Consumer reactions to unexpected prices were studied for low and high involvement products. An exploratory market research study with 40 respondents of varying ages and incomes was conducted. For high involvement products like computers and motorcycles, consumers were willing to pay higher unexpected prices by changing their attitude or trivializing the price increase. For low involvement products like snacks and medicines, consumers typically accepted small unexpected price increases or sought substitutes. The results provide implications for marketers on how to reduce consumer cognitive dissonance caused by unexpected price rises through communication strategies like justifying higher prices or avoiding direct price comparisons.

1. 1
Consumer Behaviour for
Unexpected Prices
December 6, 2016
Project Report
Gaurav Mahale (004)
Krishna Bhawsar (007)
Suraj Roziwala (016)

2. 2
Executive Summary
This project report describes the consumer reaction for unexpected price rise. When a
customer is encountered with an unexpected price, a cognitive dissonance is created.
Now the consumer want to reduce the dissonance and get back into the stable
equilibrium. To reduce dissonance consumer may follow various path like seeking
consonant information, changing his/her attitude or do trivializing. This report
describes, what modes does a consumer is likely to follow for low involvement product
and high involvement product.
This project report depicts market research and survey to find consumer reaction for
unexpected price rise for low and high involvement products. Market research and
survey done are linked with theories to come with findings and important implications
for marketers. This report entails key findings that a marketer can use in his/her
advertising of the product to reduce the dissonance of the customer and hence stop
him from moving to competitor’s product.

3. 3
Acknowledgement
In a span of time, few achievements of note have been the product of effort of one
person. Instead, they were been accomplished through efforts of group. Similarly, the
outcome of our Project report would have been impossible without the cooperation,
diligence, understanding and encouragement of number of people. First, we are
thankful to all those known and unknown entities that helped us throughout our project
work.
We would like to express our deep sense of gratitude to Prof. Anirban
Chakraborty for giving us the required guidance and support and motivation required
during our project work.

4. 4
Table of Contents
Introduction:..........................................................................................................5
Consumer Behavior:- ............................................................................................5
Cognitive Dissonance:– .........................................................................................5
Attitude:- ...........................................................................................................5
Perceived Price & Reference Price:-..........................................................................6
Salience:-...........................................................................................................6
Conceptual Framework:............................................................................................7
Modes of dissonance reduction: .................................................................................9
Market Research:.................................................................................................. 10
Exploratory market research:................................................................................ 10
Research Problem:............................................................................................. 10
Hypothesis ....................................................................................................... 10
Product category types involved in Research:........................................................... 11
High Involvement Category ............................................................................... 11
Low Involvement Category................................................................................ 11
Results of the threshold study.................................................................................. 12
Implication for the managers................................................................................... 15
Reference: .......................................................................................................... 16
Bibliography: ....................................................................................................... 16
Exhibit 1 .......................................................................................................... 17

5. 5
Introduction:
Consumer Behavior:-
Consumer Behavior is the study of individuals, groups, or organization and the
processes they use to select, secure, use, and dispose of products, services,
experiences, or ideas to satisfy their needs and wants.1
Cognitive Dissonance:–
In Phycology, Cognitive dissonance is the mental stress or discomfort experienced by an
individual who holds two or more contradictory beliefs, ideas or values at the same
time, performs an action that is contradictory o their belief, ideas, or values, or is
confronted by the new information that conflict with their existing beliefs, ideas or
values.2
Cognitive dissonance occurs when a consumer holds conflicting thoughts about a belief
or an attitude object. For instance, after consumers have made a commitment to buy
an important and pricy object – for example, made a down payment on a new house or
an expensive car – they often begin to feel cognitive dissonance when they think of the
unique, positive qualities of the alternative not selected.
Attitude:-
In Psychology, am attitude is an expression of favor or disfavor toward a person, place,
thing, or event (the attitude object). Prominent psychologist Gordon Allport once
described attitudes “the most distinctive and indispensable concept in contemporary
social psychology”.3
An Attitude is a learned predisposition to behave in a consistently favorable or
unfavorable way toward a given object. In the context of consumer behavior, an
“object” can be a product, brand, service, price, package, advertising, promotional
medium, or the retailer selling the product, among many other aspects of consumption.

6. 6
Perceived Price & Reference Price:-
Perceived Price is the customer’s view of the value that he or she receives from the
purchase. For example, consumers generally perceive a low price for a meal at a fast
food outlet, as well as a high price for a meal at a gourmet restaurant, as consistent
with the value that they receive in both instances and therefore as fair.
A reference price is any price that a consumer uses as a basis for comparison in judging
another prices. Reference prices can be external or internal. An advertiser generally
uses a higher external reference price in an ad offering a lower sales price, to persuade
the consumer that the product advertised is a really good buy. Internal reference prices
are those prices (or price ranges) retrieved by the consumer from memory.
Salience:-
In social psychology, social salience is a set of reasons which draw an observer’s
attention toward a particular object. The reasons for this effect can be: general object
attributes – vivid colors, stands right in front of observer etc.4 Brand Salience is the
degree to which your brand is thought about or notices when a customer is in a buying
situation. Strong brands have high brand salience and weak brands have little or none.5
Internal Balance 1
According to Theory of Dissonance, if there is difference between expected price
and actual price consumer will find ways to balance the dissonance. The concept of
balancing your expectations or changing decisions is called internal balancing which
leads to reduction of dissonance. There are three modes of dissonance reduction.6

7. 7
Conceptual Framework:
Figure 1 Conceptual framework
Salience
Internal
ReferencePrice
Encountered
Price
No
Dissonance
DissonanceReduction
Mode:
-Changeattitude
-SeekConsonant
Info.
-Trivialization
OtherFactor:
Situational,
Individual,Cultural
etc.
Perceptionof
Vlaue
Purchase
Decision
Experience
Dissonance
=
<
Versus
>

8. 8
In this research, it is proposed that Festinger’s (1957) Theory of Cognitive Dissonance
provides a useful framework for evaluating discrepant price encounters. Each element
of the framework is discussed in conjunction within a consumer behavior context,
below.
Internal Reference Price: Consumer often have an internal reference price in mind when
planning a purchase. The reference price may be a firm estimate regarding price
expectations or a less firm or fuzzy estimate regarding expectations. The firm or fuzzy
nature of a consumer’s price corresponds to “Salience” in the conceptual framework in
figure 1. It has been found that the mode of dissonance reduction that an individual
choses may depend on the salience of the critical attitude or cognition. For example, a
attitude or cognition that is made highly salient will provide a condition in which
trivialization (as a mode of dissonance reduction) is likely. Price salience is the extent to
which a reference price is fixed in a consumer’s memory and is easily retrieved during a
shopping experience. The more experience a consumer has with purchasing a given
product class. The more salient a reference price is likely to be.
If the actual price encountered is equal to the reference price, then no dissonance is
expected to occur because the cognitions (actual price and reference price) are
consistent with each other. This case is illustrated in figure 1 by the upward sloping
arrow. However, if the reference price is different from the encountered price, the
consumer price is not consistent with the newly encountered cognition regarding the
actual price. Again referring to figure 1, the framework posits that on successful
inducement of one of the dissonance reduction modes, consumers will have some
perception of the value of the transaction and a resulting intention of whether or not to
make a purchase.7

9. 9
Modes of dissonance reduction:
1. Seeking Consonant Information
When there is change in price, consumer will look for another supplier
where they can get the same product with cheaper rates. Consumer can
also look for substitute products which will suffice consumer needs.
2. Changing Attitude
Consumer will change the attitude towards the product. Consumer will
attribute the high price to product quality, updated product information,
product attributes or general rise in prices.
3. Trivializing
In trivializing, consumer reduces the importance of money if there is
quality associated with the product. Product brands also play a major role
in reducing the importance price rise associated with the product.
Consumer can also ignore the price rise to a certain extent when there is
value associated with the product.
Figure 2 Consumer Reactions to unexpected Prices

10. 10
Market Research:
To analyze the change in behavior of consumer an exploratory market research is done
with the various product categories.
Exploratory market research:
It is unstructured and flexible format of market research. The sample is small in this
case, therefore we have taken a small number of respondents.
Research Problem:
To determine the behavior of consumers due to unexpected changes in price.
With the above mentioned research problem and the expected responses from the
consumers, hypothesis can be made to categorize the responses of consumers. The
hypothesis statements can be
Hypothesis
Low Involvement Products
H0: Consumer seeks consonant information
H1: Consumer changes attitude
High Involvement Products
H0: Consumer seeks consonant information
H1: Consumer will change attitude

11. 11
Product category types involved in Research:
High Involvement Category
• Personal Computer (Dell)
In this type of product category, consumer mostly tended to seek
the consonant information. The information provided by the seller
balances the gap between expected and actual prices. Otherwise,
Consumer changes the brand to other brands as he only seek utilitarian
value
• Two Wheeler Vehicle (Royal Enfield)
In this case, consumer trivializes the price with product quality.
They associate the price with brand name and power of the bike and are
ready to pay the changes in prices to certain extent.
Low Involvement Category
• Confectionary
The consumers have mostly fixed their choices before coming to
shop, the changes in prices is very small and they are ready to pay
the extra money.
• Medicines
Medicines are less affected by changes in price rise. As they are on
high priority for the consumer before other products and are ready
to pay the price, however the regulatory authorities have limited
the changes in price and therefore there are very less product
whose price has increased in large extent.
• Commodities
In commodities, consumer will try to seek alternatives. When there
is increase in prices of one type of pulses he will buy another one
to fulfil his requirement.

12. 12
Results of the threshold study
Figure 3- Age Distribution
We have taken a population size of 40 varied across age of 19 to 54. We have asked
the consumer responses for high involvement and low involvement products. We found
that consumers were willing to pay more in case of increase in the prices of high
involvement products as compared to the low involvement products.
Figure 4 - Monthly Income Distribution

13. 13
Figure 5 - Response for FMCG Product
Figure 6 - Response for Medical Product

14. 14
Figure 7 - Response for Automobile Product
Figure 8 - Response for Electronic Product

15. 15
Implication for the managers
When a consumer observes a price increase in the product a cognitive dissonance
occurs. Consumer will adopt a strategy that will reduce his dissonance or regains state
of the equilibrium.
The challenge for marketers is how to reduce the chance of consumer confronting the
with the price with dissonance and reduce their dissonance without letting them shifting
from their product.
Know the market prices, If we believe that our product is way above the market price
then we need to justify it. We need to use communication strategy explain why we are
charging higher for the product. By adopting this approach we can reduce the likelihood
of the consumer seeing our price as the source of dissonance. They can reduce
dissonance by attributing the higher prices to the quality of the product.
Trivialize the price issue, we can make the price issue trivial, slogans like “go on, you’re
worth it” and “reassuringly expensive” in the advertisements seeks to persuade
consumers to indulge for that product.
Avoiding comparison, if consumer see our product and believes it to be highly
expensive we are likely to lose sales, unless the consumer has some reason to
understand the expense. Marketers can emphasize the difference between their product
and the average product to create niche market. At this point the expense is really
explained by the fact that product is not comparable to the average product category.
So that less expensive product are in different category. As marketers can promote
their product like “incomparable”. We need to explain the price and give consumers the
reason for buying at that price,

16. 16
Reference:
1- https://en.wikipedia.org/wiki/Consumer_behaviour
2- https://en.wikipedia.org/wiki/Cognitive_dissonance
3- https://en.wikipedia.org/wiki/Attitude_(psychology)
4- en.wikipedia.org/wiki/Social_salience
5- http://www.brandingstrategyinsider.com/2010/05/brand-salience-why-its-
important-for-your-brand.html#.WEWddvJM4s4
6- Pdf “ beyond reference price – understanding Consumer’s Encounter with
unexpected Price”
7- Leon G. Schiffman, Joseph Wisenblit and S. Ramesh Kumar, “consumer reactions
to unexpected prices: consumer perception: Consumer Behavior”, 11th edition,
Pearson, page no 127
Bibliography:
1. Leon G. Schiffman, Joseph Wisenblit and S. Ramesh Kumar, “consumer reactions
to unexpected prices: consumer perception: Consumer Behavior”, 11th edition,
Pearson, page no 127
2. Naresh K. Malhotra and Satyabhusan Dash, Market Research , an applied
orientation, 7th edition, Pearson
3. Phillip Kotler, Abraham Koshy, Mithileshwar Jha and Kevin keller, Marketing
Management 14th edition, Pearson
4. Biswas, A. and Blair, E.A. (1991), “contextual effects of reference prices in retail
advertisements”, Journal of marketing, vol. 55 no.3 pp. 1-12
5. Joan Lindsey-Mullikin(2003), “Beyond reference price: understanding consumers;
encounters with unexpected prices”, Journal of product & Brand Management,
vol 12, 2/3 pp 140.

17. 17
Exhibit 1
Questionnaire of Consumer Behavior Study
1. What is your age? *
2. What is your Monthly family income? *
o less than Rs 15000
o Rs 15000 - Rs 25000
o Rs 25000 - Rs 40000
o Rs 40000 - Rs 60000
o Rs 60000 - Rs 100000
o Above Rs 100000
3. What is your occupation? *
o Student
o Job
o Business
o Other :
4. Suppose you buy a soap of Rs 40 of your choice of brand, For next purchase up
to what price will you pay for the same brand of soap? *
o Rs 44
o Rs 46
o Rs 48
o Rs 52
o Rs 60
o Rs 72
o Above Rs 72
5. Suppose you buy a pack of Paracetamol tablets (or any other over the counter
drug of your choice of brand) of Rs 30, For next purchase up to what price will
you pay for the same brand? *
o Rs 33
o Rs 35
o Rs 37
o Rs 40
o Rs 45
o Above Rs 45

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6. Suppose you expect to pay Rs 60000 for Activa (or any other automobile of your
choice of brand), When you go to buy that product up to what price will you pay
for the same product? *
o Rs 63000
o Rs 66000
o Rs 70000
o Rs 75000
o Rs 80000
o Above Rs 80000
7. Suppose you expect to pay Rs 40000 for a Laptop (of your choice of brand),
When you go to buy that product up to what price will you pay for the same
product? *
o Rs 42000
o Rs 44000
o Rs 47000
o Rs 52000
o Rs 56000
o Above Rs 56000