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Price, Consumer Behaviour and Marketing Activities Essay

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Ferraris are a luxury good, known for their performance and prestige with prices of up to £500,000. In this study there will be an effort to evaluate if a Ferrari would still be as desirable if it was available at £20,000. To do this we must examine the relationship between the behaviours of consumers and price with a further examination of marketing activities. Firstly we need to define what consumer behaviour, price and marketing activities are, by understanding the consumer we can then create products that meets their wishes and needs which is vital in achieving success.

An investigation of the Utilitarian (rational) consumption model will follow allowing the identification of driving factors that affect consumer’s decisions.

This allows the introduction of Pricing, viewing towards perceived quality and value. The contrasting Hedonic view allows the introduction of socio-psychological factors on consumer behaviour such as personality and social class. We must appreciate our level of involvement with the product and what factors this may cause.

This will allow us to fully appreciate whether the change in price will result in the Ferrari still being as desirable as when it was at a higher price.

The study of consumer behaviour “is the study of the processes involved when individuals or groups select, purchase, use or dispose of products, service, ideas or experiences to satisfy needs and desires” (Soloman et al, 2002, p4). Therefore by studying what factors affect how and why consumers make these consumption decisions, marketers may be able to understand and therefore adapt to these decisions. Consumer behaviour incorporates ideas from many different disciplines such as psychology, sociology and economics. (Schiffman and Kanuk, 2000), in a marketing context we take note of all these concepts and try to come to a balanced answer. A full examination of consumer behaviour looks at how consumers maximise their utility (satisfaction) based on a cost-benefit analysis of price and product scarcity, this was thought of the Utilitarian or rational way of behaviour. (Baines et al, 2011). The key determinant is that the functional benefits must be greater than the costs expended.

Very often we would class the cost expended as being the price paid for an item, this is a difficult term to classify but is best explained by Baines, Fill and Page (2011), (p331) “we consider price as the amount the customer has to pay or exchange to receive a good or service”. This however fails to mention that how consumers “perceive a price-as high, as low, as fair- has a strong influence on both purchase intentions and purchase satisfaction.” (Schiffman and Kanuk, 2000, p 144). For example a passenger who paid £1 for his Ryanair flight will feel more satisfied one who paid £71 due to purchasing at a later date. Here we look at whether a Ferrari is still as desirable at a lower price, to do this we must examine how customers affect to a change in prices, known in economic terms as the elasticity of demand. This measure how much demand will shift as a result of a change in price. To do this we can look at how in rational thinking consumers wish the benefits to outweigh the costs, the benefits of buying a new Ferrari may be the quality and value you get for the price you paid.

However as each person has a different wished level of quality we use the term ‘perceived quality’, often based on “informational cues that they associate with the product” (Schiffman and Kanuk, 2000, p145). Looking at the relationship between the perceived qualities and pricing often it is thought that price reflects quality (Baines et al, 2011). This is challenged by the aspect we take our perceived quality from many cues, not just price, such as more extrinsic values such as brand image. Therefore it can be classes that “consumers use price as a surrogate indicator of quality if they have little or no information to go on” (Schiffman and Kanuk, 2000, p150). The idea of brand image as a cue introduces the more hedonic concept of feelings, desires and perceptions into the consumer’s decision.

As already discussed prices and quality are not measured in purely rational terms they encompass our perceptions of the product, price and measure of quality. Our perceptions are personal to us and it is vital for marketers to understand what factors may affect these perceptions. To do this we must understand how consumption may be irrational (hedonic) involving the “multi-sensory, fantasy and emotional aspects of consumers’ interaction with products” (Soloman et al, 2002, p37). This view stresses that we purchase products because of how they make us feel or look to others. This is sometimes classed as emotional or socio-psychological buying (Baines et al, 2011). The stark difference between utilitarian and hedonic consumption can be seen in the process of proposition acquisition.

We draw up a motive for acquiring the product; this may be out of functional (rational) or desire (irrational) means. We then gather information on the product drawing up a shortlist of brands, followed by an evaluation of the proposition. When it comes to the purchase of the item it is important to consider “the personal importance a person attaches to a given communication message” (Baines et al, 2011, p 90) this is classes as the person’s involvement. As discussed in Fill (2009, p174) the characteristics involved with involvement can be seen in three phases, that of contextual elements, the influencers and the outcomes. Our level of involvement with a product can play a role in the price fairness we perceive for this product. At states of low involvement where “the purchase suggests little risk to the consumer” (Fill, 2009, p176) we require little information and use past experiences to make our decisions.

However at high levels of involvement where, “a consumer perceives an expected purchase that is not only of high personal relevance but also represents a high level of perceived risk” (Fill, 2009, p 176), consumers will invest a great deal of time researching the item to reduce the perceived risk and will draw on extrinsic information and may draw more on hedonic terms. The relationship between price and involvement can be seen at both levels, at low levels price allows individuals to discriminate between low-involvement purchase decisions as “price, packaging, and point of purchase displays and promotion’s work together to cue and stimulate an individual into trying a product.” (Fill, 2009, p 180) At high levels of involvement price is not such a determining factor, with other factors playing a more significant role.

Involvement does not juts affect the importance placed on price it also affects how a product is marketed to the consumer. This raises Ratchfords (1987) thoughts of involvement being linked with feeling and thinking. He sought to think how people thought about products and class them as high/low involvement and whether they were a product you bought rationally, what you thought of the product, or irrationally, how the product made you feel.

In this instance the purchase of a Ferrari which would have been a high involvement/feeling product there is “a need for emotional advertising” (Baines et al, 2011, p91). With the shift in price it can be argued that the product has now became a high involvement/thinking product so more informative advertising is needed. Further links between price, consumer behaviour and price can be seen in Fill (2009, p 181) arguing that at low levels of involvement consumers will “decide upon their usual brand until they notice a price promotion” ,this then may be become there habitual buying pattern.

As discussed earlier at high levels of involvement, more emotional and informative advertising is used there are many reasons for this including that factors such as lifestyle, social class and personality can all affect our hedonic consumption. In the sphere of personality there are three main approaches. Firstly the psychoanalytic approach Freud outlined how we are driven by subconscious drives in three parts our ID, Ego and Superego. It is argued that certain products are bought to fulfil our needs and urges such as the purchase of a Ferrari. The reduction of price may then not allow us to fulfil this urge. A differing approach is that of Trait theory, where we are classified by our types of personality. The purchase of a £500,000 car may be seen as fulfilling one personality type, by reducing the price to £20,000 the market segment may change and as “car manufacturers… market products on the basis of personality types” (Baines et al, 2011, p96) this may change the whole marketing process and the way this process is presented.

The final school of thought is the Self Concept Approach that we “buy goods… for the brand they represent and its relation to the buyer’s perception of their own self-concept or personality.”(Baines et al, 2011, p96). In this model it may be argued that price is a determinant factor as we may buy to show we can pay high prices to others. Added to this is the idea that the brand gives you a self-image therefore a change in the price can affect the branding and may lead you to a different purchase decision. The price change may also change what reference group a Ferrari would belong to it may no longer be an aspiration so may become less desirable. The change in price may however be beneficial when looking at consumer behaviour in relation to lifecycle and social class.

Focussing on lifecycle “we hypothesize that people in the same stages of life purchase and consume similar kinds of products” (Baines et al, 2011, p108), a£500,000 Ferrari may fall into the stage of empty nest 1, where there is large disposable income, the shift downwards in price will allow a Ferrari to become more accessible to different stages of the lifecycle, thus making it more desirable to these groups. To conclude pricing, consumer behaviour and marketing activities are all linked. By determining whether the consumption is either rational or irrational we can investigate the level of involvement one may have with that product.

This then allows us to look at how perceived values, price and quality link with the way the consumer behaves. As consumer behaviour study evolves from “early emphasis on rational choice…to a focus on apparently irrational buying needs” (Holbrook and Hirschman, 1982, p132) we are able to investigate other factors that may relate to consumer behaviour such as lifestyle, social class and what level of involvement is involved. As we can see in rational decisions there is a link between price and behaviour, with the benefits outweighing the costs, the same can be said at decisions of low involvement. However other extrinsic factors have to be considered when making higher involvement decisions. The decrease in price therefore may make the Ferrari more desirable if you are making the purchase at a low involvement level however at a higher level other factors need to be considered to give a true representation of its desirability.

Reference List
Books and Ebooks
Baines, P. Fill, C. Page, A., (2011), Marketing, 2nd ed., Oxford: Oxford University Press Fill, C. (2009), Marketing Communications : Interactivity, Communities And Content., 5th ed., Harlow: Pearson Education Limited Schiffman, L,G. and Kanuk, L,L. (2000), Consumer Behaviour, 7th ed., London: Prentice Hall International (UK) Limited Solomon, M., Bamossy, G., Askegaard, S. and Hogg, M. K. (2006) Consumer behaviour: a European perspective, 3rd ed., Harlow: Financial Times. Lecture Notes

C18FM1 2012/2013
Online Journals
Holbrook, M, & Hirschman, E (1982),. ‘The Experiential Aspects of Consumption: Consumer Fantasies, Feelings, and Fun’, Journal Of Consumer Research, 9, 2, pp. 132-140, Business Source Premier, EBSCOhost, viewed 22 October 2012.

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