Marketing is all about understanding consumer psychology and developing marketing stimuli. Learning can often come from unexpected sources. It was quite a revelation to know how small vendors who peddle vegetables build their pricing strategy based on consumer insights. How different are the following:
One kilogram of orange which gives 9 pieces at Rs 60 and one dozen oranges (12 pieces) at the price of Rs 80
One pav or (1/4 kg) of kilogram of grapes at Rs 40 and one kilogram of grapes at Rs 160
What will be your strategy to attract customers? Would you call out dozen price or kilo price of orange? Would you shout out one pav (¼ kg) price or kilo price of grapes to lure customers in to buying?
One of the often discussed cases of psychological pricing is that of Bata. Bata’s prices are not rounded off to the next rupee rather they always end up at .99 paisa (like Rs 999.99 or 1499.99). This kind of pricing is based on the notion that though there is insignificant objective difference between 1499.99 and 1500 but these two price point have significant effect on consumer psychology. This odd pricing works by leveraging consumer’s tendency to round off towards the lower end of the price. In above case the price perceptually falls in the band of 1400. The fraction does not allow it to get rounded off to the next category of 1500 hence creates a perception of being economical or cheaper. The essential issue here is what point is referred to while arriving at pricing interpretation. The consumer attention is focused on the lower price point and the fraction does not allow the price to be bracketed with the next level. Technically the consumer end up paying 1500 but a perception is creation as if the price paid is in the range of 1400.
In the two examples cited above, the vendor lures customers to buy orange by shouting out price for a dozen not a kilo because the price is perceived to be lower. However when something expensive is sold the price is usually quoted for a pav or ¼ of kg because the kilo price will be perceived to be too high and customers are likely to be driven away. In case of orange a perception of better deal is created by focusing his or her attention towards the generally bought quantity of purchase but in case of grapes the vendor draws attention to lower price.