Pricing strategies is a concept that has been studied for decades. The focus in many studies is put on how a firm can get customers to purchase their product. Pricing affects the buying decisions and the profitability of a business. Apart from these two considerations, the competition should also be taken into account. This paper reviews a research journal article on the effect of pricing strategies on consumer goods purchases. Additionally, a critique of the study will be presented alongside a discussion of pricing strategies for a real business.
Summary
Most scholarly work on pricing strategies examines how customers react to prices. The research article by Faith and Edwin (2014) studies the impacts of pricing strategies on consumer goods purchases. Additionally, the researchers have taken into account the digital advances and how online pricing and presence influence the informed buying decisions by a client. The introduction and background of the study explain the concept of price and its importance in buying decisions. The authors emphasize that their study is based on a historical account and the use of secondary sources. Therefore, all concepts discussed are cited and accredited to previous studies. A key point to note is the age of several of the sources used, since some references date back more than three and a half decades ago. This observation is not intended to critique the credibility of the old materials but to illustrate the historical approach taken similarly to other researchers such as Kienzler and Kowalkowski (2017). These studies show that this topic is not a new one and it has a long presence in history.
The conceptual framework of the journal article explains the key theories and concepts related to the pricing and consumer behavior. The objectives of pricing are summarized from the studies and include ensuring profitability, meeting or preventing competition, achieving the targets in the return on investment, and stabiliztion of prices (Faith & Edwin, 2014). These objectives have been supported by more recent empirical explorations such as Indounas (2018). The pricing decision process has been illustrated in the conceptual framework alongside other pricing-related concepts such as levels of pricing and individual pricing strategies. The major approaches include psychological, differential, product line, demand-based, bundle, dynamic, predatory, prestige, competitive, and value-based strategies. The focus on new products has been presented with regard to price skimming, penetration, online, and customer perceived value pricing.
The purchase decision process outlined how buyers go through various steps all leading to buying an item. The concepts of price sensitivity and consumers psychology have been outlined, and their role in buyer behavior has been discussed. The section that addresses the objectives of the paper is the summary of findings. In this part, Faith and Edwin express how pricing strategies affect consumer buying decision, including the effect of an online presence. The key concepts, such as price sensitivity and customers’ perception of value, have been outlined as the key determinants of buying decisions at given prices. This section, however, is shallow as it only presents a summary and not an in-depth analysis of the interrelationships between the key research variables.
Critique
The concept of pricing is widely discussed in the marketing literature. The research by Faith and Edwin (2014) can, therefore, be described as a replication of previous studies and a reiteration of the relationship between pricing and consumer behavior. Their article can be acknowledged for what it achieved and critiqued for its shortcomings. First, it is important to acknowledge that the Faith and Edwin (2014) support the hypothesis that pricing affects buying decisions of the consumers as supported universally similar studies (Al-Salamin & Al-Hassan, 2016; Motoaki & Shirk, 2017; Menon et al., 2016). These studies have revealed that consumers buy products that they feel comfortable paying for.
There are two areas in which the article can be critisized. First, Faith and Edwin (2014) have over-emphasized on the concepts other than the relationship between pricing strategy and buying decisions. As explained earlier, this section is supposed to be the main component of the research but it has been presented only in the last section and in summary form. The journal has primarily described the underlying concepts of pricing, including theories, price sensitivity and consumer psychology. While these ideas form the conceptual and theoretical background, their emphasis has diverted the attention of the researchers from the main subject of the research.
The second area of criticism is related to the presented findings on online shopping. Today, there exist adequate literature suggesting that online presence is indeed a key driver of buyer behavior. The concept of social commerce has not been discussed by Faith and Edwin (2014), meaning they failed to appreciate its influence on buying intention. According to Lu et al. (2016), social commerce combines the social and commercial aspects of shopping which increases the degree of social presence. The social presence theory is described as a multi-dimensional construct in social commerce and is viewed as an inherent quality of a communication medium. The internet, especially with the development of Web 2.0 and its interactive capabilities, has made it possible to create an environment where consumers and sellers can engage. It is also a platform for brand engagement which helps firms pursue consumer commitment (Osei-Frimpong & McLean, 2018). This aspect of online commerce can have massive influences on consumer behavior besides the pricing policy adopted by an entity.
Pricing Strategies for Consumer Goods
Pricing strategies in the real circumstances are harder to implement, even though they appear straightforward in theory. The real business used as an example is the clothing industry, which is ranked among the most important and indispensable ones in the world (Guo et al., 2020). The competitiveness of this market and the current online trends make it hard for retailers to select the right strategy. Additionally, the problem of pricing is compounded by the fact that the sellers have to use multiple channels, each with a different clientele. An example of H&M provided by Wang et al. (2020) indicates that although the firm opened online direct channels, the store sales fell by 2.3%. The brick and mortar stress increased, and the company was forced to consider offering better offline customer experience. The major challenge in such situations is free-riding behaviour, which reduces demand and profits for the retailers making sales effort. Therefore, pricing in the clothing industry is a relatively insignificant problem as compared to other factors affecting buying behavior.
The industry used almost all pricing strategies depending on objectives. The H&M example given above used multiple strategies, yet the crucial one is the psychological pricing. The challenges of the multiple channels explained by Wang et al. (2020) mean that the company cannot stick to one pricing strategy. The psychological pricing is one associated with value-based approach, whereby H&M intends to create a perception of better value than competition.
Conclusion and Suggestions for Policy Making
Pricing strategies are among the key factors that affect buying behavior and decisions among consumers. The review and critique of the journal article presented above reveal that the researchers have reiterated the major concepts and theories surrounding pricing. However, the social presence theory explaining social commerce has been omitted, which explains why the findings regarding online selling can be considered wrong. An application of the pricing strategies in a real company for consumer goods has been described using H&M company, which offers clothing as consumer goods. The discussion reveals that it becomes harder to implement the strategies because of other factors such as multiple channels.
Policymaking in managerial economics will be influenced by the findings of more recent research which explains the efficacy of pricing strategies in modern business models. It is suggested that a deeper understanding of the theory of social presence and the concept of free-riding customer behavior will help businesses decide which business models and the corresponding pricing strategies are best applicable for businesses. Additionally, it is suggested that the idea of replacing traditional sales efforts with online marketing practices should be seriously considered and empirically studied. Importantly, the costs of the sales efforts might not reflect in the resulting sales volume, while online marketing has proven to yield better results. Therefore, a new approach to pricing will be needed for businesses that pursue online sales.
References
Al-Salamin, H., & Al-Hassan, E. (2016). The impact of pricing on consumer buying behavior in Saudi Arabia: Al-Hassa case study. European Journal of Business and Management, 8(12), 62-73. Web.
Faith, D., & Edwin, A. (2014). A review of the effect of pricing strategies on the purchase of consumer goods. International Journal of Research in Management, Science & Technology, 2(2), 88-102.
Guo, S., Choi, T., & Shen, S. (2020). Green product development under competition: A study of the fashion apparel industry. European Journal of Operational Research, 280(2), 523-538. Web.
Indounas, K. (2018). Market structure and pricing objectives in the services sector. Journal of Services Marketing, 32(7), 792-804. Web.
Kienzler, M., & Kowalkowski, C. (2017). Pricing strategy: A review of 22 years of marketing research. Journal of Business Research, 78, 101-110. Web.
Lu, B., Fan, W., & Zhou, M. (2016). Social presence, trust, and social commerce purchase intention: An empirical research. Computers in Human Behavior, 56, 225-237. Web.
Menon, R., Sigurdson, V., Larsen, N., Fagerstrom, A., & Foxal, G. (2016). Consumer attention to price in social commerce: Eye tracking patterns in retail clothing. Journal of Business Research, 69(11), 5008-5013. Web.
Motoaki, Y., & Shirk, M. (2017). Consumer behavioral adaption in EV fast charging through pricing. Energy Policy, 108, 178-183. Web.
Osei-Frimpong, K., & McLean, G. (2018). Examining online social brand engagement: A social presence theory perspective. Technological Forecasting and Social Change, 128, 10-21. Web.
Wang, S., Chang, D., & Luo, T. (2020). Pricing strategy in multi-channel apparel supply chain with showrooming effect. American Journal of Industrial and Business Management, 10(4), 749-774. Web.