IMPACT OF MULTIPLE PRICING STRATEGIES ON CONSUMER PURCHASING BEHAVIOR
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
Our focus in this chapter is to critically examine relevant literature that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.
2.1 CONCEPTUAL FRAMEWORK
PRICING
Accordingto Rigges (2008),pricing is theprocess of determining and applying prices to goods and services. It is one of the four Ps of marketing (Product, Place, Price and Promotion) and itis perhaps themost important one because it is the only factor that generates revenue tothe company. Prices are determinedby the balance of supply and demand and set with a certain degree of confidence that consumers will pay it. Kotler & Keller (2012) stated that price is the one element of themarketing mix thatproduces revenue; theother elements produce costs.They also statedthat purchase decisions are based on how consumers perceive prices and whatthey consider thecurrent actual priceto be. Understanding how consumers arrive at their perceptions of prices is an important marketing priority.
To priceis to decidethe amount requiredas payment for(something offered forsale) as statedin Oxford Manpower Dictionary (2002). According to Rigges(2008), pricing isthe process of determiningand applying pricesto goods and services. It is one of the four Ps of marketing (Product, Place, Price and Promotion) and it is perhaps the most important one because it is the only factor that generates revenue to the company. Prices are determined by the balance of supply and demand and set with a certain degree of confidence that consumers will pay it. People involved in buying and using products. The price of the product directlyinfluences the consumerbuying behavior pattern.
TYPES OF PRICING
Understanding how consumers arrive at their perceptions of prices is an important marketing priority. The following are the types of pricing:
Odd even pricing
Various explanations are offered for the widespread use of odd pricing. One explanation is that customers see an odd price as being much cheaper than it actually is in relation to the nearest round figure. That is, customers see a price of $4.99 as being closer to four dollars than nearly five dollars. It is believed that this illusion of much cheaper products triggers an enhanced buyer response (Boyd & Massy 1972)figure. Thus when a price is $4.99, a consumer will recall that the price is $4.00, and then maybe that it is $4.90, but rarely that it is exactly $4.99. The reason offered for not instead rounding $4.99 to $5.00 is based on memory processing time. Odd even pricing (also price ending, charm pricing) is a pricing strategy based on the theory that certain prices have a psychological impact. It is designed to influence the psyche of the customers and attract them to buy (Sahaf 2013)the intention of odd even pricing is to make the price appear considerably lower than it is.
Bundle pricing
Product bundle pricing is a pricing strategy in which several products, services, or any combinations of them are presented to the customers as a single package with a single price. Some research papers have been published so far which are devoted to different aspects of bundle pricing. Linde (2009) studied and compared three pricing strategies (bundling, versioning and windowing) in the field of movies. Ancarani (2002) described and analyzed the role of internet to present bundles of information goods using online tools. Furthermore, Simon and Butscher (2001) demonstrated that profitability could increase 10% to 40% using bundle pricing.
Discount pricing
Gedenk (2002), has explained the short term and long term effects of promotional pricing to a firm. According to his view, in the short run the consumers are switching to the particular store which offers promotional prices. And also, the consumers are switching to the brands which are engaged in promotional pricing frequently. And new customers are generated through this strategy. And promotional pricing accelerate the purchases and ultimately it contributes to the firm to generate higher profits. In the long run, the brand loyalty is created through price promotions and ultimately the loyalty for the store occurs.
Multiple Pricing
Multiple Pricing is a difference in the prices of two products/services or of the same product/services in different places. (Valarie and Dwayne 2008). or Method in which a product/service has different prices based on the type of customer, quantity ordered, delivery time, payment terms,etc. as an incentive multiple pricing lowers prices for new or existing clients in the hope of encouraging them to be regular users or more frequent user. Some companies stimulate use by offering regular customers discounts or premiums during slow period. (Valarie and Dwayne 2008).
Multiple pricing is a method for setting the item price for each successive unit of an item sold when multiple units are the same item are sold. In fact, the item price is set on an item-by-item basis. Multiple pricing is not a discount; it specifies the regular selling price of each item eligible for the multiple unit pricing. It is not a mix match pricing scheme, which sets the price for a collection of items rather than each individual item.
The Consumer
Consumers are actors on the market place stage. Consumers, in general, can be referred as individuals who purchase or consume products and services; however, in terms of buyer and consumer, there is a slight difference. Buyers are the people who are acting either as ultimate, industrial, or institutional purchasers. The latter one, consumer refers to individuals who purchase for merely ultimate use, which is more restrictive in terms of meaning (Sternthal and Craig 1982).
CONSUMER BEHAVIOR
According to Manali Khaniwale (2015) Consumer behavior involves the study of individuals and the method they chose to employ, utilize,and set outproducts and servicesto fulfill their wants and the effect that these methods have on the consumer andthe society asa whole. Consumer behavior refers to all the thought, feelings and actions that anindividual has ortakes before orwhile buying any product,service or idea.Buyer behavior isthe concept which answers, i.e.5W&1H what, why,how, when, and where anindividual makes apurchase. As aresult, the outcome ofbuyer behavior isthe buyer’s decision. According to Kotler & Keller (2012) consumer behavior is thestudy of howindividuals, groups, andorganizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants. One of the common models of consumer decision making processhas been offeredby Blackwell etal (2006), According to him, the five stages of the consumer decision makingprocess are thefollowings: problem/need recognition, information search,evaluation of alternatives, purchase decision made and post purchase evaluation.
Bhattacharya and Sen (2003) stated that consumer behavior referredto the mentaland emotional processand the observable behaviorof consumers duringsearching, purchasing and post consumption of a product or service. Consumer behaviourinvolved study of how people buy, what they buy, when they buy and why they buy. It blended theelements from psychology,sociology, socio-psychology, anthropologyand economics, toassess the influence onthe consumer fromgroups such asfamily, friends, reference groups and society in general.
Consumer behaviour was a relatively recent area of research in the mid- to late 1960s, according to (Abdullah et al. 2017). Since it lacked its own tradition or body of study. Concepts established in other scientific fields, such as psychology, were extensively borrowed by marketing theorists (the study of the individual). Sociology (the study of groups), social science (the study of how people interact in groups), and anthropology (the study of people) (the influence of society on the individual). This latest marketing discipline would be built on the foundation of economics. Many early market behaviour models were founded on economic theory, with the idea that people behave rationally to increase their rewards (satisfactions) while buying products and services. Consumers are just as likely to buy impulsively and be affected by mood, circumstance, and sentiment as they are by family and friends, advertisements, and role models, according to later studies. Both of these considerations come together to provide a holistic model of customer behaviour that takes into account all logical and emotional facets of consumer decision-making(Anwar & Balcioglu, 2016).
Consumer behavior is regarded as that particular strategy which an individual takes in the process of purchasing and using products and services (tangible and intangible). The influence of social media on buying behavior can be in any service or product. Quality, brand, advertising or price could affect consumer decision-making. In 2003, Western Kentucky University used a sample of 249 consumers' purchases to analyze the type of product purchased, and the cost of item. The results of this research present that consumers are buying either inexpensive or expensive items, and are doing so based on recommendations from social media by their contacts or friends on social media (Forbes and Vespoli, 2013). Marketers could consider that social media does influence buying behavior. According to record on purchases, about 59% consumers use Facebook as their social media tool when they received a product recommendation, 37% of users use Twitter. From these results, social media has influenced their buying behavior. The relationship between social media and consumer decision-making present that social media affects advertising attitudes, brand attitudes, and purchasing intentions of consumer. It will not necessarily affect consumers decision-making, but might possess a mediating effect (Taining, 2012). Social media can build brand attitudes that affect buying behavior. The good image of a brand or product can lead the consumer to make decisions on their purchases. When a consumers friend on social media shares or recommends a service or product on their social media, it affects brand attitude and influences his or her decision-making. Yet, advertising on social media, which is provided by commercial sources affect both consumer brand attitudes and purchasing intention (Yang, 2012). From that information, it helps marketers plan their marketing strategies. Many marketers use social media for marketing campaigns. It is the easy way to communicate with consumers. Also, it is inexpensive to advertise their brands or services. Social media is not only for advertising, but it can also be a tool for brands or service providers to connect with their consumers. Consumer buying behavior is often unconsciously affected by some factors.
Consumer Decision Process
Inevitably, businesses encounter bottlenecks where the message is not reaching their consumers and prospects, with the fact that, at times, consumers and prospects are facing significant blocks in their decision process. If not, each of them should be fully committed, loyal, enthusiastic, repeated consumers; however, this is not the case. Today the accessibility and transparency of information has profoundly influenced the decision making process; therefore, it is important to examine what are the hurdles and fiction points that hold prospects becoming consumers, or keeps consumers hesitating from repurchasing. (Silverman, 2001.)
Engel, Kollat, and Blackwell (2003) present a comprehensive model dealing with ultimate consumers behavior in 1978, which attempts to capture the critical aspects of individuals consumption behaviour. As the figure (Figure 1) shows, the model has interpreted consumer behaviour into five stages 1) Problem recognition, 2) search of information, 3) evaluation of alternatives, 4) final decision, and 5) post purchase decisions. (Sternthal and Craig, 1982)
Problem Recognition
Problem recognition takes place whenever a consumer recognizes a significant difference between the desired and the actual state of affairs, which is in sufficient magnitude to arouse and activate the decision process (Solomon, Bamossy and Askegaard, 2002), or need triggered by internal or external stimuli. After the realization of a problem, it initiates the search for information before any typical buying action. When an individual is triggered externally, for instance, a person may see a television advertisement for a vacation, the stimuli triggers thoughts or ideas about the possibility of making a purchase (Kotler and Keller 2009). Nowadays, the mass media is no longer the only source of information, which may serve as a trigger of a purchase to individuals. As a result, consumers are exposed to vast amount of information especially the social media. In order to get through the consumers filter, marketers have to identify a claim or promise about their services or products, which are strongly penetrative. Filter, in this case, is a fact of being overlooked because of too much information competing in the marketplace (Silverman, 2001).
Search of Information
The final purchase decision will not be made at once, even when individuals acknowledge, recognize their problems, and pay attention to the available products; likewise, when prospects have a certain interest in a product or service, they tend to go through the following steps before carrying out any action identifying available options, studying information of selected options, and eventually judging which of these options can most likely deliver the best outcome (Silverman, 2001). The information sources can be divided into two types: internal and external. Internal search indicates former information and experience of an individual, this will result in future behavior that the consumers will likely take (Solomon, Bamossy and Askegaard 2002). Essentially, competitive brands provide alternatives for consumers who are willing to find the best solution to their problems or needs, they may even offer same products or services.
Evaluation Of Alternatives
Once an option is identified as the best or suitable solution according to the individuals needs after accumulating sufficient information, they undertake alternative evaluation (Sternthal and Craig, 1982). Depending on their
motives or goals, consumers establish a criteria for evaluating choice alternatives (Sternthal and Craig, 1982), for instance which alternative is the simplest to use or to arrange, or what are other users experiences, because there is a need to confirm whether or not the information is reliable and to verify that the product will work out as anticipated. (Silverman, 2001.) In order to ensure the outcome within the expectation, individuals require relevance of experience. Direct and indirect experience, which individuals, serve as indicators during the buying process. Direct experience is not always preferred since individuals are inexperienced towards specific products, which may result using it in an unskilled manner and have negative experience with it. Most often, if negative experiences take place, they are most likely to be costly (both financially and time), risky, or even damaging to reputation. (Silverman, 2001.) After the assessment of the choice alternatives, consumers formulate beliefs regarding the alternatives, which guide their attitudes, intentions, and ultimately their choice among alternatives (Sternthal and Craig, 1982). Besides, several studies have provided evident findings that the decision maker will increasingly seek ways to simplify the evaluation process when a decision becomes more complex (Bruner, Goodnow and Austin, 1956; Association for Psychological Science, 2008).
Final Decision
Kotler and Keller (2009) have suggested that during the course of evaluation, consumer eventually form preferences among the brands in the choice desk, however, there are two factors, which can interfere between the purchase intention and purchase decision attitude of the others and unanticipated situational factors. Attitudes of others is the extent to which another persons negative attitude towards the preferred alternatives or reluctance to meet the terms of supporting the purchase intention, this may result in a readjustment of the consumers purchase intention (Kotler and Keller 2009,172). Kotler (2009) has also stated that consumers are undoubtedly influenced by the information diaries who publish their evaluations (e.g. customer reviews on Amazon.com, blogs, bulletin boards, and so on). Unanticipated situational factors refer to those may erupt to alter the purchase intention, for instance, there might come an unexpected purchase that is more urgent compared to the purchase the consumer was firstly stimulated to buy; in other words, preferences and purchase intentions cannot be served as completely reliable predictors of purchase behavior. (Kotler and Keller, 2009.) The stages in the decision process are not followed sequentially, but rather in a cyclically order; that is, in reality, there are loops, for instance between information search and evaluation, consumer learns about new criteria not previously considered (Bettman, 1979).
Post Purchase Decision
After the consumption, the consumer then experiences certain levels of satisfaction or dissatisfaction, and evaluates the wisdom of the choice made in selecting the alternative. Two potential outcomes are derived from this phase of satisfaction or dissonance. When a consumer experience dissonance towards the purchase, the choice is devaluated and the consumer begins the process of searching, obtaining information and evaluating other options for future buying decision, in which triggers new behavior. (Sternthal and Craig, 1982). It is a phase when the consumer decides whether or not to move from merely implementing the product to a full adaption; that is, whether to use the product repeatedly or repurchase or not, since the consumer always has a choice regarding the products priority, frequency of usage, and new circumstances of new uses. When individuals are comfortable in using a specific product regularly, they will recommend it to others to use as well. (Silverman, 2001). Stages in decision making involves many psychological factors, which the above five-stages buying model has failed to explicate; thus, the following discussion focuses on attitude and the psychological components mentioned in the information processing theory proposed by Bettman (1979).
Information Acquisition and Evaluation
Howard and Ostlund (1973) as cited in Healey (1974), have stated that often times the consumers media selections of the information source are determinants of the information to which the consumers will be exposed. That is, in the situation, consumers may have their preferences regarding which online communities or blogs or so on whenever they seek for information. Sternthal and Craig (1982; 83) have also indicated that consumers information exposure is highly selective during the initial stage of information acquisition. When information is sought externally for instance from friends, packages, advertising, and so forth, the actual external information found would significantly influence the future course of the search, in which it may involve changing the goal, redirecting attention and perceptual encoding. There are many circumstances that will impact the decision regarding when the information search should be stopped, such as the perceived costs of obtaining information (e.g. time costs, effort required, or financial costs), the information availability, and the value of the information in helping to make a choice (e.g. credibility, experts advice). During this stage, consumer relates incoming information to his or her existing structure of beliefs and values (Bettman, 1979). Howard (1977) postulated as cited in Sternthal and Craig (1982) that if the alternative desired is identified, then the consumer may search for information about prices and stores where that alternative is available, for instance the price levels, locations, service capabilities, and so on. Bettman (1979) has suggested that the relative information availability within the particular choice environment affects the type of information consumer seeks for.
IMPACT OF MULTIPLE PRICING STRATEGIES ON CONSUMER PURCHASING BEHAVIOR
Multiple pricing in telecom is mainly centered on three key elements; these are time/duration, volume/bundle and place/location. Frequent variations on these elements lead to changes in consumer perception on price fairness which inturn induce behavioral changes whether positive or negative. At last, the nature of behavioral change will determine the impact of this change to the seller. Findings from empirical studies have provided evidence that consumers’ price fairness perceptions are influenced by various factors. Overall, consumers tend to rely on several reference points such as past prices, competitor prices, and cost of goods sold when inferring price fairness to make comparisons (Bolton et al., 2003). In studies that examine multiple pricing as a strategy, it was concluded that this strategy influence price fairness perceptions and the perception on price induce consumer behavioral changes. (Choi & Mattila, 2009; Haws & Bearden, 2006). The impact to seller will depend on whether the behavioral change is positive or negative.
Switching patterns provide an important indicator that the demand-side of a market is well developed and consumers sufficiently empowered to participate actively. The motivation to participate is generally a function of consumers’ estimate of the performance of their existing supplier; and whether or not they believe there are better alternatives available from other suppliers on the aspects of service that matter to them. If the market is perceived to be undifferentiated and/or if their current supplier is perceived to be the best on the market on the criteria that are important, there is no expected benefit from switching (Ofcom 2006). It neither is important to note, however, that switching is not the only measure of a vibrant demand-side nor is switching necessarily always in consumers’ best interests. The decision to engage in coordinated information gathering that will support the decision to switch or not to switch is also important. If a consumer is satisfied with his/her current provider, switching is not necessarily an improvement.( Mariuki 2004).
2.2 THEORETICAL FRAMEWORK
Price Theory
Price theory is concerned with explaining economic activity in terms of the creation and transfer of value, which includes the trade of goods and services between different economic agents.The theory of price is an economic theory that states that the price for any specific good or service is based on the relationship between its supply and demand. The optimal market price, or equilibrium, is the point at which the total number of items available can be reasonably consumed by potential customers.
rice is theonly element ofthe marketing mixthat generates revenue for thestores. Price is the cost ofthe merchandise paid bythe customer. Inorder to generate revenue and maximizeprofit, the top level must consider both thefactors, i.e. internaland external factors of an organization. Internal factors of an organization include the objectives of marketing,the strategy regarding marketing mix and the cost of production. External factors include the target market, demand of the product, competition exist in the market, economic conditions and government laws and regulations.
According to (Valarie and Dwayne 2008), There are three major pillars in which service pricing can be derived; Below is the brief discussion in each; (a) Cost based pricing: In this approach, company determines expenses from raw materials, labor, adds amounts or percentages for overhead and profit, and thereby arrives at the price. The basic formula for the cost based pricing is : Price = Direct cost + Overhead cost + Profit Margin (b) Competition based pricing: This approach focuses on the prices charged by other firms in the same industry or market. It does not imply charging the identical rate other charge but rather using other prices as an anchor for the firm’s price. (c) Demand based pricing: In this approach the pricing is done consistently with customer perception of value, Price are based on what customers will pay for the services provided.
2.3 EMPIRICAL STUDIES
Bhattacharya and Sen (2003) stated that consumer behavior referredto the mentaland emotional processand the observable behaviorof consumers duringsearching, purchasing and post consumption of a product or service. Consumer behaviourinvolved study of how people buy, what they buy, when they buy and why they buy. It blended theelements from psychology,sociology, socio-psychology, anthropologyand economics, toassess the influence onthe consumer fromgroups such asfamily, friends, reference groups and society in general. Yue and George (2006) suggested the retail patronage idea such as the concepts of store choice and frequency of visit. In thisstudy, meta-analysis suggestedthat various predictors (e.g.service, product selection,quality) were strongly relatedto shoppers’ retail choice, whereas others (e.g. store attitude, store image) were important antecedents of shopping frequency. However, the relationships between thepredictors and retail patronagevary according to the study characteristics (e.g. experimental vs other designs). Wanninayake andPradeep (2007) identifiedthat design layout andproduct displays werehighly considered in selecting a specific supermarket outlet. They also felt that most of theprofessionally qualified customersselected design, layout and product display as important variables in selecting the supermarkets.They also furtherstated that most ofthe female customersgave priority toproduct display in supermarket selection. Dineshkumarand Vikkraman (2012) noted thatcustomer satisfaction was widely recognized as a key pressure in the formation of consumers'future purchase intentions. Satisfied customerswere also likelyto tell othersabout their favorable experiencesand thus engagein positive word of mouth advertising. Gomathi et al. (2013) studied the consumer attitude towards departmental stores of organized retail outlet in Erode city. The preferencesof the consumersclearly indicate the importance of advertisement in influencing their purchase, the additional facilities expected, improvement expected in handling defective goods and manymore. They analyzed the attitude of the consumer towards departmental stores. Theresults may helpthe management ofdepartmental stores to understand the factors that influence the attitude of consumers towards departmentalstores, so that theycan implement the requirementof the consumersand be successful in the emerging retailing environment.