For modern consumers, pricing can be explained and defined as a complex decision which influences sales and profits of a sales organization. For customers, prices may have symbolic meanings because a modern consumer may associate discounts with a reduction in quality. Prices are closely connected with the notion of value proposition and unique image of the product itself. Modern consumers suppose that quality fashionable products always have higher prices than mass merchandise.
The position chosen can be justified by emotional and psychological responses to a product. Many customers are not willing to buy cheap products and services because of personal image and high social status. The role of pricing varies with the product and its stage of development. Pricing is closely connected with branding and emotional responses of potential consumers. Fundamental and functional decisions necessitate basic changes in consumer habits, which are difficult to achieve and require heavy branding. High prices can be explained as strategic and tactical decisions which lead to great changes in consumer habits, a fact that may shift the focus of the branding job (Hollensen, 2007; Nagle and Hogan, 2005). For instance, customs of such brands as Jaguar, Bentley or Lancôme never buy low cost products because it would damage their image and self-identity. Most of the buyers are willing to pay high prices available to rich and wealthy customers only. These decisions are ethical as they leave poor customers a chance to buy cheaper products and use low cost services. The poor from Chicago would never have a chance to drive a Bentley or buy luxurious cloths from Valentino.
Regardless of economic models, it is difficult to establish an optimum price because demand and costs change over time. The attention usually settles on current profit maximization rather than on the long-run maximization; the whole life cycle of a product and the total product line, rather than a single item, must be considered in pricing; and price must be considered from the perspective of the total marketing mix (Hollensen, 2007). For instance, customers of such designers as Valentino, Channel or Calvin Klein would never buy products at the same price as products sold through low cost supermarkets. But the major problem is that detailed data are not available. Yet, several techniques can be used to approximate elasticities, including market tests, statistical techniques of historical or cross-sectional analysis, and surveys. Product brand image and its perception by potential is an important component of effective price setting (Paley, 2006). In many cases, effective price decisions (usually dealing with high pricing strategies) add value to a product. Customers usually measure added-value equities indirectly, by inference, it is easy to slip into thinking that brand equity is just an incremental return on marketing investment. The consumer is an active participant in the creation of equity. Some fashion retailers even call the consumer an equity partner in the brand in order to attract his/her unique qualities of the product.
In sum, there are always some products on the market that meet personal needs and the desire of customers to pay high prices. When small variations in price bring about relatively large variations in buyer reaction, the price elasticity is high. The situation is reversed for low elasticity. Since various customers react differently to price changes, knowledge of demand elasticities helps to set prices.
References
Hollensen, S. 2007. Global Marketing: A Decision-Oriented Approach. Financial Times/ Prentice Hall; 4 edition.
Nagle, Th, T., Hogan, J. 2005. The Strategy and Tactics of Pricing: A Guide to Growing More Profitably (4th Edition). Prentice Hall; 4 edition.
Paley, N. 2006. The Manager’s Guide to Competitive Marketing Strategies. Thorogood.