Price is the monetary value put on a product after a series of calculations, research, and risk-taking ability. It is the value that a finite quantity is purchased with. The price of a product has an impact on the consumer, the business, and the economy. It often infers the quality of the product and a decision to buy is dependent on the price. Price adjustments are therefore an important marketing strategy. Let’s learn about ‘Price Adjustments’.
Price Adjustments
Price adjustment is put in place to protect both the consumer and the retailer from a sudden increase in a product’s price and it is often included when such a risk is bound to happen. It is also known as price protection and is common in the United States. It works this way: A customer can demand a partial refund on the purchase price of an item if, after purchase, there is a decrease in the price of that same item. For example, a customer bought a freezer for $300, but the price of the freezer drops to $150 afterward. Such a customer can demand a partial refund from the store, even if the freezer has been used. This is different from the return policy in that, for the return policy, the item has to be returned unused. Staples, Gap, Macy’s, etc are some of the retailers that have price adjustment policies. Certain products are often excluded from price adjustment, depending on the retailer.
Price Adjustment Strategies
In Marketing, there are 6 types of price adjustment strategies. These are:
- Discount and allowance pricing
- Segmented pricing
- Psychological pricing
- Promotional pricing
- Geographical pricing
- International pricing
1. Discount and Allowance Pricing Strategy
- A discount is a reduction in the basic price of an item, often done as a form of reward to the customer.
- It might be given as a reward for early payment, off-season buying, bulk purchases, etc. This kind of price adjustment is known as a discount and allowance pricing strategy.
- For example, if a pen costs $2, a discount can be given to someone buying 3 pens. The customer gets to pay $5 instead of $6.
2. Segmented Pricing Strategy
- This comes into play when a product is sold for more than 1 price to different buyers.
- The price difference is often related to the class or category of people paying for it.
- An example is the price of a concert ticket. Students might be asked to pay less than other regular people. This is a segmented pricing strategy.
- When aged people are given less value for the same product a middle-aged man is paying more for, it is a segmented pricing strategy.
- Companies also use this to sell products in different regions. The price in a region may be greater than in another, depending on the economic class of the people in each of these locations.
3. Psychological Pricing Strategy
- This strategy makes use of consumer psychology about the price of a product.
- Customers believe that the higher the price of an item, the higher the quality, which sometimes is not often the case.
- Instead of selling at a lower price, which is still profitable to the seller, sellers choose to sell at a higher rate to attract customers’ interest.
- In a store where different brands of cereals are displayed, without prior knowledge of the quality of any of those products, a customer is bound to choose a brand at a fairly higher price than others. This is the psychology of customers.
4. Promotional Pricing Strategy
- It is used to promote both new and existing products or brands.
- Companies use promotional pricing strategies to attract customers within a short period.
- Prices of the product are usually lowered below the list price and sometimes below the cost price too.
- This strategy might harm the brand or company, in that, it sends the wrong message to customers about the quality of the product.
- It may lead to a constant reduction in price to make sales and this is not profitable.
5. Geographical Pricing Strategy
- Tagging uniform prices on a product might not be profitable for companies, as some locations are more remote than others, increasing transportation costs.
- Companies employ geographical pricing strategy to charge customers for products in different geographical locations around the world.
- Prices are set based on the location and the economy of the citizens in the area.
- Elite class areas are charged higher for a product while economically backward areas are charged less for the same product.
6. International Pricing Strategy
- Companies with products launched all over the world need to decide the price of the product in each country.
- A uniform price can not be issued due to the different incomes per capita of each country.
- Factors such as economic conditions, marketing objectives, competitiveness in the area, law and order, regulations, etc, are considered in setting prices in different countries.
- Similarly, some brands opt for uniform pricing all over the world.
Conclusion
As retailers and customers, there is a need to know about price adjustments to serve consumers better (for retailers) and to know your rights as a customer.
FAQs
- Do all stores offer price adjustments?
No. Ensure you know the price adjustment policy in your local store before demanding it.
- Is price adjustment similar to price matching?
No. Price matching involves demanding a partial refund if goods are sold at a price higher than it is in other stores. Price adjustment does not involve other stores.
