Pricing and the Psychology of Consumption
Business’s try to maximize consumption is a variety of different ways. Price bundling can damage the loyalty that a customer has with a particular business. Maintaining customer loyalty through consumption is directly correlated to the success of the business. If a business cannot establish a relationship with the customer and create a demand for the customer, the likelihood of that customer returning is very slim. The example that the article used was related to fitness memberships.
If the fitness center charges an annual fee at the initial registration, it is likely that the customer will use the membership less frequently throughout the year. The downfall to this approach is that the customer will likely not renew its membership in the following year.
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Another option a fitness club may offer would be to have the customer sign a year contract and bill the customer monthly instead of one lump some annually. This method is more effective because the customer is aware on a monthly basis of what he or she paying.
This creates loyalty between the customer and the fitness center and studies suggest that the customer is more than likely to renew there contract the following year. The fitness center that I attend has you sign a contract at the time you register and charges you on a monthly basis. After looking at the contract I noticed that, although they bill me monthly throughout a calendar year, I would have to pay cancellation penalty if I decided end the contract before the end of a specific calendar year.
For example, if I cancelled my contract in May, I would have to pay a lump sum for the remainder of the months in that specific calendar year. Pricing and payment terms can help a business’s hide the actual cost of a particular product and or service. Cash, credit cards and charge accounts are the three main methods of purchasing among most consumers. The fact of the matter is that a customer is less likely to be price sensitive if they either purchases with a credit card or use there charge account. Customers that purchase with cash see the immediate impact financially speaking.
The challenge most marketing managers’ face is developing a marketing action plan to capitalize on increasing consumption while maintaining customer loyalty. This may sound easier said than done especially after considering that most often decisions are dependent on price. One of my company’s main goals is to open customer charge accounts. Research has shown that a customer is fives times more likely to spend more money if they have a charge account rather than if the where going to purchase with cash or a credit card.
This relates to the example in the article “buy now, pay later. The pros and cons of consumption on the basis of pricing vary from industry to industry. For instance, the marketing team for a semi-pro baseball team decides to pre-sale all there tickets at the beginning of the year. They chose to mirror a professional baseball team because of there success in pre-selling tickets. The pro’s they had was that they secured the money upfront for the entire season. This was an increase in tickets sales than they had from the following year, so in the first quarter of the season they thought they had made the correct decision.
The con’s came as the season went on. They noticed the ticket holder’s attendance was decreasing. This may not seem to be a problem at first because the organization already collected the money. What they came to realize was that they where losing money on all the other amenities that the stadium sold: food, apparel, beer. It is important for marketing managers to understand there customers needs. Increased customer consumption can be rewarding in some businesses and detrimental to the success of others.