The psychology behind Off-by-one pricing

A common practice among retailers is to price products at 199 or 999 instead of rounding the price up to 200 or 1,000. Cognitive psychologists often refer to this as the left-digit effect and it is the one of most prevalent pricing strategies in the world.

Aleem Bawany explains the psychology behind off-by-one pricing here.

Push back please

Traveling has never seemed more costly. An usual Volvo customer I found a big difference last week. Most of the seats in Volvo were empty!

The sales at private travels in AP has registered a 10% decrease in demand for Volvo ticket sales. Most of the times the A/C Volvo travels costs 80 to 100% more than a regular push back bus. So where does this population go? Most of them have shifted to trains which provide a more convenient comfortable option at a cheaper price. Call it cost cutting, recession, job losses or just a change in trend.. it is visible. With in the bus all items have become costlier, DVD choices wider, staff friendlier... The last ten seats are what get converted to profit in a Volvo and if they aren't filled its a loss trip. Hence travel service owners are considering a reduction in prices to keep the charm and traffic consistent. The pain is reduced as the fuel prices have come down a bit. Or else I need to book a train ticket or push back.

"Bangalore busses are never vacant," I hear, "as they are full of IT personnel." The staff are hoping it would pick up faster... may be by Deewali. Amen.

Networking to eliminate middlemen

TOI reports that Chennaiites can look forward to buying all kinds of farm-fresh vegetables in their neighbourhood itself, directly from farmers, in the near future. With a view to eliminating the role of middlemen and commission agents, a cluster of farmers' associations in and around Dharmapuri are planning to reach out directly to customers, especially in cities like Chennai, Coimbatore and Kochi.

"When the retail price of vegetables in Chennai hover around Rs 30 per kg and the wholesale price ranges from Rs 15 to 18 per kg, we farmers get hardly Rs 6 to Rs 7 per kg at the farm. The commission agents make more money than us. They buy from us at Rs six per kg and sell at Rs 14 to 15. Hence, we had to evolve a formula to target the customers directly. Cities will consume whatever quantity we produce and hence there is no need to worry about unsold stock. Further, we can sell at Rs 5 to Rs 10 less per kg than the price at which other retailers sell and still make a lot more money."

He said the idea was to rope in as many farmers as possible into the fold and generate enough resources to establish the network. "We are looking at enrolling more than 1000 farmers. In Dharmapuri district alone, we have more than 1000 active farmers engaged in precision farming the latest technology adopted in vegetable farming - methods. But our network will cover several other districts as well and we will be able to supply all types of vegetables. We hope to hit the market by March-end."

Valentine purchases

What a time to capitalize on the psyche of the consumer! Especially people who make and sell products which can be packed and sold to customers, especially youngsters rake in the moolah big time. But for the Ram Sena's intervention this 14th would be a blast for the hotels, restaurants, CCDs, etc. On average, February 13th, the most popular day for shopping:

• Over 1000% increase in sales versus other days! 
• The expected purchase turnover for the occasion is about 5200 crores! 
• More than 8 million roses are getting ready to come to Bangalore alone! 
  

BTW, where is the recession? Happy Valentines Day!

The blinking game

The game is very simple. Who would blink first? The customer or the firm is the question.  If the time is the deciding factor the firm has to bow to the market conditions. After all we live in almost free competition where the buyer has almost equal control over the brand as the firm itself. 

The retail sector saw a disheartening December quarter, with a sharp deceleration in sales growth and a contraction in profits. Sales growth for the quarter slid to 15 per cent, from 65 and 61 per cent respectively in the preceding September and June quarters. Though sales did expand, net profits fell by more than half, after declining 15 per cent in September and growing 8 per cent in June.

Even as footfalls declined and retailers scaled-back expansion plans, same-store sales (sales in the stores that existed last year) succumbed to the slowdown. Retailers had to extend discount periods to draw consumers. So the firm is blinking first. The consumer has an upper hand here. Either the firm reduces the prices or withers out. It depends on how deep the firm's resources are and what choice it would make.

Price is not equal to Quality

Mahesh Dattani in Last Word mentions...

Most of us in the cities are used to processed foods and eating out at restaurants where food is invariably overcooked or rehashed. Sometimes we are under the false impression that the more expensive the restaurant, the better the quality. 

Once a friend running an NGO planned a food drive-to pick up leftover food from the backdoors of kitchens of five-star hotels. To her horror she discovered that waste food was highest after midnight or thereabouts. Which means leftovers from lunch make their way to the buffet table at night!

Most of the times we think that the price means quality. May be some of my hotel management friends will tell me if this is applicable to all the hotels. And I will think twice before going for dinner. I think you should too. What a cheap way of making money! The image of the hotels erode like a pack of cards. Think long term and save your image for once the consumer gets to know he is cheated he would never be back.

New 'avatar' of discounts

Discounts are donning a new avatar. It’s no longer just the price war for retailers but also about grabbing customer attention instantly.

One has to create excitement around shopping. Customers are usually more aware about your brand if there are novel campaigns doing the rounds. Every month, we try and come up with some creative ideas. This phenomenon is quite common in far eastern and western countries and we are trying to practice the same in India too. Most of the retailers are replicating western strategies on home turf. And it has rewarded them back too. Experts feel that its not only slowdown but the power of the competition which is driving such sale techniques.

Good marketing acts as an incentive to entice customers in favour of a particular brand. There is a certain joy and recall value when a customer gets a freebie. No wonder, even stores based on the Everyday Low Price Format (EDLP) are going in for promotional activities," reasons Arvind Singhal, chairman of global management consulting firm Technopak. Did we hear someone say novelty is King? It sure is. 

Read the full article.

Pride Forever!

Alliance Pride Forever store is offering upto 30% off on its merchandise on New Year's Eve. This has been due to the public demand and the festival mood setting in.

Its official that Chanda Kochar is the next CEO of ICICI Bank, the youngest, first woman.

Fighting Inflation

In order to maintain profitability, firms have increased prices, which is making consumers dig deeper into their pockets.

Manufacturers have also tweaked package sizes — reducing weight while maintaining price bands — in order to indirectly pass on the burden to consumers. “Britannia Industries Ltd had done that — reduced the grammage but kept the price same."

Read more.