How consumers think of prices in retail

Research has proven that consumer doesn’t think about price in a linear manner about the MRP. In fact, when the consumer walks into a retail store he has some standard items based on whose price he decides whether the store is expensive or not. Consumers when they walk into a store will have a perception that this store is a bit on the expensive or the prices in this store are higher than other stores. It is proved that consumers decide that by looking the price at some of the products called Known Value Items. Retailers generally do their best to keep the prices of KVIs low and not changing them, just to not create any perception. For example, a consumer walking in may find the onions price low or unchanged because it is one of the known value items based on which the consumer will have a perception of the store. So, the retailers generally don’t change the price of KVIs, but they offset for that in increasing the prices on some other items.

Prices perceived to be lower than the benchmark price of a KVI leads one to believe that the store offers great prices and hence lot of savings. This is an example of the Halo-effect theory. This is more relevant in non-MRP categories like vegetables, groceries, and fruits. Even with the MRP, the retailer price “Our Price” is a very effective perception driver. Also most consumers think of price w.r.t. standard volumes/weights like one kg, eventhough we may be buying less/more we still calculate in that way. Retailers understand these perception dynamics and come up with different pricing strategies in different categories.

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