The days when men swore by Gillette, and women didn’t look beyond Guerlain are long gone. There are rarely any monopolies in the world market, and every product in the economy has a competitor, a substitute that is constantly trying to outdo the other. The most common basis for competition seen in such multi-product markets is price.
Usually consumers are attracted to those items that have a lower cost of purchase than its substitute. Since there mainly exists differentiated products the overall quality is more or less the same.
Now, from the producer’s point of view, the only way to lower his product price is to cut down on his cost. But methods of production cannot be changed without changing the quality. And needless to say, if one has to cut down on cost, the quality is sure to go down as well. Another way would be to increase the scale of production. But that is time consuming. Hence, some other measure is required for immediate effect.
Supermarkets and wholesalers use a typical method of pricing, called block pricing. When a consumer comes across a signboard that says, “Milk- 1 gallon $3.00; 4 gallons $10.00″, automatically he comes to a calculated observation that he is making some sort of gain by paying two dollars less if he buys it in bulk.
Hence, mission accomplished. Although buying products in bulk reduces the cost for the consumers apparently, his spending habit would be different if he had 1 gallon of milk at his disposal instead of 4 at a time.
Another way to grab the buyer’s attention is to issue intelligent offers. Everyone understands the concept of FREE. It’s a short word, but it can do big things. Normally, one buys conditioners with shampoos, scrubs with soaps and socks with shoes. Therefore, if by buying a big bottle of shampoo one gets a small bottle of conditioner FREE with it, then that could attract many buyers.
Buffets at eateries charge a fixed price per head for meals. This means, that the person eating soup, Chicken a la Kiev and dessert pays the same as the person eating only the chicken and dessert. This may sound unfair to person 1, but after all no one refused to serve him soup.
Therefore, although price is a factor, it is mainly a psychological battle where the customer is confronted with many options to choose from.
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