PRICING the product – way to success or failure!

In order to get the benefits of utilizing product or service, consumer exchange a sum of value, which is called price, with the product or service provider. Price of the same product may vary among different providers. This variation of pricing is one of the major factor that attracts  consumers. Pricing can be affected by many internal factors like different costs, marketing mix strategy, marketing objectives, government policies  and external factors such as nature of the market and demand, competition, consumer’s psychology.

When we look at luxury market, buyers are less sensitive to price while making the choice of a product. For example, a BMW car buyer will look at the brand, comfort, after sell services etc. Such buyers are willing to pay a handsome amount to sellers to avail all these facilities making their ride more enjoyable. On the other hand, there is a large group in the society who consider necessity over comfort. Such group is very sensitive to price of the product. Instead of  looking at the brand of car provider, these buyers will look for the car that will be low priced among other cars in the same segment and surve it’s purpose of day to day travel.

Demand of a product also plays a vital role while setting the price. Demand and price goes hand in hand. A product will be priced higher with increase in demand and vice versa. Hamid S. Hosseini wrote: “If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down.”

images A graph provided here explains the relationship between price and demand of a product. Demand of a high priced product is very low compared to product at a low price. Relationship between price and demand is always inversely proportional to each other.



Competition is one of the major factor that needs to be considered while considering price of a product. To understand this phenomena better, let’s have a look at the example of pricing strategy of Aldi, Woolworths and coles. After entry of Aldi into Australia,  Woolworths and coles, the two biggest supermarket leaders in Australia, had to rethink about their pricing policy to compete with low priced products of Aldi. Aldi managed to influence buyers in Australia with it’s low profit marging and high selling strategy which doubled it’s profit in duration of 3 years only. On the contrary, Woolworths and coles suffered a declining trend in their popularity in the same period.


When a same product is being offered by many providers, it is essential to lower the price of the product either to stay in the competition or to lead the market as Aldi did.

Leading sellers are very good at taking advantage of consumer’s psychology for number. When a buyer will look at two different prices that are $ 3.00 and $ 2.99, buyer will find a product priced at $ 2.99 cheaper though there is a tiny difference of a single cent only. They find a price cheaper that ends with nine than any other digit on the right hand side (Bizer & Schindler, 2005). Colours also play a role in boosting the sales. When discounted price is shown in the red, men tend to belive that they are saving more than the price is shown in black (Puccinelli et al., 2013).

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In few studies it is found that price placebo, higher price of a product indicates higher quality and performance of the same product, can lead customers to buy expensive products. Shiv, Camron and Ariely (2005) did an experimental study on two different groups where both groups were given the same energy drink which was thought to increase mental functionality. Drink of one group was said to be half priced than the other group. In the result it showed up that the group which was given half priced but the same drink, solved fewer puzzles than the group which was given drink at a full price.

When any service or product provider considers all this external factors while considering a price of the product, it can lead the market with highest profit margin.


Bizer, G.Y. and Schindler, R.M., 2005. Direct evidence of ending‐digit drop‐off in price information processing. Psychology & Marketing, 22(10), pp.771-783.

Hosseini, H.S., 2003. Contributions of medieval muslim scholars to the history of economics and their impact: a refutation of the schumpeterian great gap. A Companion to the History of Economic Thought, pp.28-45.

Puccinelli, N.M., Chandrashekaran, R., Grewal, D. and Suri, R., 2013. Are men seduced by red? The effect of red versus black prices on price perceptions.Journal of Retailing, 89(2), pp.115-125.

Shiv, B., Carmon, Z. and Ariely, D., 2005. Placebo effects of marketing actions: Consumers may get what they pay for. Journal of marketing Research, 42(4), pp.383-393.






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