Consumers process prices based on reference prices from prior experiences, communications, and other factors. They have lower and upper price thresholds for quality. Understanding how consumers perceive prices is important for marketing. There are three key factors: reference prices that consumers compare a given price to, such as typical or last prices; price-quality inferences where higher prices are associated with better quality; and price endings, as odd numbers and round numbers like 0 or 5 are easier for consumers to process and may influence perceptions of whether a price seems high or low.

1. HOW DO CONSUMERS
PROCESS AND EVALUATE
PRICES?

2. Consumers often process price information, interpreting
it from the context of prior purchasing experience, formal
& informal communications, points of purchase & other
factors

3. Purchase decisions are based on how consumers perceive prices.

4. Purchase decisions are based on how consumers perceive prices.
Customers may have a lower price threshold below which prices
signal inferior or unacceptable quality…….

5. …..as well as an upper price threshold above which prices are
prohibitive and the product appears not worth
the money.

6. Understanding how consumers arrive at their
perceptions of prices is an important marketing
priority.
We consider three key topics:

7. Understanding how consumers arrive at their
perceptions of prices is an important marketing
priority.
We consider three key topics:
REFERENCE PRICES

8. Understanding how consumers arrive at their
perceptions of prices is an important marketing
priority.
We consider three key topics:
REFERENCE PRICES
PRICE-QUALITY INFERENCES

9. Understanding how consumers arrive at their
perceptions of prices is an important marketing
priority.
We consider three key topics:
REFERENCE PRICES
PRICE-QUALITY INFERENCES
PRICE ENDINGS

10. #1 REFERENCE PRICES

11. When examining products, consumers
often employ reference prices, comparing
an observed price to an internal
reference price they remember or an
external frame of reference such as posted
“regular retail price”.

12. POSSIBLE CONSUMER REFERENCE
PRICES
• “Fair Price” (what consumers feel the product should
cost)
• Typical Price
• Last Price Paid
• Upper-Bound Price (reservation price or the maximum
most consumers would pay)
• Lower-Bound Price (lower threshold price or the minimum
most consumers would pay)
• Historical Competitor Price
• Expected Future Price
• Usual Discounted Price

13. When consumers evoke one or more
of these frames of reference, their perceived
price can vary from the stated price.

14. #2 PRICE-QUALITY INFERENCES

15. $$$
Many customers use
price as an indicator
of quality.

16. FOR EXAMPLE
Higher priced cars are perceived to possess high quality.
Must be
premium
quality !
$$$$$$
$$$
$$$

17. FOR EXAMPLE
Higher priced cars are perceived to possess high quality.
Must be
premium
quality !
$$$$$$
$$$
$$$
Higher-quality cars are likewise
perceived to be higher priced than
they actually are.

18. When information about true quality is available, price
becomes a less significant indicator of quality.

19. When information about true quality is available, price
becomes a less significant indicator of quality.
But when this information is not available, price acts a signal
of quality.

20. #3 PRICE ENDINGS

21. Many sellers believe that
prices should end in an odd
number.

22. Customers see an item priced at
$299 as being in the $200 range
rather than in the $300 range.

23. Customers see an item priced at
$299 as being in the $200 range
rather than in the $300 range.
They tend to process prices
“left-to-right” rather than by rounding.

24. But if a company wants a
high-priced image, it should
probably avoid the odd-ending
tactic.

25. PRICES ENDING WITH 0 OR 5 ARE ALSO
POPULAR AND ARE THOUGHT TO BE
EASIER FOR CONSUMERS TO PROCESS
AND RETRIEVE FROM MEMORY

26. SO TO RECAP
3 Main Ways for Consumers to perceive prices.
• Reference Prices
• Price-Quality Inferences
• Price Endings

27. THANK YOU
.
Created by
Kunal Eapen, IIIT Allahabad
During an internship under
Prof Sameer Mathur, IIM Lucknow
www.iiminternship.com