The concept of psychological pricing is not new.

It is,  Customers ignore the least significant

in fact, more than a century old. This concept is still digits rather do the proper rounding.
on.  Fractional prices suggest that goods are
marketed at the lowest prices possible.
It is one among other marketing pricing strategies Although rational thinking pricing should make it
that can be used for products and services. comprehensible to the customers that the price
difference between the rounded figure and the
Pricing is the most important aspect of any business. psychological figure is meagre, but often times they
To choose an effective pricing strategy, you need to act irrationally.
understand your customer, your competition and
your marketplace. Most businesses adopt
psychological pricing, even without knowing. 4 Theories of Learning
Learning is the individual growth of the person as a
It is a tactic that takes advantage of the customer's result of cooperative interaction with others.
emotional response to certain price points. It uses It is the advancement of understanding that enables
the learner to function better in their environment,
unusual conventions to make products and services
improve and adapt behaviors, create and maintain
look significantly cheaper than they really are. healthy relationships, and achieve personal
success.
It is a tactic designed to appeal to the customer's Learning has taken a place if an individual behaves,
emotional side and not the rational side. reacts, and responds taken from other as a result of
experiences change in a behavior or formerly
They key to psychological pricing lies in how behave.
humans beings look at numbers in an emotional 4 Theories of learning
way. It utilises data to eliminate much doubt as
possible for the business owners to make profit- 1. Classical Conditioning
2. Operant Conditioning
maximizing decisions.
3. Cognitive Theory.
4. Social Learning Theory.
It has its merits as it puts products into segments or
bands. Segmenting odd prices always puts them These are explained below:-
into the lower price bands thus instantly presenting Classical Conditioning
themselves as being of higher value to the Classical conditioning is a type of conditioning in
customer. For example, the rounded price of $100 which an individual responds to some stimulus that
falls between the price band of $100-$200, while the would not ordinarily produce such as response.
It is the process of learning to associate a particular
psychological price of $99 falls between $1-$99.
thing in our environment with a prediction of what
will happen next.
Also, $99 is psychologically less in the minds of the Classical conditioning, the association of such an
customers than $100. It is a minor distinction that event with another desired event resulting in a
can make a major difference. behavior, is one of the easiest to understand
processes of learning.
The psychological pricing tactic is based on the When we think of the classical conditioning, the first
following: name that comes to our mind is Ivan Pavlov, the
Russian psychologist.
 The judgement of numerical difference is The normal stimulus for a flow of saliva is the taste
anchored on left most digits. These of food. But often the mouth waters at the mere
sight of a luscious peach, on hearing it described or
suggest that people perceive the even thinking about it. Thus, one situation is
difference between $1.99 and $3.00 to be substituted for another to elicit behavior.
2.01 rather than 1.02 because customers This is called conditioning. In the case of classical
judgement are anchored on the left most conditioning, a simple surgical procedure allowed
digit. Pavlov to measure accurately the amount of saliva
secreted by a dog.
When Pavlov presented one dog with a piece of follow the desired response. In addition, behavior
meat, the dog exhibited a noticeable increase in that is not rewarded, or is punished, is less likely to
salivation. When Pavlov withheld the presentation of be repeated.
meat and merely rang a bell, the dog did not For example, suppose you are an employee of ‘X’
salivate. Bank limited. Your Branch Manager has announced
Then Pavlov proceeded to link the meat and the in a meeting that you will get an extra bonus if you
ringing of the bell. After repeatedly hearing the bell can bring $100,000,000 deposit for the bank. You
before getting the food, the dog began to salivate as worked hard and found that you have done this
soon as the bell rang. After a while, the dog would successfully.
salivate merely at the sound of the bell, even if no But when the time comes, you find that you are
food was offered. given no bonus for your hard work which increases
In classical conditioning, learning involves between the bank’s deposit by $100,000,000.
a conditioned stimulus and an unconditioned In the next year, if your manager again says you
stimulus. Here, the meat was unconditioned about the hard work.
stimulus; it invariably caused the dog to react in a Maybe you will be stopped because last year you
specific way. did not receive anything for it. Many activities that
The reaction that took place whenever the we will engage in during everyday life can be
unconditioned stimulus occurred was called the classified as operant.
unconditioned response. Here, the bell was a Turning your key in a lock, writing a letter, saying “I
conditioned stimulus. Love You” to your wife, calling parents on the
When the bell was paired with the meat, it telephone- all of these are operant acts, operant in
eventually produced a response when presented this sense that we do them in anticipation of reward
alone. This is a conditioned response. which acts as a reinforcer for the commission of
Read more: Self-Efficacy Theory by Albert Bandura these behaviors.
Operant conditioning Read more: Ohio State Leadership Studies
The second type of conditioning is called operant Explained with Examples
conditioning. Cognitive Theory
Here, we learn that a particular behavior is usually Cognition refers to an individual’s thoughts,
followed by a reward or punishment. What Pavlov knowledge of interpretations, understandings, or
did for classical conditioning, the Harvard ideas about himself, and his environment. This is a
psychologist B.F. Skinner did for operant process of learning through active and constructive
conditioning. thought processes, such as a practice or using our
Actually, operant conditioning argues that one’s memory.
behavior will depend on different situations. People One example might be that you were taught how to
will repeatedly behave in a specific way from where tell time by looking at a clock. Someone taught you
they will get benefits. the meaning of the big hand and little hand, and you
On the other hand, they will try to avoid a behavior might have had to practice telling time when you
from where they will get nothing. Skinner argued were first learning it.
that creating pleasing consequences to specific This process of learning was entirely inside your
forms of behavior would increase the frequency of mind and didn’t involve any physical motions or
that behavior. behaviors. It was all cognitive, meaning an internal
In one famous experiment displaying operant thought process.
learning, the psychologist B.F. Skinner trained rats The theory has been used to explain mental
to press a lever to get food. In this experiment, a processes as they are influenced by both intrinsic
hungry rat placed in a box containing a lever and extrinsic factors, which eventually bring about
attached to some concealed food. learning in an individual. Cognitive learning theory
At first, the rat ran around the box randomly. In this implies that the different processes concerning
process, it happened to press the lever, and the learning can be explained by analyzing the mental
food dropped into the box. The dropping of food- processes first.
reinforced the response of pressing the lever. It imagines that with effective cognitive processes,
After repeating the process of pressing the lever learning is easier and new information can be stored
followed by dropping off food many times, the rat in the memory for a long time. On the other hand,
learned to press the lever for food. ineffective cognitive processes result in learning
People will most likely engage in desired behaviors difficulties that can be seen anytime during the
if they are positively reinforced for doing so. lifetime of an individual.
Rewards are most effective if they immediately Social Learning Theory
 The social learning theory also called observational Understanding the Product hierarchy and Product
learning, stresses upon the ability of an” individual to classification
learn by observing what happens to other people Definition
and just by being told about something.
One can learn things by observing models, parents, Product hierarchy is the classification of a product into its
teachers, peers, motion pictures, TV artists, bosses, essential components. It is inevitable that a product is
and others. Many patterns of behavior are learned related or connected to another. The hierarchy of the
by watching the behaviors of others and observing products stretches from basic fundamental needs to
its consequences for them. specific items that satiate the particular needs. Product
In this theory, it is said .that the influence of models hierarchy is better understood by viewing the business as
is the central issue. a whole as opposed to looking at a specific product.
Four processes have been found to determine the Product hierarchy is usually mentioned in the same
influence that a model will have on an individual. sentence with product classification and therefore can be
These processes are: viewed as a way of product classification.

 Attention process Product hierarchy levels

People learn from a model only when they Product hierarchy is divided into several levels which are
recognize and pay attention to its critical features. best understood using examples. These product hierarchy
If the learner is not attentive they would not able levels include:
to learn anything. We tend to be most influenced
by models that are attractive, repeatedly  Product need – the product need is the primary reason
available, which we think is important, or we see for the existence of a product. For example, motor
as similar to us. vehicles exist because people have to and want to travel.
 Retention process This is the core product need, for example, Toyota
A model’s influence depends on how well the vehicles.
individuals remember the models’ action after the
model is no longer readily available.  Product family – in product family, the core need
 Motor reproduction process satisfied by a product is the focus. This means that the
After a person has seen a new behavior by attention should not be on the individual market but
observing the model, the watching must be rather the entire business market. For example, if
converted to doing. It involves recall the model’s travelling is the core need, then it can be satisfied by
behaviors and performing own actions and planes, trains or ships. In this particular case, the product
matching them with those of the model. This family is travel and for Toyota, the product family is
process then demonstrates that the individual can vehicles.
perform the modeled activities.
 Reinforcement process  Product class – product class occurs when categories are
Individuals are motivated to exhibit the modeled drawn from the same company. It is similar to product
behavior if positive incentive or rewards are family only that product class doesn’t go outside the
provided. Behavior that is positively reinforced is company, unlike product family. Personal computers
given more attention, learned better and constitute an instance of product class.
performed more often.  Product line – a product line consists of the entire group
of products included in a class of products and these
At last, we can say that social learning theory is a products are related because they perform a comparable
function of consequences. It also acknowledges the function, are purchased by the same group of customers
existence of observational learning and the or fall within a certain price range. An example of a
importance of perception in learning. product line is a laptop, which is a portable and wireless
In this case, a person who wants to learn should type of personal computer.
identify the target behavior and select the
appropriate model and modeling medium. Then  Product type – this refers to the various products within
he/she should create a favorable learning a product line. For example, under Hyundai I20 product
environment and observe the model. line, we have product types such as I20Astana, I20 sportz
Here the learners will try to remember and use and I20 Magna.
practically the observed behavior if there is a
positive reinforcement is related to this behavior.  Product unit – this is also referred to as the stock
keeping unit (SKU) and it is a discrete item within a
product type of brand that can distinguish itself by size,
price or any other feature. A product becomes an into multiple product lines including the Q series. So
individual product unit if it is independent and no other Q series is just one Product line and there would be
product type is dependent on it. multiple such product lines of Audi. You can read
more about product line and product mix by clicking
December 24, 2017 By Hitesh Bhasin Tagged the link.
With: Marketing management articles

One of the things which confuses many beginners in 5) Product type – Within the Product line there are
Marketing is the product hierarchy. There are just various product types. For example – If we talk
too many types of product classes like Product line, of Hyundai’s I20, then there is I20 Asta, I20 Magna
product mix, product type etc. However, this article as well as I20 Sportz. So I20 becomes a product
tries to make it all simple. type and the other models become product units
(explained below)
To understand the product hierarchy, we will have to
look not at a single product but the business as a Similarly, for any given series, within the series
whole. So in this example, we can there are multiple models and these are the product
take Volkswagen as a company and we will try to types. Audi’s Q6 or Q7 will also have various
understand the Product hierarchy of Volkswagen. customized types on offer and these are known as
product types. They are offered to customers based
on the budget of customers and their requirement of
1) Product need – Product need is the basic reason
features.
because of which the product exists. So the need for
cars to exist is because people want to travel. This
is the basic product need which is fulfilled by 6) Product unit – The final aspect in the Product
Volkswagen cars. hierarchy is the product unit which is also known as
the SKU. Continuing the above example, the
Hyundai I20 Asta is one Product unit and so is the
2) Product family – The Product family defines the
Hyundai I20 Magna. So if the product is an
core need which the product satisfies. When we are
independent product and there is no other product
talking of the product family, we have to look at the
type dependent on it, then it is an individual product
complete business market and not at
unit.
the individual market. So when travel is the basic
requirement, then there is an option of Plane travel,
train travel, roadways travel, travel via passenger Whether you take HUL, P&G or any such
cars or transport vehicles. In this case, the Product companies having multiple products and strategic
family is passenger travel and the product family of business units, you can divide the products based
Volkswagen is Cars. on the above product hierarchy.

3) Product class – Product class and Product

family are very similar in nature and can also be
treated as synonyms. For example – Volkswagen
also manufactures bus which is a multi passenger
transport vehicles and it also manufactures 2 seater
luxury cars. Thus when we categorize
different products within the company (and not
outside the company like in Product family) then it is
known as product class. Mercedes, for example,
exists in cars and buses both predominantly. Thus,
it has 2 common product classes where it is present.

4) Product line – The complete line of products

within one class of products is known as the product
line. So if we talk about Volkswagen passenger
cars, then we have the Volkswagen Polo and the
Vento as well as different products within the
Volkswagen product line. At the same time, Audi is
another brand owned by Volkswagen and is divided
Product mix and Product line Product line depth
The complete range of products present within a
It is fairly easy to understand what depth of the product
company is known as the product mix. In any
mix will mean. Where length and width were a function
multi brand organizations, there are numerous products
of the number of product lines, the depth of the product
present. None of the organizations wants to take the risk
mix is the total number of products within a product line.
of being present in the market with a single product.
Thus if a company has 4 product lines and 10 products in
each product line, than the product mix depth is 10. It can
If a company has only a single product, than it is have any variations within the product for form the
understood that the demand of the product is very high or product line depth.
the company does not have the resources to expand the
number of products it has. Generally, most companies
Product line consistency: The lesser the variations
nowadays realise the importance of product
between the products, the more is the product line
diversification.
consistency. For example, Amul has various product lines
which are all dairy related. So that product mix
However, if the business market is any example, than all consistency is high. But Samsung as a company has many
the top companies have multiple products. Coca product lines which are completely independent of each
cola, Apple, Microsoft, Nestle, Hindustan unilever, other. Like Air conditioners, televisions, smart phones,
Pharmaceutical companies, so on and so forth. These home appliances, so on and so forth. Thus the product
companies need to have a wide product portfolio to be mix consistency is low in Samsung.
present in the market and to have a sustainable
business model. The combination of products that they Example of Product line and Product mix
have in their product portfolio can be the product mix.
Let us take an example of P&G as a company and
understand product mix. This will be not be a precise
Product mix: As explained, product mix is a
example and all products of P&G might not be taken into
combination of total product lines within a company. A
consideration. But the example will help you understand
company like HUL has numerous product lines like
product mix within an organization.
Shampoos, detergents, Soaps etc. The combination of all
these product lines is the product mix.
Detergents – Arial, Arial oxyblue, Ariel bar, Tide, Tide
naturals, Tide bleach, Tide plus.
Product line: The product line is a subset of the product
Shampoos – Head and shoulders, Head and shoulders anti
mix. The product line generally refers to a type of
dandruff, Pantene, Pantene damage repair, Pantene pro-v
product within an organization. As the organization can
have a number of different types of products, it will have
similar number of product lines. Thus, in Nestle, there are In the above example the following can be learned about
milk based products like milkmaid, Food products the product mix of P&G
like Maggi, chocolate products like Kitkat and other such Product mix Length – 12
product lines. Thus, Nestle’s product mix will be a Product mix Width – 2
combination of the all the product lines within the Product mix Depth – 7 in detergents and 5 in shampoos
company. Product mix consistency – High as both are bathroom
products.
Product line length
This was the complete explanation on the product mix. If
If a company has 4 product lines, and 10 products within
you have any doubts for the same, please comment in the
the product line, than the length of the product mix is 40.
comment box below.
Thus, the total number of products against the total
number of product lines forms the length of the product
WHAT IS A PRODUCT LINE?
mix. This equation is also known as product line length.
A product line is a related set of products offered by a
firm. For example, Apple offers computers, smart
Product line width: The width of the product mix is equal phones, tablets, MP3 players, smart watches, and online
to the number of product lines within a company. Thus, services. Each of these would be considered a separate
taking the above example, if there are 4 product lines product line and under each product line they could offer
within the company and 10 products within each product a broad range of different products designed for different
line, than the product line width is 4 only. Thus, product needs.
line width is a depiction of the number of product lines
which a company has.
 PRODUCT DEVELOPMENT GOALS Stretching upwards
Over time firms typically introduce new products and add An upward stretch of the product line is the opposite to
them to their existing product lines. This product tactic is the downward stretch. Here the firm introduces products
designed to keep their product line modern and that are of high quality as compared to the normal
competitive, adapt to changing market needs, and offerings – such as the Coca-Cola example above.
increase the number of products that they can sell to their
Firms often target high quality products and stretch their
existing target market.
product line upwards because of several reasons,
One of the decisions that they need to make when including:
introducing new products to an existing product line is
whether or not to stretch the length of their product line.  high quality products often have a higher unit margin and
can be quite profitable at a relatively low turnover
Stretching the product line  offering high-quality products helps position the overall
Stretching the product line means taking it beyond the brand towards being a status brand, which often enables
established positioning of the range of products. price premiums to be charged across the full product line

Again if we use the Apple example above, in the mobile The downsides of an upward stretch include:
phone market Apple only offers smart phones of high
quality. If they were to offer a basic smart phone they  The existing brand equity and image may not carry to the
would be stretching their product line downward – that is, high-quality end of the market – and it may be necessary
taking it beyond the standard offering and introducing to introduce new brand names
types of products that would appeal to new parts of the  Competitors already in the higher end of the market may
market. look to defend their position
As another example, if Coca-Cola was to introduce some  Additional or expanded distribution channels may be
form of high quality gourmet soft drink that sold at very required to support high-quality products
high prices, this would be also considered stretching the  The level of sales volume may not be sufficient, given
product line as they would be offering a premium product that the turnover is generally less at this and the market
for the first time.
Both upward and downward stretching at the same
Ways to stretch the product line time: Occasionally, firms may look to extend their
product line both upwards and downwards – although this
There are three approaches to stretching the product line,
is generally rare and more likely in new/growth
namely: stretching downwards, stretching upwards, and markets.
stretching both ways.
This would happen when firms are rapidly expanding
Stretching downwards their product line and trying to offer a full range of
A downward stretch of the product line is when a firm product offerings in order to reduce the incentive for new
introduces lower quality products that they are normally competitors. Therefore, the intention of this product line
associated with – such as the Apple example above. approach is to try and own/dominate the product
Firms would engage in downward stretching of their category.
product line for several reasons: Product line filling: A more common approach to product
line extensions is to introduce new products that are
 to block competitor activities and competitive product consistent with the brand’s initial positioning. So rather
offerings than expanding into the higher or lower quality end of the
 to compete in the budget end of the market, particularly if marketplace, the brand simply introduces more
it is a high volume part of the market variations. This is common in fast-moving consumer
 to help broaden their brand’s positioning to be seen as a goods where, snack foods in particular, have a variety of
more affordable brand overall. similar products.
The risk of overfilling the product line is product
However there are significant dangers to downward cannibalization, as well as the pressures on the
stretching, particularly for a prestige brand, including: manufacturing and logistics system and/or sales and
service staff due to having too many products to
 product cannibalization of their higher-margin products manufacture and sell.
 overall deterioration in their brand image
 needing to support multiple products in the marketplace,
or multiple positionings
The Four Types of Market Segmentation Psychographic Segmentation
The four bases of market segmentation are: Psychographic segmentation categorizes
audiences and customers by factors that relate to
 Demographic segmentation their personalities and characteristics.
 Psychographic segmentation
 Behavioral segmentation Psychographic Market Segmentation
 Geographic segmentation Examples

Within each of these types of market  Personality traits

segmentation, multiple sub-categories further  Values
classify audiences and customers.  Attitudes
 Interests
Demographic Segmentation  Lifestyles
 Psychological influences
Demographic segmentation is one of the most
 Subconscious and conscious beliefs
popular and commonly used types of market
 Motivations
segmentation. It refers to statistical data about a
 Priorities
group of people.

Demographic Market Segmentation Examples Psychographic segmentation factors are slightly

more difficult to identify than demographics
 Age because they are subjective. They are not data-
 Gender focused and require research to uncover and
understand.
 Income
 Location
 Family Situation For example, the luxury car brand may choose to
focus on customers who value quality and status.
 Annual Income
While the B2B enterprise marketing platform may
 Education
target marketing managers who are motivated to
 Ethnicity
increase productivity and show value to their
executive team.
Where the above examples are helpful for
segmenting B2C audiences, a business might use
Behavioral Segmentation
the following to classify a B2B audience:
While demographic and psychographic
 Company size segmentation focus on who a customer
 Industry is, behavioral segmentation focuses on how the
 Job function customer acts.

Because demographic information is statistical Behavioral Market Segmentation Examples

and factual, it is usually relatively easy to uncover
using various sites for market research.  Purchasing habits
 Spending habits
A simple example of B2C demographic  User status
segmentation could be a vehicle manufacturer  Brand interactions
that sells a luxury car brand (ex. Maserati). This
company would likely target an audience that has Behavioral segmentation requires you to know
a higher income. about your customer’s actions. These activities
may relate to how a customer interacts with your
Another B2B example might be a brand that sells brand or to other activities that happen away from
an enterprise marketing platform. This brand your brand.
would likely target marketing managers at larger
companies (ex. 500+ employees) who have the A B2C example in this segment may be the luxury
ability to make purchase decisions for their teams. car brand choosing to target customers who have
purchased a high-end vehicle in the past three
years. The B2B marketing platform may focus on
leads who have signed up for one of their free questions that help you fill in the details of all four
webinars. types of market segmentation.

Geographic Segmentation Interview your sales team.

Geographic segmentation is the simplest type of
market segmentation. It categorizes customers If you have a sales team that spends a lot of time
based on geographic borders. working with customers, use them as a resource.
Interview them to find commonalities or trends
Geographic Market Segmentation Examples they often see while working with your customers.

Refer to your business data.

 ZIP code
 City
 Country Your business likely has loads of data that can
 Radius around a certain location help you get to know your customers. Use your
 Climate customer relationship management tools and
 Urban or rural point-of-sale systems to find trends related to
behavioral segmentation. Pull data that shows
how much customers spend, how often they visit
Geographic segmentation can refer to a defined
your store, and the type of products and services
geographic boundary (such as a city or ZIP code)
they buy.
or type of area (such as the size of city or type of
climate).
Use your website analytics.
An example of geographic segmentation may be
Your website also has data that can help you
the luxury car company choosing to target
learn about your audience. Use Google Analytics
customers who live in warm climates where
to find details related to all four types of market
vehicles don’t need to be equipped for snowy
segmentation. For example, you can learn about
weather. The marketing platform might focus their
customer behavior by seeing what pages users
marketing efforts around urban, city centers where
visit, how long they stay on the site, and what
their target customer is likely to work.
referral sites led them to your site.
How to Create a Market Segmentation Strategy
Research audience geography.
Now, you know what market segmentation is, why
it’s important, and the four types of market Get details for graphic segmentation and find out
segmentation. It’s time to put this information into where your audience lives using Alexa’s Site
practice. Overview tool. Enter your site URL, and the report
shows you where your website visitors are located
Use the following market segmentation process to across the world.
learn about your audience and find new marketing
and product opportunities. Research audience interests.

1. Analyze your existing customers Knowing your audience’s interests can help you
If you have existing customers, start your market identify psychographic segments within your
segmentation process by performing an audience customer base. Use Alexa’s Audience Interest tool
analysis. An audience analysis allows you to learn to find topics and categories that your audience
about your customers and begin to identify trends cares about. Enter your site URL to produce a
that exist within your current customer base. Use report of categories that your audience is
these market research questions to guide your interested in.
research.

Interview your customers.

Go right to the source and conduct interviews with

existing customers, past customers, ideal
customers, and prospects and leads. Ask