The Effect of Price on Consumer Buying Behavior

by Louise Balle ; Updated September 26, 2017

The price you set for a product or service has a very significant effect on how the consumer behaves. If consumers believe that the price you’re charging is lower than competitors it could cause a major spike in sales. But if the price you set is significantly higher than expected, the response can be disappointing. In either case a change in price could produce unexpected results when it comes to consumer buying behavior.

Price Hike

Before you decide to raise the price of your existing product or service you should understand how that could affect consumer behavior. For one, when you raise the price you risk turning the customer off. If the customer has the choice to get the same product from a competitor at a lower price you could lose the customer permanently. On the other hand, raising the price could have no effect at all, especially if it is a product that is in high demand and not available at competitors. In fact, charging a higher price compared with other similar products and services sometimes entices consumers to buy because some buyers equate a high price with a superior-quality product.

Low Price Effects

Lowering or initially setting a lower price than expected can have a different set of effects on a consumer. In one case, a price-conscious consumer is grateful for a price break and will possibly stock up on the item at the low price. In other cases, the consumer could become suspicious of the low price and assume it means the product is of a lower quality.

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Considerations

Due to the potentially unexpected effects of price on consumers it is important to set the right price from the start. Making a change to the price of a product or service is very risky, so do so with caution and after much consideration. Do price research in advance of releasing the offering to make sure you set a price that consumers are comfortable with, while providing you with a profit that meets or exceeds your goals. You can start by checking on the prices set by competitors and reviewing business case studies. Determine your costs and the average industry mark-up percentage (the amount above cost that you charge to make a profit).

Tracking Buying Behavior

It is helpful to set up some type of system for tracking buyer behavior at the price points you set. If you have a small operation you can simply record daily sales at the price point in a spreadsheet program, but if you have a larger operation you may need dedicated software. For instance, for a product wholesale or retail business you can use a barcode tracking system to monitor and compare product sales at different price points. So if you change the price, run reports regularly to check progress.

About the Author

Louise Balle has been writing Web articles since 2004, covering everything from business promotion to topics on beauty. Her work can be found on various websites. She has a small-business background and experience as a layout and graphics designer for Web and book projects.

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