Customers’ willingness to pay is the real price

Pricing of a product or a service is one of the biggest decisions business have to make because customer reaction depends on pricing. Pricing strategy is not just about selling the product but also how customer feels after buying that product. Irrational behavior in buying process is common so it is tricky to understand the customer psychology.As the customer behavior varies from product to product so does the pricing strategies. Keeping the customer purchasing behavior as a base, the pricing strategies are divided into three major categories low, medium and high.

Everyday low price providers

In the big cities life is too fast and wasting time at grocery stores is not an option but at the same time people want to save money in their everyday purchases. Now challenge for grocery stores is to provide the lowest price product or at least make customers feel that they bought a good product at a very low price. But how customer knows the product he or she bought was the lowest price because it is impossible to compare the price. Here comes the strategies which will make you think that you bought at lowest price. First is sale tags which we daily see at grocery stores. As given in fig-1 different ways to tell you that you are going to pay much less than original price and when we buy we make up our mind that we bought the cheapest one and go back home satisfied and ready to repeat the process next day. Then comes the brand taglines (fig-2) and TV advertisements. Which we keep seeing unintentionally and these factors also plays part in creating a perception about a brand or a product. In this type of pricing the profit margin always kept small because intention is to sell at a large number.


Fig-1 (ajay, 2016)                                 fig-2 (ajay, 2016)

Pricing in the middle

In middle pricing the pricing is tweaked up or down relative to the competitors’ price (Iacobacci, 2013). This is more kind of a negotiation with the customer. There can be different scenarios for example some brands just raise the price by offering more features and attributes to the product or some would reduce the price to add value to the brand. But again it depends on the market and how customer perceive a particular brand. In this category buyers spend time to evaluate what they are going to buy. So from business perceptive they react accordingly and to set the price the best tool they use is conjoint analysis (Iacobacci, 2013) where they provide options with various combinations of features(price is on of them) and let customer decide what they want for example in fitness industry optimum nutrition is one of the best brands and they offer variety of product with different features and let customer decide what they want and then they charge accordingly. In this case profit margins are much higher than the everyday low price products.


Fig-3 (Innovative lists, 2015)

High price strategies

In this category the customers are willing to pay at any level. High value businesses understand the psychology of their customers and they set the price of their “priceless” product very smartly. Now in this category there are two major groups. One who is looking for real quality or a feature which no other product offers so that kind of customers agree to pay huge amount. The next type is the status conscious and they believe their targeted brand or product will add value to their social image so they are willing to pay a very huge amount too. Now businesses in this category never try to target every one because they are aware everyone cannot afford their service and they smartly create their own niche market. So mantra is simple here “sell less and earn more” (ajay, 2016). The profit margins in this category is very high.

Now by looking the people willing to pay high amount for their desired technology the first example comes to my mind is Tesla car. When Tesla car started their business they targeted the very limited market because of very high price. They sold earlier models just to Silicon Valley businessmen who love to have new technology product and different thing in Tesla was its electronic technology (100% electric car) and was a sports car too. So the price of car was high because there was no other competitor offering the same product.

Next group in this category is the brand lovers. These people who almost buy everything from a high value brand. Now in fig-4 you can see few brand logos and if you just go to their online pages you will see the unbelievable price lists.  In this category brands understand customer mind and set price exactly which suits their status.

Fig-4 (ajay, 2016)

From previous argument I will conclude that successful businesses set the price of their product by understanding the psychology of their customers. Keeping record of customer’s purchases and then analyzing the behavior has become really important to predict customer psychology. Most of customers show unplanned purchasing behavior and the experts very smartly generate the proper stimuli through various strategies to create an impulse purchase and then convert it into a repeating process.



ajay (2016) Sell less, earn more, scale faster – Amazon FBA margins and models unleashed – ALL64. Available at:


Hot sale tag vector free vector for free download about (17) free vector in ai, eps, cdr, svg format (2015) Available at: .


Iacobucci, D. (2013) MM4. 4th edn. United States: South-Western College Publishing.

Innovative lists (2015) Available at:


Thøgersen, J., Jørgensen, A.-K. and Sandager, S. (2012a) ‘Consumer decision making regarding a “Green” everyday product’, Psychology and Marketing, 29(4), pp. 187–197. doi: 10.1002/mar.20514.



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