marketing

1
Consumer response to product and price programs
2
Outline

• A model of quality, price, and value
• Perceived quality
• The quality perception process
• Brand and COO as extrinsic quality cues
• Perceived price
• The price perception process
• The psychology of pricing
• Perceived value

3
Quality, price, and value

• goods and services quality as both a macro-level
  economic policy concern and as a micro-level
  strategic issue
• prevailing promotional practices and the adoption
  of pricing strategies such as EDLP have given new
  importance to price as a marketing mix variable
• value marketing as one of the buzzwords of
  business

4
A model of perceived quality, price, and value
non-quality benefits
perceived benefits
intrinsic quality cues
perceived quality
extrinsic quality cues
perceived value
willingness to buy
actual price
perceived price
reference price
perceived sacrifices
nonmonetary sacrifices
5
Perceived quality

• perceived quality as a consumers evaluative
  judgment of the overall excellence (in terms of
  fitness for consumption) of a product relative to
  other choice alternatives
• perceived quality differs from management-based
  notions of product quality and presumably
  objective assessments of product quality
• judgments of product quality are based on cues
  that consumers believe signal overall quality

6
Cues used in quality evaluations

• search, experience, and credence properties
• search properties
• experience properties
• credence properties
• intrinsic and extrinsic cues
• intrinsic cues
• extrinsic cues

7
Which cues influence quality perceptions?

• cue utilization is a function of a cues
• predictive value (PV)
• confidence value (CV)
• extrinsic cues are likely to be used more under
  peripheral processing conditions (lack of
  opportunity, ability, or motivation to use
  intrinsic cues)
• at the point of purchase consumers may have to
  use extrinsic cues (esp. when the product has few
  intrinsic search properties), but at the point of
  consumption intrinsic cues should be more
  important (unless there are many credence
  properties)

8
Buckler non-alcoholic beer

• Non-alcoholic beer has traditionally had a
  watered-down negative image among beer drinkers.
  When Heineken introduced Buckler non-alcoholic
  beer, it used the following marketing strategy
  new Buckler brand name but identification as a
  Heineken product typical beer bottle and label
  priced at a 20 premium above regular beer
  Pan-European positioning as a premium brand with
  a good quality beer taste. Discuss Bucklers
  marketing strategy from the perspective of the
  model of perceived quality and value.

9
National brands vs. private labels

• problem that private labels frequently suffer
  from a low-quality image compared to national
  brands
• Richardson, Dick, and Jain conducted an
  experiment in which 1564 consumers sampled one of
  five products (cheese, chips, dip, cookies,
  jelly) marketed by either an established national
  manufacturer or one of two stores under a private
  label (intrinsic cue) consumers did not
  necessarily taste the real product but were made
  to believe that the sample came from the package
  shown to them along with the brand name they
  were also provided with price and size
  information (extrinsic cue)

10
National brands vs. private labels (contd)
cheese chips dip cookies jelly NB 2.29 1.39 .
89 2.49 1.48 PL1 1.79 .99 .59 1.79
1.25 PL2 1.89 1.09 .79 1.79 1.38
extrinsic cue NB PL1 PL2 row
mean NB 5.95 5.20 5.29 5.48 intrinsic PL1 5.73
5.11 5.01 5.28 cue PL2 5.58 5.24 5.37 5.40 c
ol. mean 5.75 5.18 5.22

• although store brands enjoyed an average price
  advantage of 21, mean value for money ratings
  were only 7 higher and perceived quality was
  more strongly correlated with willingness to buy
  than perceived value for money

11
Which cues prompt country-of-origin (COO)
perceptions?

• Product category the product category may be
  associated with a certain country of origin
• Company the producer may be linked to a certain
  country of origin
• Brand name the brand name may suggest the
  country of origin of the product
• Country of origin information labels such as
  made in or imported from may signal the
  country of origin

12
How do COO cues influence consumers?

• affect transfer process knowledge of a
  products COO evokes an emotional reaction which
  influences a consumers overall evaluation of
  the product
• cognitive mediation process knowledge of a
  products COO affects a consumers perceptions of
  the products attributes which in turn influence
  overall evaluations
• direct behavioral process knowledge of a
  products COO has a direct impact on behavioral
  intentions or behavior without mediating effects
  of product attributes or attitudes

13
Consumer ethnocentrism (Shimp and Sharma)

• consumer ethnocentrism as the extent to which a
  consumer believes that purchasing foreign-made
  products is inappropriate or even immoral
• consumer ethnocentrism can be measured with the
  CETSCALE (e.g., we should buy from foreign
  countries only those products that we cannot
  obtain within our own country, it is not right to
  purchase foreign products because it puts
  Americans out of work)
• consumers who are more ethnocentric have more
  unfavorable attitudes and lower purchase
  intentions toward foreign-made products, more
  frequently own products manufactured in their
  home country, and attach greater importance to
  country of manufacture

14
Components of perceived sacrifice

• price
• the monetary component of sacrifice
• actual prices vs. perceived prices
• the price-quality relationship
• Price awareness/consciousness (Dickson and
  Sawyer)
• The psychology of pricing
• nonmonetary sacrifices
• includes costs in terms of time, physical energy,
  mental effort, etc.
• may at times be more important than price

15
Positive and negative role of price
negative role of price
positive role of price
price consciousness
value consciousness
sale proneness
prestige sensitivity
price-quality schema
coupon proneness
price mavenism
16

• When I use coupons I feel that Im getting a good
  deal.
• I am very concerned about low prices, but I am
  equally concerned about product quality.
• The old saying You get what you pay for is
  generally true.
• Im considered somewhat of an expert when it
  comes to knowing the prices of products.
• I am more likely to buy brands that are on sale.
• Buying the most expensive brand of a product
  makes me feel classy.
• I will grocery shop at more than one store to
  take advantage of low prices.

17
In-class exerciseQuality, price and value of
E-book readers
The December 2011 issue of Consumer Reports
reported an evaluation of 21 models of E-book
readers. The file EReaders.pdf reproduces parts
of the article (you will need Acrobat Reader to
open this file) and the file EReaders.xls
contains a summary of the relevant data for your
convenience. Graph the overall scores against
price and then answer the following questions
Is price a good signal of quality in this product
category? Which brands offer good or bad value?
Would you rate any of the brands as a best buy?
How can brands providing poor quality and/or
value survive?
18
Empirical evidence concerning the price-quality
relationship

• a meta-analysis of studies conducted in the US by
  Tellis and Wernerfelt, based on observations from
  1271 product markets between 1939 and 1980,
  showed that the mean (median) rank correlation
  between price and objective quality was .27
  (.31)
• a meta-analysis of 36 studies investigating the
  effects of price, brand name, and store name on
  buyers perceptions of product quality by Rao and
  Monroe showed that price had a moderately large
  and statistically significant effect on perceived
  quality ratings, the effect of brand name was
  slightly larger, and the effect of store name was
  small and nonsignificant

19
The price knowledge of supermarket shoppers
(Dickson and Sawyer)

• 802 shoppers in four stores of a large
  supermarket chain were observed making a purchase
  in one of four product categories
• toothpaste (low turnover, infrequent price
  promotions)
• coffee (low turnover, frequent price promotions)
• cold cereal (high turnover, infrequent price
  promotions)
• margarine (high turnover, frequent price
  promotions)
• immediately after the chosen item was placed in
  the cart, shoppers were interviewed about
  price-related aspects of their purchase (e.g.,
  recall of the the price of the chosen item,
  awareness of whether the price of the selected
  item was regular or special)

20
Price knowledge of supermarket shoppers (contd)

• the average time between arriving at and
  departing from the product category display was
  less than 12 seconds in 85 of the purchases
  only the chosen brand was handled
• only 58 of shoppers claimed to have checked the
  price of the chosen item and only 22 reported
  checking the price of an alternative brand
• only 47 of shoppers were able to state the
  correct exact price (56 gave a price within 5
  of the actual price), 32 pro-vided a price
  estimate that was inaccurate (the average error
  was 15, with the recalled price generally lower
  than the actual price), and 22 did not even
  offer a price estimate
• slightly less than half of the shoppers knew
  whether or not the chosen item was on special

21
The psychology of pricing

• Framing effects and prospect theory
• Reference prices
• influence of past prices
• influence of competitor prices
• Framing price differences
• odd price endings
• percentage differences

22
Framing effects and prospect theory
value
losses
gains
23
Implications of prospect theory for pricing

• Discounts from a higher price vs. premiums over a
  lower price
• Endowment effect
• Out-of-pocket losses vs. foregone opportunities
• Unbundle gains
• Bundle losses

24
Discounts vs. premiums

• The owner of a gas station intends to charge
  different prices for credit card and cash sales.
  There are two options
• Advertise gasoline for 1.20 per gallon and
  charge a .10 surcharge if the buyer pays with a
  credit card.
• Advertise gasoline for 1.30 per gallon and give
  a .10 discount if the buyer pays with cash.
• What would you recommend?

25
Discounts vs. premiums
value
-1.30
-1.20
-.10
losses
gains
.10
v(-1.30)v(.10)
v(-1.20)
v(-1.30)
v(-1.20)v(-.10)
26
The endowment effect

• Assume that one group of students gets Penn State
  coffee mugs which sell for 6 at the bookstore.
  Another group of students gets tokens to be used
  as cash. Students from the two groups are then
  paired and they are invited to bargain for the
  mugs. At what price do you think mug owners will
  be willing to sell their mug, and how much will
  cash holders be willing to pay for a mug?

27
The endowment effect
value
Lose mug
losses
gains
Gain mug
28
Out-of-pocket losses vs. foregone opportunities

• A bank offers two options (assume an interest
  rate on savings accounts of 5.8 percent,
  compounded monthly)
• You can keep a minimum balance of 1,500 (with no
  interest) and get a free checking account.
• You can pay a 5.00 service charge and you dont
  have to keep a minimum balance.
• What would you do?

29
In-class exerciseBundling of gains and losses

• You want to reward your loyal buyers by sending
  them a gift card. Should you give away two gift
  cards worth 10 each, or should you give away one
  card worth 20?
• You want to sell an extended warranty plan to
  computer purchasers. Assume the computer costs
  1,500 and the extended warranty costs 200 for
  three years. Should you try to sell the warranty
  at the time of the computer purchase, or should
  you contact buyers a short while after the
  computer purchase and offer them the warranty?

30
Framing price differencesOdd price endings

• Which seems the better bargain?
• .75 compared to a regular price of .89.
• .79 compared to a regular price of .93

31
Framing price differencesThe relative value of
money

• A Sony Walkman you want costs 29. As you are
  about to make the purchase, a friend tells you
  that the same model is available at another store
  (10 minutes away) for 19. Would you go to the
  other store to buy the Walkman?
• A Sony Camcorder you want costs 495. As you are
  about to make the purchase, a friend tells you
  that the same model is available at another store
  (10 minutes away) for 485. Would you go to the
  other store to buy the Camcorder?

32
The meaning of value

• value as low price focus on finding the lowest
  price, getting a deal, buying on promotion, etc.
• value as subjective utility focus on aspects of
  the product that satisfy a consumers needs and
  wants
• value as a tradeoff between a products quality
  and price focus on one get component
  (quality) and one give component (price)
• value as a tradeoff between what is received and
  what is given focus on all salient get and
  give components

33
Perceived value and purchase behavior

• the meaning of value is highly variable and
  depends on the consumer, the product, and the
  context (e.g., POP vs. consumption)
• value is a function of perceived quality and
  price, but other (extrinsic) attributes might
  also serve as value signals for consumers
• value as a determinant of willingness to purchase