology that was used in the study. Chapter four focuses on the results
and findings, and chapter five is the discussion, conclusion, and recommendations of the
study.

9
 CHAPTER TWO
2.0 LITERATURE REVIEW

2.1 Introduction
This chapter presents literature review on pricing and consumer buying decisions. The
chapter discusses the literature review as per the specific objectives that sought to
determine the effects of discount pricing on consumer buying decisions, establish the
effects of bundle pricing on consumer buying decisions, and assess the effects of
psychological pricing on consumer buying decisions among major supermarkets. In the
end, the study provides a summary of the chapter.

2.2 Discount Pricing and Consumer Buying Decisions

Discount pricing is reducing the price for a given quantity or increase the quantity
available at the same price, thereby enhancing value and create an economic incentive to
purchase (Armstrong & Chen, 2013). Price discounts (cut off prices) play an important
role in stimulating new customers’ behaviours to try the offered products. Chao and Liao
(2016) state that if a company determines that price discounts or discounts can positively
and significantly increase consumer’s purchase intention. Discount price has a positive
and significant effect on consumer’s purchase intention in the flash sale program.
Companies set the price of their products below the official price and sometimes even
below the cost to create a buying passion.

Price discounts might increase perceived quality decrease perceived quality or have no
effect on perceived quality (Huang, Chang, Yeh & Liao, 2015). High price discount
signals to consumers that they may receive a low-quality service. On the other hand, if
consumers can expect the product quality for example, at Starbucks, the same coffee is
served to everyone all the time whether a price promotion is used or not; they would be
excited to receive a price promotion, and a positive evaluation would result (Huang et al.,
2015). Customers tend to infer that a discounted product is low in quality, especially
when they receive an unexpectedly high price discount that other retailers typically do not
offer. However, previous studies showed inconsistent results on the relationship between
price discounts and perceived quality.

10
According to Lee and Stoel (2016) the economic effects of price discounts, a price
discount provides a monetary gain, an incentive to encourage consumers to purchase the
product. Consumers perceive a higher level of savings for a product when a higher price
discount is provided, and this relationship was confirmed by many previous studies. The
perceived savings concept has been used as the most common variable to measure the
response to a price promotion, according to Krishna, Briesch, Lehmann and Yuan (2012)
meta-analysis. For example, perceived savings have been used as significant responses to
comparison cues of a price promotion (i.e., the difference between an external reference
price and the actual price), price promotion messages, and tensile price claims. In other
words, perceived savings have been shown to be a useful measure of customers’
perceptions of price promotions.

Ahmadinejad, Asli and Ahmadinejad (2017) suggested that when consumers see a
discount, it will bring up the minds of consumers, consumers have worries when they
want to buy the product. This is in line with research conducted by Lee and Stoel (2016)
which says that a large discount will increase the risk perceived by consumers. The
research was conducted at the University in the Western USA, and used undergraduate,
graduate, and professional students as respondents with a total of 324. The analysis
technique used was exploratory factor analysis. Another supportive study also conducted
by Zhang, Deng and Xu (2017) in China with respondents is that college students found
that price promotions such as discounts or vouchers have a positive effect on perceived
risk. The analysis technique used in this research is Structural Equation Modelling (SEM)
with 215 college students as respondents.

2.2.1 Seasonal Discounts

A seasonal discount is a discount which is offered on seasonal goods or at particular
seasons (Kotler, Armstrong, Harris & He, 2020). Seasonal discounts are an expected part
of the annual retail calendar, especially in sectors that have seasonally affected product
trade. Short-terms peaks (seasonal) in sales usually attracted the occasional users of the
same brand more likely than getting new customers to purchase the discounted good,
moreover, these occasional users after getting benefit of this promoted good would most
likely getting back to their preferable brand or type rather than buying that promoted
brand at full price after discounted season. Seasonal discounts are used all the time and
11
are a potentially useful tool to help a business manage its uneven revenue patterns
throughout the year and ensure inventory turnover (Abratt & Bendixen, 2019).

Appiah-Adu and Amoako (2016) indicate that retailers use seasonal discounts year-round
to move inventory that is going out of season. Seasonal time companies sell retail
products at lowest possible prices if products are in higher quality or not. On the other
hand, consumers expect retail products at lowest price during seasonal time without
considering quality of the product. Retailer starts to practice penetration pricing strategy
in the seasonal time period. Because of that consumers identify the products as a low-
price product and attracts towards the products in its introduction stage. As described by
Martin (2016) during the seasonal time companies sell retail products at lowest possible
price if products are in higher quality or not. On the other hand, consumers expect retail
product at lowest price during seasonal time without considering the quality of products.
As further retailer starts to practice penetration pricing strategy in the seasonal time
period. Because of the consumers identification the product as a low-price product and
attract towards the product in its introduction stage. As described by Simon (2015)
pricing strategy provides temporary price discounts for retail products over form over
form their regular price.

Zhang, Chan and Xie (2018) allude that seasonal discount being offered on products and
services is being done so in order to lure the customers to buy their offering. A seasonal
discount over the year has become a compulsion on the part of companies to provide to
the customers. A firm which is not offering discounts during some seasons will lose out
their customers to other firms. There are some firms which offer discount on other
seasons as will and name it off season discounts where the firms may not be earning as
much or may have a slack period. The disadvantages of a seasonal discount are that a firm
may have to offer these discounts on every season which comes during the year. It
becomes mandatory for the firms to offer these discounts. Not offering the discounts on
these seasons may turn the customers dissatisfied and disgruntled and may not buy the
product. Hence, it becomes imperative for the firms and companies to look into this and
not offer discounts at every season which comes. For short term profit the companies in
this way are hampering their long-term profits (Appiah-Adu & Amoako, 2016).

12
Queenmary and Shivany (2019) researched on marketing strategies for the seasonal offers
at Mannar retail stores. Their research investigated seasonal marketing strategies adopted
by the retailers, and the consumer responses towards these seasonal marketing strategies.
Findings show, that all the strategies identified from the literatures were not espoused by
the retailers, diverse retailers adopt different strategies. For the diverse outlets, customers
are attracted by few seasonal based marketing strategies. The study suggested that context
specific marketing strategies for seasonal offers are preferred by the customers. Further
this study recommended to the retailers, that seasonal strategies can be improved and
implemented, those which are stated in the literatures. Further this study has managerial
implementation that consumer feedback is important before introducing seasonal
marketing strategies. Retailers can implement seasonal based strategies based on context
specific features as well as the consumer feedback.

2.2.2 Promotional Discounts

According to Percy, Rossister and Elliott (2016) consumers are more to be attracted to
price discount promotions. The effects of discount framing in comparative price
promotions are found to be influenced by discount size in the case of the low-product
context but not the high price one. Promotion type influences the rate of increase in
market demand and is product category dependent. Promotional offerings which can be
readily converted into monetary terms are more preferred to freebies but in the long-run,
they can affect the overall value of the product. Shrestha (2015) indicate that retailer
discount is preferred over advertised discount but has negative perception. The results
indicate a clear and strong moderating effect for perceived risk on consumer value
perceptions and preferences for extra free product promotions and price discounts.
Specifically, for products low on performance risk consumers tend to attribute higher
value to extra free product promotions than they do to discounts. The reverse occurs for
products high on performance risk where consumers attribute higher value perceptions
towards price discounts than they do to extra free product promotions. These findings
have implications for a variety of different product categories including innovative new
products, products with higher absolute promotion levels, and other categories where
perceived risk is likely to vary.

13
Puri, Sharma, Wagh and Kokatnur (2020) studied the impact of discounts on consumer
buying behaviour. The study revealed that the sales promotion has an influence in the
purchase decision of consumers though their entire decision depends on making purchase
anytime they will to. The consumers may be doubtful in some cases, but the offering of
discounts and price-off deals and such kinds of services satisfies the customers. The study
showed that sales promotion plays the important role in the marketing program for
marketers and retailers and customers are too satisfied with sales promotional tools such
as price discounts, coupons, free samples and “buy one get one free”.

Promotional discounts on both high-penetration, high-frequency items (staples such as

meat and produce) and low-penetration, low-frequency items (beer and condiments) lead
to increased traffic but lower sales per transaction. More and deeper promotions discounts
can increase traffic (Shrestha, 2015). Gauri, Ratchford, Pancras and Talukdar (2017)
researched on effects of promotional discounts and their characteristics on various store
performance. The results indicated that feature promotions build store traffic, especially
when the categories being featured are high penetration, high frequency. Also,
promotions of branded items are found to be more effective than promotions of
unbranded items. Discounting on more items in a category leads to lower store margins
suggesting that the cost of discounting a large proportion of items in a category may not
be justified by the profits generated by the sale.

Santini, Sampaio, Perin and Vieira (2015) analysed the influence of discount sales
promotion in the purchase intention and the moderating effects of attractiveness in the
relationship between intention to purchase a discounted product and the impulsiveness,
hedonic perception and financial risk. The results confirmed the hypothesis, indicating
positive effects of impulsivity and hedonic perception by purchasing the discounted
products, in addition to the negative link between the intention of purchasing discounted
products and the perception of a financial risk. Promotions have a huge impact on
consumers buying behavior such as purchase time, product brand, quantity and brand
switching. Moreover, consumer purchase decisions sometimes based on the price
sensitivity, individuals are more attracted to promoted products.

14
2.3 Bundle Pricing and Consumer Buying Decisions
Price bundling is combining several products or services into a single comprehensive
package for an all-inclusive reduced price (Simon, 2015). Despite the fact that the items
are sold for discounted prices, it can increase profits because it promotes the purchase of
more than one item. Price bundling mainly consists of several products, services or
products and services brought and sold together which are may or may not be
complementary to each other with a price discount to make sure that customers will not
make their own bundles themselves if those products are being sold separately
simultaneously. Price bundling, is a strategy that retailers use to sell lots of items at
higher margins while providing consumers a discount at the same time (Smith, 2016).

Dominique-Ferreira and Antunes (2020) conducted a study on estimating the price range
and the effect of price bundling strategies: An application to the hotel sector. The
bundling strategy results revealed that five-star customers are less sensitive to mixed-
leader bundling. Regarding mixed-joint bundling, managers could improve sales through
bundling strategies if they selected an attractive service (e.g. restaurants). With bundle
pricing, retailers offer several different products as a package deal, then offer that package
to consumers at a lower price than it would cost to purchase those items separately.
Bundle pricing is a great way to move products quickly, sell off less-successful, and offer
more value to loyal customers.

Weijie and John (2017) avers that the profitability of price bundling sales stems from the
decrease of variance of customers’ valuations of the products. This implies that when a
bundle is composed by two products in which consumer reservation prices for the two
types of products are negatively correlated, the valuation for the bundle will be higher
than the valuation of individual goods. Bundling of products is perhaps the most widely
used tactic to apply discriminated prices, although its logic often goes unnoticed.
Abdallah, Arash and Josh (2017) affirm that competition is an important factor in
determining the success or failure of price bundling where competition might come from
firms in the same category of bundled offering, from their own offerings which may
include single products as well as bundles, and from other categories of firms offering
other combinations of bundles and single products.

15
Uripi, Suliyanto, Adi and Kaukab (2021) examined the effect of pricing bundling
capability on price value offerings and marketing performance. Price building capacity
develops from pricing capability to fill the research gap of its effect on marketing
performance. Some studies prove that pricing capability affects performance. On the
other hand, some found that it does not and recommend further research to improve this
capability in line with the price strategy implemented by the company. The result
suggested that pricing bundling capability positively affects pricing capacity on marketing
performance and price value offerings. It also shows that price value offerings positively
affect the marketing performance and that price value offerings mediate the effect of
pricing capability on marketing performance.

2.3.1 Pure Bundling

According to Derdenger and Kumar (2016) pure bundling refers to the practice of selling
two or more discrete products only as part of a bundle. Only bundles are sold, their
components aren’t available separately. It isn’t possible to purchase the goods separately.
Pure bundling takes place when a customer only has the choice to purchase the bundle as-
is or not at all. This type of price bundling is simplest to accomplish, because the creation
of a bundle is entirely controlled. This pricing strategy is found in many restaurants where
the entrée comes automatically with a side dish the entrée and side dish can’t be
purchased separately. If bundled products are not sold separately a price discount will not
be necessary, hence it will not be meaningful to talk about a price contrast if there are not
any negligible separate prices. This kind of strategy will be named with the term “pure
bundling.

Smith (2016) argues that to call a strategy pure bundling none of the products must be
sold separately. Considering a bundle with 2 products; if a customer wants to buy only
one of the products in the bundle, there is no way rather than buying the bundle. Hence,
this is what makes this “pure price bundling” strategy illegal for market power beholder
companies. Another aspect of pure bundling is de-proliferation which is the reduction of
complexity. It lowers the product combinations and limits the decision variety not just for
the supplier but also for the customer. It reduces the product variety which is not eligible
for mixed bundling (Eckalbar, 2015).

16
Fuerderer, Herrmann and Wuebker (2013) opine that pure bundling is optimal if there is a
large number of products with independently distributed values, since the value of the
grand bundle concentrates by the law of large numbers. When firms can choose between
separate sales and pure bundling, it is always a Nash equilibrium that all firms bundle if
consumers buy all products. This is simply because if one firm unilaterally unbundles, the
market situation does not change. Pure bundling and selling products separately, i.e.,
offering each product at a price, are generally strictly dominated by mixed bundling, i.e.,
offering prices for all bundle.

Menicucci, Hurkens and Jeon (2015) provide sufficient conditions for the optimality of
pure bundling. They studied selling two products with additive and independently
distributed values. Their conditions require the virtual valuation of each product to be
positive on the entire support of values, and are not comparable to conditions. For
example, Microsoft only sells Microsoft Word as part of Microsoft Office (pure
bundling), whereas Apple has moved away from marketing the corresponding Pages
software as part of the iWork bundle, and it is currently available as a pure product. In the
smartphone market, both Apple and Google bundle software applications like Maps and
GPS with the hardware and operating system as a pure bundle. The variety of bundling
possibilities in each market and its ease of implementation make bundling an important
product strategy decision that hold significant potential for the firm.

Giri, Mondal and Maiti (2017) probed the pricing for complementary products in a non-
cooperative duopoly market under scenarios of separate sales and pure bundling sales,
and the result showed that the profit of pure bundling sales is higher than that of separate.
For manufacturers, the pure bundling pricing strategy will bring their profits higher
profits, however the retailer needs to use an appropriate pricing strategy in specific
circumstances. Price commitment strategy is complementary to the pure bundling strategy
when demands are independent and product costs are low, and it is substitutable to the
pure bundling strategy when demands are perfectly positively correlated or when demand
are independent and product costs are high.

17
Hunt and Saunders (2013) allude that while pure bundling is only feasible when average
cost drops below average budget customized expands the range of feasible bundling to
include and customized bundling is strictly better whenever there is heterogeneity in
valuations or consumers do not value all goods. When marginal costs are very low, it is
often optimal to bundle all goods together which leads to a dramatic simplification of the
bundling problem. These “pure bundling” results are robust to any set of consumer
preferences generated by a common distribution function for the value of each good
across all consumers. However, when pure bundles are not optimal, such as when
consumers are budget or attention constrained or marginal costs are significant, this
mechanism provides little guidance since limiting the size of a bundle of this form creates
substantial deadweight loss when customers are heterogeneous.

Haghpanah and Hartline (2020) affirm that suggest that pure bundling primarily serves a
valuable pedagogical tool. By charging a sufficiently high price for individual component
sales, in effect, the product is offered for sale only as a pure bundle. Pure bundling arises
when the bundling is done through technology. With a contractual bundle, there is at least
the possibility of disposing of the unwanted part of the bundle. With a technological
bundle, disposal of the bundled good may be costly or even impractical. This was a
significant concern in Microsoft’s integration of Windows and Explorer. It was not clear
that customers could dispose of Explorer without harming the performance of the
operating system. If Explorer were simply another feature of Windows then this would
put other suppliers of operating systems or browsers at a disadvantage. When it is done
through technological integration, this makes it even harder for customers to replace
Explorer with a competing browser supplier, such as Netscape, even if that browser is
given away.

2.3.2 Mixed Bundling

According to Schmalensee and Willig (2016) mixed bundling is the practice of selling a
bundle of the products as well as the individual products themselves. Bundles and their
components are sold jointly. Mixed bundling isn’t as strict as pure bundling. This strategy
is to sell both bundle and at least one of the ingredients of the bundle separately.
Customer should make a decision whether to buy the bundle or just the product alone.
Mixed bundling offers a unique and previously unexplored method for extracting more
18
value from consumers over the product life cycle. Mixed bundling seems to be an optimal
pricing strategy for the markets including customers with both “balanced” and “extreme”
preferences. Under mixed bundling the bundle is offered on more favourable terms than
the separate products.

Marburger (2015) explains that mixed bundling has a gain and a loss compared to pure
bundling. The gain is from selling to more types, i.e., types who are unwilling to pay the
full price for the grand bundle but are willing to take the discounted offer. The loss is
from types whose demand is diverted from the full price to the discounted offer. These
types have high value for the grand bundle and high relative value for the smaller bundle
(so that they find the discounted offer attractive). The loss is larger than the gain if types
with higher values for the grand bundle are more likely to have high relative values, and
is smaller if such types are more likely to have low relative values. Zhang (2017) explain
that mixed bundling is itself dominated by offering randomized bundles. In some
circumstances, the nature of the mixed bundle offering can be quite subtle. Volume
discounts can also be included in the set of mixed bundling practices for product
categories such as cars, computers, vacation packages, and new homes, consumers
usually choose not only the product itself, but also various options for the product. Sellers
decide how to present these options to consumers, and they often sell options both
individually and in bundles (mixed bundling).

Zhou (2017) avers that mixed bundling can be a profitable price discrimination device by
offering purchase options to screen consumers. When consumers are uniformly
distributed and have unit demand for each product) where mixed bundling intensifies
competition and benefits consumers relative to separate sales. More generally, however,
mixed bundling in duopoly has ambiguous impacts on price, profit and consumer surplus.
Mixed bundling harms firms and benefits consumers, since bundling affects prices in an
ambiguous way, its impacts on profits and consumer surplus are also ambiguous. Mixed
bundling strategy provides both the bundled product and the component products
individually.

19
Jidong (2019) examined mixed bundling in oligopoly markets. The study examined both
a firm’s incentive to introduce mixed bundling and equilibrium tariffs when all firms
adopt the mixed-bundling strategy. The results indicated that in the duopoly case, relative
to separate sales, mixed bundling has ambiguous impacts on prices, profit and consumer
surplus. While with many firms mixed bundling lowers all prices, harms firms and
benefits consumers under a mild condition. Mixed bundling combines the advantages of
pure bundling and pure components strategies, because this policy enables the seller to
reduce effective heterogeneity among those buyers with high reservation prices for both
goods, while still selling at a high mark-up to those buyers willing to pay a high price for
only one of the goods. Thanassoulis (2014) also looks at customer welfare in the context
of mixed bundling and finds that if the buyers have brand-specific tastes, or incur firm-
specific costs, then their welfare is reduced, but on the other hand it increases when the
differentiation between components increases.

2.4 Psychological Pricing and Consumer Buying Decisions

According to Caldwell (2017) psychological pricing is a pricing strategy that utilizes
specific techniques to form a psychological or subconscious impact on consumers. It
integrates sale tactics with price. It can also be described as setting prices lower than a
whole number. Evidences explain that the psychological pricing communicates meaning
to consumers. The idea behind psychological pricing is that customers will read the
slightly lowered price and treat it lower than the price actually is. This strategy does not
lower the prices, it is related to the emotions of the customer. This concept is based on the
notion that every consumer is not a rational consumer.

Husemann-Kopetzky (2018) avers that psychological pricing was a marketing or pricing

approach based on the idea that certain prices have psychological effects on customers'
price perception, attitude, and purchasing behavior. This method has been used by
marketers and organizations to influence consumers' decision-making processes over
time, particularly in the retail sector and in price advertising. In many nations, the practice
of psychological pricing in retail has grown commonplace. Despite the fact that the
results were somewhat conflicting across product categories and nations. The
achievement of nine-ending prices appears to be appropriate, especially for low-cost
items. The basic premise of psychological pricing is that prices set just below the nearest
20
ringed number elicit stronger demand than predicted at that level. This means that the
purchasing likelihood for just-below-price items was to the right of predicted demand
curves, causing the demand curves to kink at these places (Dholakia, 2017).

Pandey and Kumar (2017) examined the impact of psychological pricing strategy on
consumers' buying behaviour: A qualitative study. The findings showed that socio
demographic factors like age, income, education, gender, lifestyle, family size, reference
groups, social roles and status and the psychological patterns like representativeness,
availability of products and the anchoring heuristics are key factors which influence
consumers' buying behaviour. Additionally, the consumers, who are more price cognisant
are more probable to select nine-ending prices. Indeed, low involved customers, those
with a small hedonic and symbolic attachment profile, low educated, low income and
younger customers are prone to select the nine-ending priced products and services.

2.4.1 Prestige Pricing

Prestige pricing, also known as premium pricing or image pricing, is a psychological
pricing strategy that appeals to a buyer’s psyche (Pride, Ferrell, Lukas, Schembri,
Niininen & Casidy, 2017). It is when a company set prices for its products at a higher
point to provide customers with the impression that the product is high-value. This type
of strategy is closely related to brand perception. Businesses that employ this method to
pricing usually have products that are not only known for their superior quality but also
the value they provide to customers. The pricing approach is based on the notion that
customers perceive more value in the product if it’s expensive, and that they’re willing to
pay even though it’s priced higher. Prestige pricing is based on several assumptions about
consumers. For prestige priced goods an increase in price may actually result in an
increase in the quantity demanded. Thus, the demand curve actually slopes upward for
prestige products. If the price is lowered the product is perceived to be less desirable and
demand may decrease.

Gilady (2018) explain that prestige pricing strategy, is one of the strategies in pricing the
high price level. It is done as a form of imaging that the value of the products offered are
value and high quality. It means that psychologically, the high price of a product reflects
the level of social class of consumers is high. The consumer purchase decision is
21
influenced by the characteristics of the consumers themselves. Referring to the theory of
consumer behavior Kotler and Keller (2016) opine that the factors behind the consumer to
make a purchase are factor of culture, social, personal, and psychological. Prestige pricing
strategy varies based on a firm’s goals for their brand and offerings. A business can
justify a higher price point if it has a unique value proposition that makes its product
distinctive from the competition. Fashion, luxury cars, technology, perfume brands and
other luxury products are typically priced using this method because they can be
marketed exclusively.

William and Ferrell (2015) state that prestige pricing is high pricing by the company as
the implementation of consumer perceptions of these products, that high prices show the
best product quality. It gives prestige pricing strategy for its users and still maintain high
prices so that consumers do not turn to other products. It was also applied to the perfume,
which had a distinctive aroma, unique bottles, futuristic, interesting and show class. The
application of high prices remains in place, although in certain moments are given special
discounts to consumers, it was not too big, just as a sweetener, the figure is about five to
ten percent of the product price, said one store manager brand of perfume.

Subawa (2016) conducted a research on prestige pricing strategy as a symbol of social

class on perfume products. The results showed that the first, the meaning of social class,
that class was connected with the premium class perfume consumed by certain groups of
people. Secondly, life style that is now for people using branded perfume is part of daily
activities, and become part of the lifestyle. Because it was done patterned, repetitive, and
in a certain period of time in accordance with the nature of the lifestyle itself. Third, are
the value & Psychological pricing, it was very specific in contrast to sales of other
products in general. Producers to sellers maintain sales strategy accompanied with high
price remain optimal service to attract or retain customers. Fourth, was the meaning of
prestige, that the practice of buying branded perfume with an expensive price to increase
or maintain the prestige of its users. Exchange of capital was very evident, buyers
exchanging economic capital, social and cultural symbolic capital to achieve the sense of
pride and prestige.

22
2.4.2 Odd-Even Pricing
According to Lewis (2015) one type of psychological pricing is odd pricing when the
retailer sets up the price slightly lower than a rounded number, so it is expected that
customers will not round up these prices, and will treat the price lower than it actually is.
Odd pricing is a distinctive feature of modern pricing and the fractional pricing policy is
used in retail trade more than in wholesale trade, where prices are placed at fractional
numbers or less than the correct numbers such as (4,95 - 7.99 riyals) or the use of ending
prices with numbers less than ten such as 5, 6, 7, 8, 9, and when consumers see the
numbers 5.95, 6.98, 7.99 they will not see them as normal retail prices, but rather they
look at 6.77 as a price discount, and that some prices are more attractive than price 5
Saudi riyals because the consumer may see it 4 riyals and a few.

Wadhwa and Zhang (2015) indicate that odd pricing is extremely common to find these
days and is being used widely. Many producers have started using this for a range of
products. Some shops that give out discounts to their customers are also using this
technique. Even odd pricing is also widely used in retail stores. There are stores that sell
everything they have at a price that is fixed using the even odd pricing method. Odd
pricing strategies are more common than even ones. Odd pricing is structured to give
buyers the subconscious impression that the product is being sold at a discount. The
psychology behind the practice hinges upon the particular attention consumers pay to the
first number of a price. That initial number tends to frame a consumer's perception of a
product's value more than the price as a whole.

The odd-even psychological pricing strategy, a common practice in the marketplace

which uses certain odd and even digits as price endings which have the potential to
influence consumers ‘perceptions of the price or the product (Lewis, 2015). Even though
the actual origin of odd- even pricing is unclear, the use of odd pricing has been evident
for more than 100 years. Since that time the practice of odd pricing in retailing has
become common in many countries. Even though results have been to some extent
contradictory across product categories, the success of odd ending prices seems to be
valid, especially regarding low-priced products which are purchased regularly. The use of
odd ending prices, the practice of pricing just below the nearest round number, is very
common in retail locations. The fundamental assumption of odd pricing is that prices set
23
just below the nearest round figure produce higher than expected demand at that level
(Hackl, Kummer & Winter-Ebmer, 2014).

According to Omarov (2019) a buyer’s expectation depends largely on their previous

experiences and current perception of prices. Actually, the practice of odd pricing in
retailing is so extensive that its effectiveness is generally taken for granted. Buyers
believe that, prices ending in uneven, rather than even numbers, are a better deal or a
better price than even numbers. The widespread use of odd-even pricing suggests that,
such price endings are important in the development of marketing strategies, especially
for retailers of fast-moving consumer goods. In the past, retailers have had a presumption
that pricing a product just below a round number is beneficial. This denotes that the
purchase probabilities for just-below prices are positioned well to the right of the
estimated demand curves, generating a kink in the demand curves at these points.

2.4.3 Price Anchoring

Price anchoring is a pricing strategy that plays on buyers' inherent tendency to rely
heavily on a piece of initial information to guide subsequent decisions (Simon &
Fassnacht, 2019). Price anchoring is the concept of making a product that was first
offered seem cheaper when it put alongside another product. That first product then acts
as an anchor as customers will use that first product as a reference point for selecting a
product to purchase. Customers will perceive the price of two products relative to one
another, and the customer uses the first product offered as a comparison point for other
products as well. This strategy can also be implemented when trying to anchor a lower-
priced product (Pohl, 2017).

Hill (2015) explain that the original price establishes itself as a reference point in the
minds of consumers which they then anchor onto to form a favourable opinion of the
marked down price. Customers tend to be very indecisive when it comes to choosing
what product to buy when they have many different products to choose from. This can
become a problem because customers can walk away if they are unable to decide what
product is best for them. Firms can avoid this problem by sticking a 'most popular' or
'customer favourite' label on the product. Using the bandwagon effect can serve as a huge
benefit for brands as the bandwagon effect acts as a frame of reference for customers.
24
When this effect is tied with an anchor price, this allows customers to make much easier
decisions when choosing a product to buy.

Simon and Fassnacht (2019) indicate that anchor pricing automatically triggers a response
in the consumer of having found a good deal, pushing them to act on their impulsive
buying habits. Customers will normally decide to buy a product because it is the easiest
way for them to get rid of that pain that comes from decision making. When it comes to
price anchoring, it is always best to add a higher and lower tier to a product. The higher
and lower tier price points act as anchor prices and push customers towards the middle
option and making a faster decision. While customers may choose the higher or lower
product, having a middle option means that the whole spectrum has been covered and that
attracts more customers as a result.

Tanford, Choi and Joe (2018) examined the influence of pricing strategies on willingness
to pay for accommodations: anchoring, framing, and metric compatibility. The results
found that a high anchor increases willingness to pay compared to a low anchor, and
consumers will pay more when exposed to an average price versus a range. Anchoring
effects are reduced when the budget goal is incompatible with a high anchor but not a low
anchor. The findings can be attributed to dual processing systems and asymmetry effects.
The results yield practical guidelines for effective pricing strategies.

2.5 Chapter Summary

This chapter presents a review of literature. Empirical literature review of previous

related studies on the effect of discount pricing, bundle pricing and psychological pricing
on consumer buying decisions has been discussed. Price discounts (cut off prices) play an
important role in stimulating new customers’ behaviours to try the offered products. Price
bundling, enables retailers to sell lots of items at higher margins while providing
consumers a discount at the same time. The idea behind psychological pricing is that
customers will read the slightly lowered price and treat it lower than the price actually is.
The next chapter consists of research methodologies. Chapter four provides the study
results and analysis.

25
 CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 Introduction
This chapter discusses the methodology that was used to conduct the research on the
effects of pricing on consumer buying decisions among major supermarkets in Nairobi
County, Kenya. The chapter discusses the research design, the population of study,
sample and sample techniques, data collection methods as well as data analysis and data
presentation methods that were used in the course of the study.

3.2 Research Design

For this study, descriptive research design was used. According to Gravertter and Forzano
(2011) descriptive design involves measuring a set of variables as they exist naturally.
The design offers the researcher a profile or to describe relevant aspects of the
phenomena of interest from an individual, organization or other perspectives. Gill and
Johnson (2010) state that in order to compare the relationship between different variables,
descriptive research design addresses specific qualities of a target population of
participants at a point in time. Descriptive design was ideal for this study since it enabled
the researcher to determine the effect of the independent variables (discount pricing,
bundle pricing and psychological pricing) on dependent variable (consumer buying
decisions).

3.3 Population and Sampling Design

3.3.1 Population
According to Cooper and Schindler (2018) a population is the collection of elements
about which we make inferences. The population that is of interest to the researcher,
should be accessible, which makes it a lot easier to get the required data and it should be
related to the sole purpose of the study and the population should also be quantifiable. For
the purpose of this study, the target population comprised of customers of the four major
supermarkets in Nairobi County that included Carrefour, Naivas, Chandarana and
Quickmart. The population of the study focused on customers with loyalty card/ bonus
card of the targeted supermarkets which were derived from customer service database.

26
This target population provided sufficient information on the effects of pricing on
consumer buying decisions among major supermarkets in Nairobi County, Kenya.
Table 3.1: Population Distribution
Category Population Percentage
Carrefour 637 33
Naivas 533 27
Quickmart 475 25
Chandarana 285 15
Total 1930 100
Source: Supermarkets Consumers Loyalty Card/ Bonus Card Database (2021)

3.3.2 Sampling Design

3.3.2.1 Sampling Frame
According to Welman and Krugler (2009) a sampling frame is a complete list of all
members of the population that the researcher wishes to study. A good sample frame
includes of all the members in the targeted population and excludes those which are not in
the targeted population. For this study, the sampling frame list was obtained from
identified supermarkets customer service departments consumers’ loyalty card/ bonus
card database.

3.3.2.2 Sampling Technique

According to Cooper and Schindler (2018) a sampling technique is defined as the method
that a researcher employs to pick a sample size from the entire population. In this study,
stratified random sampling was adopted. Stratified random sampling is a method of
sampling that involves the division of a population into smaller sub-groups known as
strata (Thompson, 2012). In this study stratified sampling technique was utilized since the
population itself was stratified in nature. The strata consisted of customers with loyalty
card/ bonus card from Carrefour, Naivas, Chandarana and Quickmart. This ensured that
the sampling units had an equal chance in the study and it did not introduce bias.

3.3.2.3 Sample Size

According to Saunders, Lewis and Thornhill (2009) a sample size is a small proportion of
units in a population that represent the whole. Sample size is simply the number of
27
observations in a sample. For this study, Yamane (1973) formula was used to determine
the sample size. The appropriate sample size for the study was 331 consumers as
presented in Table 3.2.

Where:
𝑛 = corrected sample size,
𝑁= population size, and
𝑒 = Margin of error (MoE), e = 0.05
Therefore:

Table 3.2: Sample Size

Category Population Percentage Sample Size
Carrefour 637 33 109
Naivas 533 27 91
Quickmart 475 25 82
Chandarana 285 15 49
Total 1930 100 331

3.4 Data Collection Methods

As stated by Cooper and Schindler (2018) methods for data collecting are defined as
procedures used by a researcher to collect data from study respondents in order to respond
to the study. The purpose of all data gathering is to acquire quality information that then
converts to rich data analysis and enables a compelling and credible response to questions
that have been asked to be established. The type of data collected was primary data and
the collection method that was used in this research was surveys. Emory and Cooper
28
(2008) observe that a survey entails questioning people and recording their responses for
analysis. A survey is desirable where respondents are qualified to provide the desired
information. Survey research is used to gather the opinions, beliefs and feelings of
selected groups of individuals, in order to describe an existing phenomenon. Moreover, it
explores the existing status of two or more variables at a given point in time.

The type of survey that was used during this research was a questionnaire. The
questionnaire acted as a form of primary collection method. This was because they were
easier to administer and saved time. The researcher adopted a questionnaire tool with a
five-level Likert scale ranging from strongly disagree, disagree, neutral, agree, and
strongly agree. The questionnaire was divided into four sections. The first section
constituted of general information of the respondents, followed by the second section
questions on discount pricing, the third section questions on bundle pricing and the fourth
section questions addressing psychological pricing. The questionnaires included open as
well as closed ended questions which sought the respondent’s opinions, what their views
were.

3.5 Research Procedures

According to Mukherjee (2020) research procedures are the step by step processes that
guide a researcher on how to conduct the study, or how to collect data for the study. Prior
to data collection, the researcher sought an approval from to supervisor to submit the
research for approval from the USIU-A Institutional Review Board research and Ethics
Committee. After granted research approval letter from the IRB the researcher sought a
research permit from the National Commission for Science Technology and Innovation
(NACOSTI) for the validity of the study. Before starting out the main research, a pilot
study was conducted to assess the reliability and validity of the questionnaires.
Questionnaires required for this research were formulated before pre-testing.

Pre-testing was done during this research by giving the questionnaire to 20 respondents,
who were selected but were not be part of the sample. This was because it represented 5%
of the entire sample of size. According to Copper and Schindler (2018) when conducting
a research, a researcher can use 5% of the respondents therefore, in this study a 5% of the
respondents was used to pre-test the questionnaire. Validity determines whether the
29
research truly measures that which it was intended to measure or how truthful the
research results are (Taylor, 2013). Validity of this study was tested by supervisor
comments to ascertain whether the question in the question meets the objective of the
study and the language used in the questionnaire is easily understandable. Reliability on
the other hand measures the degree to which a research instrument gives consistent
results. In this study reliability was measured using the Cronbach Alpha test to determine
the reliability of the questionnaire which according to Singh, Sedory, Rueda, Arcos and
Arnab (2015) the threshold for a reliable tool is between ≥0.5 to ≥0.7 for questionnaire
items ranging between 5-10. Therefore, this study upheld the standard threshold, and only
made use of the tool that met the set standards.

Table 3.3: Reliability Test

Questionnaire Section No of Items Coefficient Outcome
Discount pricing and Consumer Buying 10 .825 Reliable
Decisions
Bundle Pricing and Consumer Buying 10 .758 Reliable
Decisions
Psychological Pricing and Consumer Buying 10 .830 Reliable
Decisions
Overall 30 .792 Reliable

Errors likely to affect reliability are interviewer/interviewee fatigue, bias from the
interviewer and inaccuracy of the instrument in use, inaccuracy in scoring by the
researcher and finally, unexplained errors whose source cannot be determined. The study
ensured confidentiality was observed throughout the study for the respondents who gave
personal information, which they did not want to share with others apart from the
researcher. In addition to this, anonymity of the respondents was assured, and the purpose
of the study was explained to them before the questionnaires were administered to them.
After the data collection, the questionnaires were analysed and presented for future
reference. Researchers should always act with integrity, upholding high standards of
ethics that include attributes like honesty and sincerity (Saunders et al., 2009). As a result,
the researcher ensured that all participants were completely aware of the nature of the
study and were fully educated about the study's intended goal so that they could offer
30
informed consent. Respondents were guaranteed anonymity and confidentiality as a result
of the study's non-disclosure of their identities.

3.6 Data Analysis Methods

According to Hardy and Bryman (2009) data analysis is the process of shifting through
the data obtained and piecing together numerical evidence about the social world. In the
analysis, the measurements of the factors relevant to the research question were integrated
into the questionnaires that was distributed to the owners and staff and the questions were
posed in an acceptable manner to provide the answers with sufficient pro forma. In this
study, quantitative data analysis method was used. The collected data was cleaned, edited
and coded before the analysis. The SPSS tool together with Microsoft Excel program
were used to analyse and interpret the data. Data collected was analyzed using descriptive
statistics frequencies and percentages. Descriptive analysis involves a process of
transforming a mass of raw data into tables, charts with frequency distribution and
percentages (Wetcher-Hendricks, 2011). The main inferential statistics that were used to
test the significance of the relationship between the study variables were correlations and
linear regressions. Correlation analysis is a measure of association between two variables
while controlling or adjusting the effect of one or more additional variables, and it was
used to test for significance among the study variables. The linear regression analysis was
also be used to examine the level of influence the independent variables have on the
dependent variable. Tables and figures were used to present the data. The following
regression equation was used.
Y=β0+β1X1 +β2X2 +β3X3+ ε
Where;
Y= Consumer Buying Decisions
β0= constant
β1……β3 =coefficients
X1= Discount Pricing
X2 = Bundle Pricing
X3= Psychological Pricing
ε = error term

31
3.7 Chapter Summary
The research method and procedures used in the conduct of the study have been described
in this research. The chapter entails the form of research, followed by a description of the
nature of the research. The study's population was also clarified. The survey procedure
and the sample size used in this study have been discussed in the research methodology.
The data collection method used have been clarified, line with the research technique
used to collect the data and the data analysis used in this study has been addressed. The
next chapter is the results and findings.

32
 CHAPTER FOUR
4.0 RESULTS AND FINDINGS
4.1 Introduction
This chapter presents results and findings of pricing and consumer buying decisions. The
chapter presents the obtained descriptive and inferential analysis for the specific
objectives that sought to determine the effects of discount pricing on consumer buying
decisions, establish the effects of bundle pricing on consumer buying decisions, and
assess the effects of psychological pricing on consumer buying decisions among major
supermarkets. In the end, the study provides a summary of the chapter.

4.2 Response Rate and Background Information

This part of the study provides the results and findings of the response rate that the study
achieved as well as the background information of the study population.

4.2.1 Response Rate

From the 331 questionnaires supplied to the targeted population, 237 were received by the
researcher and used for analysis. This gave the study a response rate of 71.6% which was
thought by the researcher to be satisfactory for the study.

Figure 4.1: Response Rate

4.2.2 Respondents’ Gender

Figure 4.2 presents the results for the respondents’ gender and it shows that 51% were
male, and 49% were female. This indicates that most of the customers in the Kenyan
supermarkets were female, and that both genders were well represented in this study since
a substantial portion was male.
33
Figure 4.2: Respondents’ Gender

4.2.3 Respondents’ Age Bracket

Figure 4.3 presents the results of respondent’s age bracket, and it shows that 68% were
aged between 31-30 years, 20% were between 31-40 years, 9% were between above the
age of 51 years, and 3% were between41-50 years. This indicates that all age brackets
were covered in the study.

Figure 4.3: Respondents’ Age Bracket

4.2.4 Respondents’ Level of Education

Figure 4.4 presents the results for the respondents’ level of education, and it shows that
66% had their bachelors’ degrees, 16% had their master’s degrees, 7% had their
diplomas, 6% had their certificates, and 5% had their Ph.Ds. This shows that the
respondents had a great educational background.

34
Figure 4.4: Respondents’ Level of Education

4.3 The Effects of Discount Pricing and Consumer Buying Decisions

The first objective of the study sought to determine the effects of discount pricing on
consumer buying decisions among major supermarkets. Its results and findings have been
presented in this section.

4.3.1 Discount Pricing on Buying Decisions

Table 4.1 indicates that price discounts motivate new customers to try products being
offered as agreed to by 84.4% of the study respondents, 13.5% were neutral, and 2.1%
disagreed (M=4.24, SD=0.843). High price discount did not show consumers that they are
receiving low-quality products or service as agreed to by 32.1% of the study respondents,
42.2% were neutral, and 25.7% disagreed (M=2.91, SD=0.895). Consumers reckon that
they can save more on a product when a higher price discount is provided as agreed to by
74.3% of the study respondents, 18.6% were neutral, and 7.2% disagreed (M=3.95,
SD=0.926). When consumers see a discount, they do not worry about the product they
want to buy as agreed to by 50.2% of the study respondents, 28.7% were neutral, and
21.1% disagreed (M=2.61, SD=1.101).

35
Table 4.1: Discount Pricing on Buying Decisions
SD D N A SA Std.
% % % % % M Dev
Price discounts motivate new customers 2.1 0 13.5 40.1 44.3 4.24 .843
to try products being offered
High price discount shows consumers 5.1 27 42.2 23.2 2.5 2.91 .895
that they are receiving low-quality
products or service
Consumers reckon that they can save 1.7 5.5 18.6 44.3 30 3.95 .926
more on a product when a higher price
discount is provided
When consumers see a discount, they 15.6 34.6 28.7 15.2 5.9 2.61 1.101
worry about the product they want to
buy

4.3.2 Seasonal Discounts on Buying Decisions

Table 4.2 indicates that customers expect seasonal discounts as part of the annual retail
calendar as agreed to by 78% of the study respondents, 18.1% were neutral, and 3.8%
disagreed (M=3.99, SD=0.885). Seasonal discounts are used by retailers to move
inventory that is going out of season as agreed to by 76% of the study respondents, 16.9%
were neutral, and 7.2% disagreed (M=4.07, SD=0.915). Retailers use a seasonal discount
to lure customers to buy their products/ services as agreed to by 84.9% of the study
respondents, 11.8% were neutral, and 3.4% disagreed (M=4.09, SD=0.808).

Table 4.2: Seasonal Discounts on Buying Decisions

SD D N A SA Std.
% % % % % M Dev
Customers expect seasonal discounts as 3.4 0.4 18.1 50.2 27.8 3.99 .885
part of the annual retail calendar
Seasonal discounts are used by retailers 0 7.2 16.9 37.6 38.4 4.07 .915
to move inventory that is going out of
season
Retailers use a seasonal discount to lure 2.1 1.3 11.8 54.9 30 4.09 .808
customers to buy their products/ services

36
4.3.3 Promotional Discounts on Buying Decisions
Table 4.3 indicates that customers prefer promotional offerings that could be converted
into monetary terms compared to freebies as agreed to by 59.9% of the study respondents,
28.3% were neutral, and 11.9% disagreed (M=3.73, SD=1.052). Sales promotion
influences the purchase decision of consumers as agreed to by 71.3% of the study
respondents, 21.5% were neutral, and 2.2% disagreed (M=3.93, SD=0.943). Promotional
discounts may lead to increased traffic, but lower sales per transaction as agreed to by
47.7% of the study respondents, 31.2% were neutral, and 21.1% disagreed (M=3.34,
SD=0.964).

Table 4.3: Promotional Discounts on Buying Decisions

SD D N A SA Std.
% % % % % M Dev
Customers prefer promotional offerings 3 8.9 28.3 32.5 27.4 3.73 1.052
that could be converted into monetary
terms compared to freebies
Sales promotion influences the purchase 1.7 5.5 21.5 40.9 30.4 3.93 .943
decision of consumers
Promotional discounts may lead to 2.1 19 31.2 38 9.7 3.34 .964
increased traffic, but lower sales per
transaction

4.3.4 Correlation Analysis Between Discount Pricing and Consumer Buying

Decisions
Table 4.4 presents the correlation analysis results between discount pricing and consumer
buying decisions, and it shows that discount pricing was significant to consumer buying
decisions (r=544, p<0.05).

Table 4.4: Correlations Between Discount Pricing and Consumer Buying Decisions
Customer Buying Decisions Discount Pricing
Customer Buying Decision 1
Discount Pricing .544** 1
.000
** Correlation is significant at the 0.01 level (2-tailed)

37
4.3.5 Regression Analysis Between Discount Pricing and Consumer Buying
Decisions
4.3.5.1 Model Summary Between Discount Pricing and Consumer Buying Decisions
Table 4.5 presents the regression model summary results between discount pricing and
consumer buying decisions. The table shows that discount pricing could be used to
explain 29% of the variance in consumer buying decisions.

Table 4.5: Model Summary Between Discount Pricing and Consumer Buying
Decisions
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .544ª .296 .293 .44256
a. Predictors: (Constant), Discount Pricing

4.3.5.2 ANOVA Between Discount Pricing and Consumer Buying Decisions

Table 4.6 presents the analysis of variance (ANOVA) results between discount pricing
and consumer buying decisions. The table shows that the study variables were linearly
related and that discount pricing was significant to consumer buying decisions (F (1,236)
= 98.760, p<.05).

Table 4.6: ANOVA Between Discount Pricing and Consumer Buying Decisions
Model Sum of Squares df Mean Square F Sig.
1 Regression 19.343 1 19.343 98.760 .000b
Residual 46.026 235 .196
Total 65.396 236
a. Predictors: (Constant), Discount Pricing
b. Dependent Variable: Consumer Buying Decision

38
4.3.5.3 Regression Coefficients Between Discount Pricing and Consumer Buying
Decisions
Table 4.7 presents the regression coefficients results between discount pricing and
consumer buying decisions. It shows that there was a significant relationship between
discount pricing and consumer buying decisions since a unit improvement in discount
pricing would change consumer buying decisions by a mean index of 0.592.

Table 4.7: Regression Coefficients Between Discount Pricing and Consumer Buying
Decisions
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
1 (Constant) 1.590 .223 7.125 .000
Discount Pricing .592 .060 .544 9.938 .000
a. Dependent Variable: Consumer Buying Decisions

4.4 Bundle Pricing and Consumer Buying Decisions

The second objective of the study sought to establish the effects of bundle pricing on
consumer buying decisions among major supermarkets. Its results and findings have been
presented in this section.

4.4.1 Bundle Pricing on Buying Decisions

Table 4.8 indicates that price bundling increases profits because it promotes the purchase
of more than one item as agreed to by 69.6% of the study respondents, 19% were neutral,
and 11.4% disagreed (M=3.76, SD=1.002). High-end customers are less sensitive to
mixed-leader bundling strategies as agreed to by 60.8% of the study respondents, 27.8%
were neutral, and 11.4% disagreed (M=3.74, SD=1.011). Bundling of products is the
most widely used tactic by supermarkets as agreed to by 53.1% of the study respondents,
32.5% were neutral, and 14.3% disagreed (M=3.52, SD=1.032). Price bundling affects
pricing capacity on marketing performance as agreed to by 48.9% of the study
respondents, 38.4% were neutral, and 12.7% disagreed (M=3.45, SD=0.820).
39
Table 4.8: Bundle Pricing on Buying Decisions
SD D N A SA Std.
% % % % % M Dev
Price bundling increases profits because 3.8 7.6 19 47.7 21.9 3.76 1.002
it promotes the purchase of more than
one item
High-end customers are less sensitive to 1.7 9.7 27.8 34.2 26.6 3.74 1.011
mixed-leader bundling strategies
Bundling of products is the most widely 4.2 10.1 32.5 35.4 17.7 3.52 1.032
used tactic by supermarkets
Price bundling affects pricing capacity 0 12.7 38.4 40.5 8.4 3.45 .820
on marketing performance

4.4.2 Pure Bundling on Buying Decisions

Table 4.9 indicates that in pure bundling, it is not possible for customers to purchase the
goods separately as agreed to by 62.8% of the study respondents, 23.6% were neutral, and
13.5% disagreed (M=3.72, SD=1.100). Pure bundling limits the decision variety for the
customer as agreed to by 75.5% of the study respondents, 16% were neutral, and 8.5%
disagreed (M=3.91, SD=0.900). Pure bundling primarily serves the retailer and not the
customer as agreed to by 54.5% of the study respondents, 30% were neutral, and 15.6%
disagreed (M=3.60, SD=1.027).

Table 4.9: Pure Bundling on Buying Decisions

SD D N A SA Std.
% % % % % M Dev
In pure bundling, it is not possible for 4.6 8.9 23.6 35.4 27.4 3.72 1.100
customers to purchase the goods
separately
Pure bundling limits the decision variety 1.3 7.2 16 50.2 25.3 3.91 .900
for the customer
Pure bundling primarily serves the 1.3 14.3 30 32.1 22.4 3.60 1.027
retailer and not the customer

40
4.4.3 Mixed Bundling on Buying Decisions
Table 4.10 indicates that mixed bundling strategy extracts more value from consumers
over the product life cycle as agreed to by 58% of the study respondents, 34.6% were
neutral, and 8.1% disagreed (M=3.59, SD=0.826). Mixed bundling is a profitable strategy
for firms as agreed to by 67.9% of the study respondents, 25.7% were neutral, and 6.3%
disagreed (M=3.77, SD=0.782). A mixed bundling strategy can reduce the welfare of
customers as agreed to by 39.7% of the study respondents, 42.6% were neutral, and
17.8% disagreed (M=3.32, SD=0.973).

Table 4.10: Mixed Bundling on Buying Decisions

SD D N A SA Std.
% % % % % M Dev
Mixed bundling strategy extracts more 1.3 6.8 34.6 46 11.4 3.59 .826
value from consumers over the product
life cycle
Mixed bundling is a profitable strategy 0 6.3 25.7 52.7 15.2 3.77 .782
for firms
A mixed bundling strategy can reduce 3 14.8 42.6 27 12.7 3.32 .973
the welfare of customers

4.4.4 Correlation Analysis Between Bundle Pricing and Consumer Buying Decisions
Table 4.11 presents the correlation analysis results between bundle pricing and consumer
buying decisions, and it shows that bundle pricing was significant to consumer buying
decisions (r=366, p<0.05).

Table 4.11: Correlations Between Bundle Pricing and Consumer Buying Decisions
Customer Buying Decisions Bundle Pricing
Customer Buying Decision 1
Bundle Pricing .366** 1
.000
** Correlation is significant at the 0.01 level (2-tailed)

41
4.4.5 Regression Analysis Between Bundle Pricing and Consumer Buying Decisions
4.4.5.1 Model Summary Between Bundle Pricing and Consumer Buying Decisions
Table 4.12 presents the regression model summary results between bundle pricing and
consumer buying decisions. The table shows that bundle pricing could be used to explain
13% of the variance in consumer buying decisions.

Table 4.12: Model Summary Between Bundle Pricing and Consumer Buying
Decisions
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .366ª .134 .130 .49080
a. Predictors: (Constant), Bundle Pricing

4.4.5.2 ANOVA Between Bundle Pricing and Consumer Buying Decisions

Table 4.13 presents the ANOVA results between bundle pricing and consumer buying
decisions. The table shows that the study variables were linearly related and that bundle
pricing was significant to consumer buying decisions (F (1,236) = 36.373, p<.05).

Table 4.13: ANOVA Between Bundle Pricing and Consumer Buying Decisions
Model Sum of Squares df Mean Square F Sig.
1 Regression 8.762 1 8.762 36.373 .000b
Residual 56.608 235 .241
Total 65.369 236
a. Predictors: (Constant), Bundle Pricing
b. Dependent Variable: Consumer Buying Decision

4.4.5.3 Regression Coefficients Between Bundle Pricing and Consumer Buying

Decisions
Table 4.14 presents the regression coefficients results between bundle pricing and
consumer buying decisions. It shows that there was a significant relationship between
bundle pricing and consumer buying decisions since a unit improvement in bundle pricing
would change consumer buying decisions by a mean index of 0.382.

42
Table 4.14: Regression Coefficients Between Bundle Pricing and Consumer Buying
Decisions
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
1 (Constant) 2.412 .231 10.457 .000
Bundle Pricing .382 .063 .366 6.031 .000
a. Dependent Variable: Consumer Buying Decisions

4.5 Psychological Pricing and Consumer Buying Decisions

The third objective of the study sought to assess the effects of psychological pricing on
consumer buying decisions among major supermarkets. Its results and findings have been
presented in this section.

4.5.1 Psychological Pricing on Buying Decisions

Table 4.15 indicates that prices set just below the nearest ringed (whole) number leads to
customers reading them slightly lower and treat it lower than the price is as agreed to by
73% of the study respondents, 13.9% were neutral, and 13.1% disagreed (M=4.03,
SD=1.162). Psychological pricing influences consumers' decision-making processes over
time as agreed to by 81% of the study respondents, 15.6% were neutral, and 3.4%
disagreed (M=4.05, SD=0.752). Prices set just below the nearest ringed (whole) number
elicits stronger demand in customers as agreed to by 68.8% of the study respondents, 16%
disagreed, and 15.2% were neutral (M=3.81, SD=1.080).

Table 4.15: Psychological Pricing on Buying Decisions

SD D N A SA Std.
% % % % % M Dev
Prices set just below the nearest ringed 4.2 8.9 13.9 25.7 47.3 4.03 1.162
(whole) number leads to customers
reading them slightly lower and treat it
lower than the price is
Psychological pricing influences 0 3.4 15.6 53.6 27.4 4.05 .752
consumers' decision-making processes
over time
Prices set just below the nearest ringed 2.1 13.9 15.2 38.8 30 3.81 1.080
(whole) number elicits stronger demand
in customers
43
4.5.2 Prestige Pricing on Buying Decisions
Table 4.16 indicates that higher price points provide customers with the impression that
the products they are purchasing are of a high-value as agreed to by 75.5% of the study
respondents, 16.9% were neutral, and 7.6% disagreed (M=3.96, SD=0.913). The price of
a product reflects the level (the social class) of consumers as agreed to by 67.5% of the
study respondents, 16.9% were neutral, and 15.6% disagreed (M=3.78, SD=1.139).

Table 4.16: Prestige Pricing on Buying Decisions

SD D N A SA Std.
% % % % % M Dev
Higher price points provide customers 1.3 6.3 16.9 46 29.5 3.96 .913
with the impression that the products
they are purchasing are of a high-value
The price of a product reflects the level 4.6 11 16.9 36.3 31.2 3.78 1.139
(the social class) of consumers

4.5.3 Odd-Even Pricing on Buying Decisions

Table 4.17 indicates that odd pricing (for example 4.99) makes the customer believe that
the price has been discounted as agreed to by 60.4% of the study respondents, 22.3%
disagreed, and 17.3% were neutral (M=3.58, SD=1.217). Odd pricing strategy is being
used widely in supermarkets as agreed to by 77.2% of the study respondents, 13.1%
disagreed, and 9.7% were neutral (M=4.01, SD=1.093).

Table 4.17: Odd-Even Pricing on Buying Decisions

SD D N A SA Std.
% % % % % M Dev
Odd pricing (for example 4.99) makes 6.3 16 17.3 33.8 26.6 3.58 1.217
the customer believe that the price has
been discounted
Odd pricing strategy is being used 3.4 9.7 9.7 37.1 40.1 4.01 1.093
widely in supermarkets

44
4.5.4 Price Anchoring on Buying Decisions
Table 4.18 indicates that customers are indecisive when it comes to choosing a product to
buy when they have many different products to choose from as agreed to by 70.9% of the
study respondents, 20.3% were neutral, and 8.9% disagreed (M=4.02, SD=0.978). Higher
and low-tier price points act as anchor prices that enable customers to make a fast
purchasing decision as agreed to by 75.1% of the study respondents, 20.3% were neutral,
and 4.6% disagreed (M=3.97, SD=0.810). Consumers will pay more when exposed to an
average price compared to a range of prices for a product as agreed to by 62.5% of the
study respondents, 31.6% were neutral, and 5.9% disagreed (M=3.77, SD=0.839).

Table 4.18: Price Anchoring on Buying Decisions

SD D N A SA Std.
% % % % % M Dev
Customers are indecisive when it comes 0 8.9 20.3 31.2 39.7 4.02 .978
to choosing a product to buy when they
have many different products to choose
from
Higher and low-tier price points act as 0 4.6 20.3 48.5 26.6 3.97 .810
anchor prices that enable customers to
make a fast purchasing decision
Consumers will pay more when exposed 0 5.9 31.6 42.2 20.3 3.77 .839
to an average price compared to a range
of prices for a product

4.5.5 Correlation Analysis Between Psychological Pricing and Consumer Buying

Decisions
Table 4.19 presents the correlation analysis results between psychological pricing and
consumer buying decisions, and it shows that psychological pricing was significant to
consumer buying decisions (r=560, p<0.05).

45
Table 4.19: Correlations Between Psychological Pricing and Consumer Buying
Decisions
Customer Buying Decisions Psychological Pricing
Customer Buying Decision 1
Psychological Pricing .560** 1
.000
** Correlation is significant at the 0.01 level (2-tailed)

4.5.6 Regression Analysis Between Psychological Pricing and Consumer Buying

Decisions
4.5.6.1 Model Summary Between Psychological Pricing and Consumer Buying
Decisions
Table 4.20 presents the regression model summary results between psychological pricing
and consumer buying decisions. The table shows that psychological pricing could be used
to explain 31% of the variance in consumer buying decisions.

Table 4.20: Model Summary Between Psychological Pricing and Consumer Buying
Decisions
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .560ª .314 .311 .43692
a. Predictors: (Constant), Psychological Pricing

4.5.6.2 ANOVA Between Psychological Pricing and Consumer Buying Decisions

Table 4.21 presents the ANOVA results between psychological pricing and consumer
buying decisions. The table shows that the study variables were linearly related and that
psychological pricing was significant to consumer buying decisions (F (1,236) = 107.424,
p<.05).

Table 4.21: ANOVA Between Psychological Pricing and Consumer Buying Decisions
Model Sum of Squares df Mean Square F Sig.
1 Regression 20.507 1 20.507 107.424 .000b
Residual 44.862 235 .191
Total 65.369 236
a. Predictors: (Constant), Psychological Pricing
b. Dependent Variable: Consumer Buying Decision

46
4.5.6.3 Regression Coefficients Between Psychological Pricing and Consumer Buying
Decisions
Table 4.22 presents the regression coefficients results between psychological pricing and
consumer buying decisions. It shows that there was a significant relationship between
psychological pricing and consumer buying decisions since a unit improvement in
psychological pricing would change consumer buying decisions by a mean index of
0.521.

Table 4.22: Regression Coefficients Between Psychological Pricing and Consumer

Buying Decisions
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
1 (Constant) 1.779 .196 9.067 .000
Psychological Pricing .521 .050 .560 10.365 .000
a. Dependent Variable: Consumer Buying Decisions

4.5.7 Correlation Analysis Between Pricing and Consumer Buying Decisions

Table 4.23 presents the correlation analysis results between pricing variables (discount,
bundle, and psychological pricing) and consumer buying decisions, and it shows that
discount pricing was significant to consumer buying decisions (r=544, p<0.05). Bundle
pricing was significant to consumer buying decisions (r=366, p<0.05). Psychological
pricing was significant to consumer buying decisions (r=560, p<0.05).

Table 4.23: Correlations Between Pricing Variables and Consumer Buying Decisions
Customer Buying Discount Bundle Psychological
Decisions Pricing Pricing Pricing
Customer Buying 1
Decision
Discount Pricing .544** 1
.000
Bundle Pricing .366** .341**
.000 .000
Psychological Pricing .560** .487** .217** 1
.000 .000 .001
** Correlation is significant at the 0.01 level (2-tailed)
47
4.5.8 Regression Analysis Between Pricing Variables and Consumer Buying
Decisions
4.5.8.1 Model Summary Between Pricing Variables and Consumer Buying Decisions
Table 4.24 presents the regression model summary results between pricing variables and
consumer buying decisions. The table shows that pricing variables (discount, bundle, and
psychological pricing) could be used to explain 43% of the variance in consumer buying
decisions.

Table 4.24: Model Summary Between Pricing Variables and Consumer Buying
Decisions
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .663ª .440 .432 .39650
a. Predictors: (Constant), Discount, Bundle, and Psychological Pricing

4.5.8.2 ANOVA Between Pricing Variables and Consumer Buying Decisions

Table 4.25 presents the ANOVA results between pricing variables (discount, bundle, and
psychological pricing) and consumer buying decisions. The table shows that the study
variables were linearly related and that pricing variables were significant to consumer
buying decisions (F (3,236) = 60.936, p<.05).

Table 4.25: ANOVA Between Pricing Variables and Consumer Buying Decisions
Model Sum of Squares df Mean Square F Sig.
1 Regression 28.739 3 9.580 60.936 .000b
Residual 36.630 233 .157
Total 65.369 236
a. Predictors: (Constant), Discount, Bundle, and Psychological Pricing
b. Dependent Variable: Consumer Buying Decision

4.5.8.3 Regression Coefficients Between Pricing Variables and Consumer Buying

Decisions
Table 4.26 presents the regression coefficients results between pricing variables
(discount, bundle, and psychological pricing) and consumer buying decisions. It shows
that there was a significant relationship between pricing variables and consumer buying
48
decisions. The table shows that a unit improvement in discount pricing would change
consumer buying decisions by a mean index of 0.326, a unit improvement in bundle
pricing would change consumer buying decisions by a mean index of 0.191, and a unit
improvement in psychological pricing would change consumer buying decisions by a
mean index of 0.349.

Table 4.26: Regression Coefficients Between Pricing Variables and Consumer

Buying Decisions
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
1 (Constant) .546 .250 .030
Discount Pricing .326 .064 .299 .000
Bundle Pricing .191 .054 .183 .001
Psychological Pricing .349 .052 .375 .000
a. Dependent Variable: Consumer Buying Decisions

4.6 Chapter Summary

This chapter has presented the results and findings of pricing and consumer buying
decisions. The chapter has presented the obtained descriptive and inferential analysis for
the specific objectives that sought to determine the effects of discount pricing on
consumer buying decisions, establish the effects of bundle pricing on consumer buying
decisions, and assess the effects of psychological pricing on consumer buying decisions
among major supermarkets. The next chapter is the discussion, conclusion, and
recommendations of the study.

49
 CHAPTER FIVE
5.0 DISCUSSION, CONCLUSION, AND RECOMMENDATIONS
5.1 Introduction
This chapter presents the discussion, conclusion and recommendations for pricing and
consumer buying decisions. The chapter presents the detailed discussion for the specific
objectives, and provides conclusions and recommendations for them. In the end, the
study provides a recommendation for further studies.

5.2 Summary
The general objective of the study was to determine the effects of pricing on consumer
buying decisions among major supermarkets in Nairobi County, Kenya. The study was
guided by the following specific objectives; to determine the effects of discount pricing
on consumer buying decisions among major supermarkets; to establish the effects of
bundle pricing on consumer buying decisions among major supermarkets and to assess
the effects of psychological pricing on consumer buying decisions among major
supermarkets.

The research used descriptive research design which was appropriate in answering the
study questions. For the purpose of this study, the target population was 1930 customers
with loyalty card/ bonus card from Carrefour, Naivas, Chandarana and Quickmart. In this
study, stratified random sampling was adopted. The sample size of 331 respondents was
obtained using the Yamane formula. The data was collected using self-administered
questionnaires; the collected data was analysed using Statistical Package for Social
Sciences (SPSS) software Version 24. The results of the study were analysed using
descriptive analysis that included frequencies, means and standard deviations. Inferential
analysis including correlation and regression analysis was also used in the study, and the
results were presented using figures and tables.

In regards to discount pricing the researcher found that price discounts motivated new
customers to try products being offered, and it was revealed that discount pricing was
significant to consumer buying decisions (r=544, p<0.05). The study showed that
discount pricing could be used to explain 29% of the variance in consumer buying

50
decisions, and the study variables were linearly related since a unit improvement in
discount pricing would change consumer buying decisions by a mean index of 0.592.

The study findings indicated that pure bundling limited the decision variety for the
customer, and it was revealed that bundle pricing was significant to consumer buying
decisions (r=366, p<0.05). The study revealed that bundle pricing could be used to
explain 13% of the variance in consumer buying decisions, and the study variables were
linearly related since a unit improvement in bundle pricing would change consumer
buying decisions by a mean index of 0.382.

The study revealed that psychological pricing influenced consumers' decision-making

processes over time, and that psychological pricing was significant to consumer buying
decisions (r=560, p<0.05). It was shown that psychological pricing could be used to
explain 31% of the variance in consumer buying decisions, and that the study variables
were linearly related since a unit improvement in psychological pricing would change
consumer buying decisions by a mean index of 0.521.

5.3 Discussion
5.3.1 Discount pricing and Consumer Buying Decisions
Price discounts motivated new customers to try products being offered. The result agrees
with Armstrong and Chen (2013) who observed that price discounts (cut off prices) play
an important role in stimulating new customers’ behaviours to try the offered products.
Chao and Liao (2016) state that if a company determines that price discounts or discounts
can positively and significantly increase consumer’s purchase intention. Discount price
has a positive and significant effect on consumer’s purchase intention in the flash sale
program.

High price discount did not show consumers that they were receiving low-quality
products or service. The result disagrees with Huang et al., (2015) who observed that high
price discount signals to consumers that they may receive a low-quality service. On the
other hand, if consumers can expect the product quality, they would be excited to receive
a price promotion, and a positive evaluation would result Customers tend to infer that a

51
discounted product is low in quality, especially when they receive an unexpectedly high
price discount that other retailers typically do not offer.

Consumers reckoned that they could save more on a product when a higher price discount
was provided. According to Lee and Stoel (2016) the economic effects of price discounts,
a price discount provides a monetary gain, an incentive to encourage consumers to
purchase the product. Consumers perceive a higher level of savings for a product when a
higher price discount is provided. Krishna et al., (2012) state that the perceived savings
concept has been used as the most common variable to measure the response to a price
promotion, according to) meta-analysis.

Retail store offered discounts to their customers and when consumers saw a discount,
they did not worry about the product they wanted to buy. This result disagrees with
Ahmadinejad et al., (2017) who suggested that when consumers see a discount, it will
bring up the minds of consumers, consumers have worries when they want to buy the
product. This is in line with research conducted by Lee and Stoel (2016) which says that a
large discount will increase the risk perceived by consumers.

In numerous instances customers expected seasonal discounts as part of the annual retail
calendar. The result agrees with Kotler et al., (2020) who state that a seasonal discount is
a discount which is offered on seasonal goods or at particular seasons. Seasonal discounts
are an expected part of the annual retail calendar, especially in sectors that have
seasonally affected product trade. Abratt and Bendixen (2019) state that seasonal
discounts are used all the time and are a potentially useful tool to help a business manage
its uneven revenue patterns throughout the year and ensure inventory turnover.

Seasonal discounts were used by retailers to move inventory that was going out of season.
The result agrees with Appiah-Adu and Amoako (2016) who indicate that retailers use
seasonal discounts year-round to move inventory that is going out of season. Seasonal
time companies sell retail products at lowest possible prices if products are in higher
quality or not. On the other hand, consumers expect retail products at lowest price during
seasonal time without considering quality of the product.

52
Retailers used a seasonal discount to lure customers to buy their products/ services. The
result agrees with Zhang et al., (2018) who allude that seasonal discount being offered on
products and services is being done so in order to lure the customers to buy their offering.
A seasonal discount over the year has become a compulsion on the part of companies to
provide to the customers. A firm which is not offering discounts during some seasons will
lose out their customers to other firms.

Customers preferred promotional offerings that could be converted into monetary terms
compared to freebies. According to Percy et al., (2016) promotion type influences the rate
of increase in market demand and is product category dependent. Promotional offerings
which can be readily converted into monetary terms are more preferred to freebies but in
the long-run, they can affect the overall value of the product.

Retailers offered sales promotion to their customers. Sales promotion influenced the
purchase decision of consumers. The result agrees with Puri et al., (2020) who studied the
impact of discounts on consumer buying behaviour. The study revealed that the sales
promotion has an influence in the purchase decision of consumers though their entire
decision depends on making purchase anytime they will to. The consumers may be
doubtful in some cases, but the offering of discounts and price-off deals and such kinds of
services satisfies the customers.

Availability of promotional discounts in the retail stores thrilled the customers.

Promotional discounts could lead to increased traffic, but lower sales per transaction. The
result agrees with Shrestha (2015) who states that promotional discounts on both high-
penetration, high-frequency items (staples such as meat and produce) and low-
penetration, low-frequency items (beer and condiments) lead to increased traffic but
lower sales per transaction. More and deeper promotions discounts can increase traffic.

5.3.2 Bundle Pricing and Consumer Buying Decisions

Price bundling was available in many retail stores. Price bundling increased profits to the
retailers in that it promoted the purchase of more than one item. The result agrees with
Smith (2016) who states that, despite the fact that the items are sold for discounted prices,
it can increase profits because it promotes the purchase of more than one item. Price

53
bundling mainly consists of several products, services or products and services brought
and sold together which may or may not be complementary to each other.

It was noted that high-end customers were less sensitive to mixed-leader bundling
strategies. According to Dominique-Ferreira and Antunes (2020) the bundling strategy
results revealed that five-star customers are less sensitive to mixed-leader bundling.
Regarding mixed-joint bundling, managers could improve sales through bundling
strategies if they selected an attractive service (e.g. restaurants). With bundle pricing,
retailers offer several different products as a package deal, then offer that package to
consumers at a lower price than it would cost to purchase those items separately.

The study identified that bundling of products was the most widely used tactic by
supermarkets. The result agrees with Weijie and John (2017) who avers that bundling of
products is perhaps the most widely used tactic to apply discriminated prices, although its
logic often goes unnoticed. Abdallah-Arash and Josh (2017) affirm that competition is an
important factor in determining the success or failure of price bundling where competition
might come from firms in the same category of bundled offering.

The existence of price bundling affected pricing capacity on marketing performance. The
result agrees with Uripi et al., (2021) who examined the effect of pricing bundling
capability on price value offerings and marketing performance, and the result suggested
that pricing bundling capability positively affects pricing capacity on marketing
performance and price value offerings. It also shows that price value offerings positively
affect the marketing performance and that price value offerings mediate the effect of
pricing capability on marketing performance.

In regards to pure bundling, it was not possible for customers to purchase the goods
separately. According to Derdenger and Kumar (2016) pure bundling refers to the
practice of selling two or more discrete products only as part of a bundle. Only bundles
are sold, their components aren’t available separately. It isn’t possible to purchase the
goods separately. Pure bundling takes place when a customer only has the choice to
purchase the bundle as-is or not at all.

54
The availability of pure bundling pricing strategy s stimulated the customers to purchase
products. This is because pure bundling limited the decision variety for the customer.
This result agrees with Smith (2016) who argues that to call a strategy pure bundling none
of the products must be sold separately. Eckalbar (2015) states that, it lowers the product
combinations and limits the decision variety not just for the supplier but also for the
customer. It reduces the product variety which is not eligible for mixed bundling.

Pure bundling primarily served the retailer and not the customer. The result agrees with
Haghpanah and Hartline (2020) who affirm that pure bundling primarily serves a valuable
pedagogical tool. By charging a sufficiently high price for individual component sales, in
effect, the product is offered for sale only as a pure bundle. Giri et al., (2017) state that,
for manufacturers, the pure bundling pricing strategy will bring their profits higher
profits, however the retailer needs to use an appropriate pricing strategy in specific
circumstances.

Mixed bundling strategy extracted more value from consumers over the product life
cycle. According to Schmalensee and Willig (2016) mixed bundling offers a unique and
previously unexplored method for extracting more value from consumers over the
product life cycle. Mixed bundling seems to be an optimal pricing strategy for the
markets including customers with both “balanced” and “extreme” preferences. Under
mixed bundling the bundle is offered on more favourable terms than the separate
products.

The integration of the mixed bundling pricing strategy by the retailers was essential in
enabling the retailer to increase their profit margin. Mixed bundling was a profitable
strategy for the retailers. This agrees with Marburger (2015) who explains that mixed
bundling has a gain and a loss compared to pure bundling. The gain is from selling to
more types, i.e., types who are unwilling to pay the full price for the grand bundle but are
willing to take the discounted offer. The loss is from types whose demand is diverted
from the full price to the discounted offer. These types have high value for the grand
bundle and high relative value for the smaller bundle (so that they find the discounted
offer attractive).

55
However it was worth noting that mixed bundling strategy could reduce the welfare of
customers. The result agrees with Thanassoulis (2014) who looked at customer welfare in
the context of mixed bundling and finds that if the buyers have brand-specific tastes, or
incur firm-specific costs, then their welfare is reduced, but on the other hand it increases
when the differentiation between components increases.

5.3.3 Psychological Pricing and Consumer Buying Decisions

Prices set just below the nearest ringed (whole) number led to customers reading them
slightly lower and treated it lower than the actual price. According to Dholakia (2017) the
basic premise of psychological pricing is that prices set just below the nearest ringed
number elicit stronger demand than predicted at that level. This means that the purchasing
likelihood for just-below-price items was to the right of predicted demand curves, causing
the demand curves to kink at these places. With its effects on various customer groups,
price policy is a critical component of the marketing mix.

Psychological pricing influenced consumers' decision-making processes over time. The

result agrees with Husemann-Kopetzky (2018) who avers that psychological pricing was
a marketing or pricing approach based on the idea that certain prices have psychological
effects on customers' price perception, attitude, and purchasing behavior. This method has
been used by marketers and organizations to influence consumers' decision-making
processes over time, particularly in the retail sector and in price advertising.

Furthermore, it was noted that prices set just below the nearest ringed (whole) number
elicited stronger demand in customers. According to Dholakia (2017) the basic premise of
psychological pricing is that prices set just below the nearest ringed number elicit
stronger demand than predicted at that level. This means that the purchasing likelihood
for just-below-price items was to the right of predicted demand curves, causing the
demand curves to kink at these places.

Higher price points provided customers with the impression that the products they were
purchasing were of a high-value. This result agrees with Pride et al., (2017) who state that
prestige pricing, also known as premium pricing or image pricing, is a psychological
56
pricing strategy that appeals to a buyer’s psyche. It is when a company set prices for its
products at a higher point to provide customers with the impression that the product is
high-value. This type of strategy is closely related to brand perception.

Price of a product reflected the level (the social class) of consumers. It's worth noting that
the odds of asocial class are particularly high with some "prestigious" products/services.
The result agrees with Gilady (2018) who explains that prestige pricing strategy, is one of
the strategies in pricing the high price level. It is done as a form of imaging that the value
of the products offered are value and high quality. It means that psychologically, the high
price of a product reflects the level of social class of consumers is high.

Many retailers were found to tag their products using the odd pricing strategy. Odd
pricing (for example 4.99) made the customer believe that the price had been discounted.
According to Lewis (2015) one type of psychological pricing is odd pricing when the
retailer sets up the price slightly lower than a rounded number, so it is expected that
customers will not round up these prices, and will treat the price lower than it actually is.
When consumers see odd numbers, they will not see them as normal retail prices, but
rather they look at them as a price discount.

It was established that odd pricing strategy was being used widely in supermarkets. The
result agrees with Wadhwa and Zhang (2015) who indicate that odd pricing is extremely
common to find these days and is being used widely. Many producers have started using
this for a range of products. Some shops that give out discounts to their customers are
also using this technique. Even odd pricing is also widely used in retail stores. There are
stores that sell everything they have at a price that is fixed using the even odd pricing
method.

The study also revealed that customers were indecisive when it came to choosing a
product to buy when they had many different products to choose from. The result agrees
with Hill (2015) who explains that the original price establishes itself as a reference point
in the minds of consumers which they then anchor onto to form a favourable opinion of
the marked down price. Customers tend to be very indecisive when it comes to choosing
57
what product to buy when they have many different products to choose from. This can
become a problem because customers can walk away if they are unable to decide what
product is best for them.

Furthermore, it was clear that higher and low-tier price points act as anchor prices that
enabled customers to make a fast purchasing decision. According to Simon and Fassnacht
(2019) anchor pricing automatically triggers a response in the consumer of having found
a good deal, pushing them to act on their impulsive buying habits. The higher and lower-
tier price points act as anchor prices and push customers towards the middle option and
making a faster decision.

The study also established that Consumers paid more when exposed to an average price
compared to a range of prices for a product. The result agrees with Tanford et al., (2018)
who examined the influence of pricing strategies on willingness to pay for
accommodations and found that consumers will pay more when exposed to an average
price versus a range. Anchoring effects are reduced when the budget goal is incompatible
with a high anchor but not a low anchor.

5.4 Conclusion
5.4.1 Discount Pricing and Consumer Buying Decisions
Major supermarkets have been able to successful as a result of the pricing strategies they
utilise in their product pricing. Price discounts motivated new customers to try products
being offered, and that high price discount did not show consumers that they were
receiving low-quality products or services. Consumers reckoned that they could save
more on a product when a higher price discount was provided, and they did not worry
about the product they wanted to buy due to the provided discount. Customers expected
seasonal discounts as part of the annual retail calendar that retailers used to move
inventory that was going out of season, as well as lure them into buying these products/
services. Customers preferred promotional offerings that could be converted into
monetary terms compared to freebies, and sales promotions influenced the purchase
decision of consumers because they led to increased traffic, but lowered sales per
transaction.

58
5.4.2 Bundle Pricing and Consumer Buying Decisions
The hypermarkets have been able to increase their profits as a result of price bundling.
This is because it promoted the purchase of more than one item, however, high-end
customers were less sensitive to mixed-leader bundling strategies. Bundling of products
was the most widely used tactic by supermarkets because it affected pricing capacity on
marketing performance. In pure bundling, it was not possible for customers to purchase
the goods separately, thus it limits the decision variety for the customers because it is
applied to serve the retailer and not the customer. Mixed bundling strategy extracted more
value from consumers over the product life cycle, and it was a profitable strategy for
firms, although it reduced the welfare of customers.

5.4.3 Psychological Pricing and Consumer Buying Decisions

Prices set just below the nearest ringed (whole) number led to customers reading them
slightly lower and treated them lower than the actual price. Psychological pricing
influenced consumers' decision-making processes over time since it elicited stronger
demand in customers. Higher price points provided customers with the impression that
the products they were purchasing were of a high-value because the price of a product
reflected the level (the social class) of consumers. Odd pricing made the customers
believe that the prices had been discounted and they were being used widely in the
supermarkets, Customers were indecisive when it came to choosing a product to buy
when they had many different products to choose from, however, higher and low-tier
price points acted as anchor prices that enabled customers to make fast purchasing
decisions since consumers paid more when exposed to an average price compared to a
range of prices for a product.

5.5 Recommendations
5.5.1 Recommendations for Improvement
5.5.1.1 Discount pricing and Consumer Buying Decisions
Retailers managers should develop specific products that they can sell at lower prices in
the market than their competitors in order to maximize their profits. Managers of
superstores should ensure that they provide discounts within their businesses to attract
customers. The pricing plan from the store's perspective attracts more customers. The
majority of the time, customers wait for the offer price to arrive before making a buy.
59
When a store offers a price bundling approach, customers may purchase without needing
to. This promotes the store's product among the general public. They should also ensure
that these discounts are not so high to the point where their customers would doubt the
quality of the products they are buying.

5.5.1.2 Bundle Pricing and Consumer Buying Decisions

Managers of retail stores should apply the price bundling strategy to facilitate their ability
to sell lots of items at higher margins while providing consumers a discount at the same
time. They should ensure that the bundled products are significant to consumers, so that
they encourage more purchase. Businesses must use their up-to-date market data with
data about customers to develop a profitable pricing strategy for bundled products. Every
package does not necessitate a significant discount. Customers should be able to view the
retailer's offer to be a good bargain, therefore retailers must justify buying two or three
products instead of one.

5.5.1.3 Psychological Pricing and Consumer Buying Decisions

To maximize their profit margins managers of hypermarkets should ensure that they
provide mixed prices for their products. This pricing technique includes psychological
pricing. It's a strategy in and of itself, with a variety of approaches aimed at appealing to a
customer's emotional, rather than rational, reaction to price. Retailers might utilize
psychological pricing to raise profits, shift inventory, or drive adoption of a given product
strategy. They should ensure that products under the category of leisure items are highly
priced, while the prices for basic commodities are affordable.

5.5.2 Recommendations for Further Studies

The study specifically discussed the effects of pricing on consumer buying decisions
among major supermarkets in Nairobi County. It is therefore recommended that further
studies capture other outlets within the country, as well as other outlets within Nairobi
that were not considered in this study. Furthermore, a study might be conducted to
examine the effects of pricing on consumer behaviour, how consumer behaviour affects
pricing strategies, and what consumer behaviour difficulties are affecting pricing
strategies across the country's largest retail supermarkets.

60
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 APPENDICES
APPENDIX I: INTRODUCTION LETTER

Dear Respondent,

My name is Akash Mehta a student at the United States International University, Africa,
pursuing a Masters of Business Administration (MBA) Degree in Marketing. I am
currently undertaking a research project on; EFFECTS OF PRICING ON
CONSUMER BUYING DECISIONS AMONG MAJOR SUPERMARKETS IN
NAIROBI COUNTY, KENYA.

I hereby request your utmost cooperation; responses will be treated with the utmost
confidentiality. I would be grateful if you can kindly spare a few minutes to fill this
questionnaire.

Your cooperation will be highly appreciated.

Thank you in advance.

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 APPENDIX II: QUESTIONNAIRE

This questionnaire is part of a research carried out to Determine the Effects of Pricing on
Consumer Buying Decisions among Major Supermarkets in Nairobi County, Kenya.
You have been chosen as a participant for the research and your honest responses will be
highly appreciated. Note: The responses you will give to the questions asked will
specifically be used for academic purposes and no other purpose. Thank you.

Part One: Background Information

1. Kindly indicate your gender

Male Female

2. What age category do you fall under?

21-30 years 31-40 years 41-50 years Above 50 years

3. What is your current level of education?

Diploma Bachelor Master’s PhD Other

Degree Degree

4. The number of years worked at the company?

Below 4 years 5-9 years 10-14 years Above 15 Years

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Part Two: Discount pricing and Consumer Buying Decisions
5. Discount pricing is reducing the price for a given quantity or increase the quantity
available at the same price, thereby enhancing value and create an economic
incentive to purchase. Please rate the following statements about discount pricing
as it relates to consumer buying decisions using the scale SD-Strongly Disagree,
D-Disagree, N-Neutral, A-Agree, and SA-Strongly Agree.

No: SD D N A SA
1 Price discounts motivate new customers to try [ ] [ ] [ ] [ ] [ ]
products being offered
2 High price discount shows consumers that they are [ ] [ ] [ ] [ ] [ ]
receiving low-quality products or service
3 Consumers reckon that they can save more on a [ ] [ ] [ ] [ ] [ ]
product when a higher price discount is provided
4 When consumers see a discount, they worry about [ ] [ ] [ ] [ ] [ ]
the product they want to buy
5 Customers expect seasonal discounts as part of the [ ] [ ] [ ] [ ] [ ]
annual retail calendar
6 Seasonal discounts are used by retailers to move [ ] [ ] [ ] [ ] [ ]
inventory that is going out of season
7 Retailers use a seasonal discount to lure customers [ ] [ ] [ ] [ ] [ ]
to buy their products/ services
8 Customers prefer promotional offerings that could [ ] [ ] [ ] [ ] [ ]
be converted into monetary terms compared to
freebies
9 Sales promotion influences the purchase decision of [ ] [ ] [ ] [ ] [ ]
consumers
10 Promotional discounts may lead to increased traffic, [ ] [ ] [ ] [ ] [ ]
but lower sales per transaction

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Part Three: Bundle Pricing and Consumer Buying Decisions
6. Price bundling is combining several products or services into a single
comprehensive package for an all-inclusive reduced price. Please rate the
following statements about bundle pricing as it relates to consumer buying
decisions using the scale SD-Strongly Disagree, D-Disagree, N-Neutral, A-Agree,
and SA-Strongly Agree.

No: SD D N A SA
1 Price bundling increases profits because it promotes [ ] [ ] [ ] [ ] [ ]
the purchase of more than one item
2 High-end customers are less sensitive to mixed- [ ] [ ] [ ] [ ] [ ]
leader bundling strategies
3 Bundling of products is the most widely used tactic [ ] [ ] [ ] [ ] [ ]
by supermarkets
4 Price bundling affects pricing capacity on [ ] [ ] [ ] [ ] [ ]
marketing performance
5 In pure bundling, it is not possible for customers to [ ] [ ] [ ] [ ] [ ]
purchase the goods separately
6 Pure bundling limits the decision variety for the [ ] [ ] [ ] [ ] [ ]
customer
7 Pure bundling primarily serves the retailer and not [ ] [ ] [ ] [ ] [ ]
the customer
8 Mixed bundling strategy extracts more value from [ ] [ ] [ ] [ ] [ ]
consumers over the product life cycle
9 Mixed bundling is a profitable strategy for firms [ ] [ ] [ ] [ ] [ ]
10 A mixed bundling strategy can reduce the welfare [ ] [ ] [ ] [ ] [ ]
of customers

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Part Four: Psychological Pricing and Consumer Buying Decisions
7. Psychological pricing is a pricing strategy that utilizes specific techniques to form
a psychological or subconscious impact on consumers. It integrates sale tactics
with the price. Please rate the following statements about psychological pricing as
it relates to consumer buying decisions using the scale SD-Strongly Disagree, D-
Disagree, N-Neutral, A-Agree, and SA-Strongly Agree.
No: SD D N A SA
1 Prices set just below the nearest ringed (whole) number [ ] [ ] [ ] [ ] [ ]
leads to customers reading them slightly lower and treat
it lower than the price is
2 Psychological pricing influences consumers' decision- [ ] [ ] [ ] [ ] [ ]
making processes over time
3 Prices set just below the nearest ringed (whole) number [ ] [ ] [ ] [ ] [ ]
elicits stronger demand in customers
4 Higher price points provide customers with the [ ] [ ] [ ] [ ] [ ]
impression that the products they are purchasing are of
a high-value
5 The price of a product reflects the level (the social [ ] [ ] [ ] [ ] [ ]
class) of consumers
6 Odd pricing (for example 4.99) makes the customer [ ] [ ] [ ] [ ] [ ]
believe that the price has been discounted
7 Odd pricing strategy is being used widely in [ ] [ ] [ ] [ ] [ ]
supermarkets
8 Customers are indecisive when it comes to choosing a [ ] [ ] [ ] [ ] [ ]
product to buy when they have many different products
to choose from
9 Higher and low-tier price points act as anchor prices [ ] [ ] [ ] [ ] [ ]
that enable customers to make a fast purchasing
decision
10 Consumers will pay more when exposed to an average [ ] [ ] [ ] [ ] [ ]
price compared to a range of prices for a product

The End
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APPENDIX III: IRB PERMIT

74
APPENDIX IV: NACOSTI PERMIT

75