IMPACT OF PRICING STRATEGIES ON CONSUMER BUYING

BEHAVIOR OF FAST-MOVING CONSUMER GOODS: A STUDY

IN ORGANIZED RETAILS OF KATHMANDU

Hemant Khanal

Exam Roll No: 20221124

P.U. Registration No: 2020-2-22-0470

A Graduate Research Project Proposal Submitted to

Ace Institute of Management

Pokhara University

Submitted for the Degree of

Masters of Business Administration (MBA)

Kathmandu

December, 2023
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TABLE OF CONTENTS

TABLE OF CONTENTS.....................................................................................................i
CHAPTER I.........................................................................................................................1
INTRODUCTION...............................................................................................................1
Background of the Study..................................................................................................1
Statement of Problem.......................................................................................................4
Research Questions..........................................................................................................5
Objectives of the Study....................................................................................................5
Research Hypothesis........................................................................................................5
Significance of the Study.................................................................................................8
Limitation of the Study....................................................................................................9
Organization of the Study................................................................................................9
CHAPTER II.....................................................................................................................12
LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK..................................12
Literature Review...........................................................................................................12
Global Context...............................................................................................................12
Literature Review in the context of Nepal.....................................................................16
Research Gap.................................................................................................................17
Conceptual Framework..................................................................................................19
Specification of Variables..............................................................................................19
CHAPTER III....................................................................................................................23
RESEARCH METHODOLGY.........................................................................................23
Research Design and Plan..............................................................................................23
Study Area and Population............................................................................................23
Sampling Technique......................................................................................................24
Population and Sample Size Determination...................................................................24
Nature and Source of Data.............................................................................................25
Research Instrument and Data collection.......................................................................25
Data Collection Procedure.............................................................................................25
Instrumentation of Data.................................................................................................26
Validity and Reliability..................................................................................................27
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Data Analysis Plan.........................................................................................................27

REFERENCES..................................................................................................................29
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CHAPTER I

INTRODUCTION

Background of the Study

Pricing strategy is a method or approach used by businesses to determine the optimal

price for their products or services. It involves considering factors such as production
costs, market demand, competition, and perceived value to set prices that achieve specific
business objectives, such as maximizing profit, gaining market share, or positioning the
product in the market. Pricing has developed into a crucial competitive tool that a
business can employ to endure market pressure, enhance sales, and improve its position.
The international market is dynamic, and these new customer demands are now forcing
many companies to adopt pricing practices for better results and survival. The price
retailers decide to charge for a good or service has a big impact on how the customer acts.
Customers may buy more from you if they think your price is less expensive than that of
competitors. The response, though, may be unsatisfactory if the price you set is
substantially more than anticipated. Pricing has emerged as part and parcel of modern-
day marketing strategies and now considered a key organizational asset (Al-Hakim & Jin,
2014).

Pricing is said to has a big impact on customer purchasing decisions since the more
expensive a product is, the less of it is sold. Contrarily, it is expected that goods selling
for less than the going rate will sell in greater quantities. It is worth mentioning that
consumer satisfaction also plays a decisive and mediating role in the development and
molding of buying behavior of consumers (Larsen et al., 2017). Price management is
heavily reliant on the value of price as a buying stimulus because it not only affects
consumer buying behavior but also how prices are viewed and appreciated. Simon (2015)
makes the argument that because price is a factor in all purchasing circumstances, it plays
a crucial role in consumer decision-making. Marketers are aware that consumers use
price to distinguish between products with nearly identical attributes, thus they utilize
pricing to distinguish between similar products. The evolution of marketing is shown in
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organizations changing their focus from a product or market perspective to a consumer or

customer one.

Retailers use a variety of price methods to draw in customers, which eventually influence
the customers' purchasing decisions. The reason retailers are in business is profit so
setting the correct pricing for the right consumer is a crucial first step in achieving that
profit, even if there are many other elements that influence the profitability of the retail
industry. Organizations spend a lot of time and resources figuring out the best pricing
strategy for their products because a wrong strategy can cost them important customers
and therefore result into loss of revenue. Companies don't establish one price for all of
their products; instead, they have a pricing structure that accounts for various things in
their line. A pricing strategy considers market segments, consumer willingness to pay,
competitive activity, market conditions, trade margins, and input costs. Organizations that
don't care about pricing tactics or are annoyed by them fall behind by letting the
competition determine market prices. Given that businesses must adhere to the prices set
by their rivals in order to maintain their market share, this may negatively affect how
consumers see them. In order to ensure that an organization has a lasting competitive
advantage, a strong pricing strategy also takes into account the views of the customer, the
company, and the competitor (Hermann, 2015).

The FMCG sector in Nepal has witnessed significant growth and competition in recent
years. Pricing strategies play a pivotal role in shaping the market dynamics and consumer
behavior within this sector. The fast-moving consumer goods (FMCG) sector plays a
vital role in the Nepalese economy, encompassing a wide range of products such as food
and beverages, personal care items, household products, and more. In the Nepalese
FMCG sector, various pricing strategies have been employed to attract and retain
customers, optimize profitability, and gain a competitive edge. Some FMCG companies
have adopted a penetration pricing strategy, offering products at lower prices to gain
market share quickly. Some companies have implemented price bundling, where they
combine two or more products at comparatively low price which helps company sell
products that mayn’t have been previously bought by consumers. Promotional pricing
tactics, such as discounts, buy-one-get-one offers, and limited-time offers, have been
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widely employed by FMCG companies in Nepal. These strategies aim to boost sales,
create a sense of urgency among consumers, and build brand loyalty. FMCG companies
in Nepal have focused on value-based pricing, considering the perceived value of their
products by customers. This strategy involves pricing products based on the benefits,
quality, and differentiation they offer compared to competitors' offerings. FMCG
companies have also implemented psychological pricing strategy by targeting lower- and
middle-income people who tends to believe they are charged less whenever price ends
with nine ending prices.

The implementation of the above discussed pricing strategies in the Nepalese FMCG
sector has had several impacts. Pricing strategies have influenced consumer perception
and purchasing decisions. Pricing strategies have intensified competition among FMCG
companies in Nepal. Price wars have occurred as companies try to capture market share
by offering competitive prices, leading to increased consumer choices and market
fragmentation. Choosing a pricing objective and associated strategy is an important
function of the business owner and an integral part of the business plan or planning
process.

The study intends to investigate the relationship between pricing strategies, such as
discounts, bundle, psychological, competitive, penetration pricing and consumer buying
behavior. It aims to explore how these pricing strategies influence consumers' decisions
to purchase FMCG products in organized retail stores in Kathmandu. By conducting this
research, it aims to contribute to the existing knowledge about the effect of pricing
strategies on consumer behavior in the context of FMCG products. The findings of this
study could provide valuable insights for retailers and marketers to develop effective
pricing strategies that can influence consumer buying behavior positively. Additionally,
the research will also provide insights into consumer preferences, decision-making
processes, and their perception of value in relation to pricing strategies in the FMCG
sector.
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Statement of Problem

Customers are becoming more and more price-conscious, therefore dealers with
reasonable prices tend to draw in more business (Gupta, 2014). Companies today
compete fiercely in a market that is both local and international. In order for an
organization to have a competitive edge, it must develop sound strategies that will make
sure it has one. This is because there are numerous merchants on the market who all try to
attract the same client base. The pricing plans are one of the techniques on which many
firms must concentrate. Many businesses are unaware of how pricing affects consumer
purchasing behavior. Retailers must fully comprehend how pricing tactics impact
consumer purchasing decisions in order to create effective strategies (Hinterhuber &
Liozu, 2020).

Since the majority of consumers can now compare prices online, setting the appropriate
pricing for the products is always a challenge. According to Agwu and Carter (2014), the
explosive growth of the internet promises a new age of perfectly competitive markets,
with perfect information about prices and products at their fingertips, consumers can
quickly and easily find the best deals. In this new world, retailers’ profit margins will be
competed away, as they are all forced to price at cost (The Economist 1999). A
reasonable price is one of the business tactics that organizations develop in order to draw
in and keep customers. Making the right pricing choices is essential for gaining clients.
Customers desire variety and high-quality products at fair prices. Finding the ideal
combination of characteristics to draw in and keep clients is difficult, though. Therefore,
there is a real need to comprehend the variables that affect consumers' purchasing
decisions whether they purchase in organized and uncontrolled retail establishments. The
current study is an effort in this direction.

The scientific study of how customers choose, get, utilize, and dispose of goods and
services that meet their requirements is known as consumer behavior research. Marketing
strategy is directly impacted by consumer behavior knowledge. The marketing concept,
or the notion that businesses exist to meet client wants, is to blame for this. Only to the
extent that businesses comprehend their clients can they meet those wants. Due to the
large number of businesses joining the market, competition is also increasing within the
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industry. Consumer behavior changes also have an effect on the industry, either directly
or indirectly. Bhattacharya and Sen (2003) stated that consumer behavior referred to the
mental and emotional process and the observable behavior of consumers during
searching, purchasing and post consumption of a product or service.

Therefore, there is a real need for understanding the variables that affect consumer
buying behavior in respect to price whether they shop in organized or unstructured retail
establishments. This study aims to find out how pricing impacts consumer buying
decisions.

Research Questions

Based on the above statement of the problem, this study will try to answer the following
research question:

RQ:1 What is the impact of pricing strategies on consumer buying behavior towards fast-
moving consumer goods in Kathmandu Valley?

Objectives of the Study

 To analyze the impact of pricing on consumer buying behavior of fast-moving

consumer goods.

Research Hypothesis

This research study will seek to evaluate the relationship between different independent
variables like discount bundle, psychological, competitive and penetration pricing
strategies and dependent variable i.e., consumer buying behavior towards FMCG
products in retails. It will also analyze the impact of those independent variables on the
dependent variable. Many studies have been conducted examining the relationship
between these variables. So, based on previous research findings, the following
hypotheses have been developed for this study:

Discount Pricing and Customer buying Behavior

Smith et al. (2017) examined the effect of discount pricing on consumer behavior. The
study found that consumers were more likely to make purchases and increase their
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buying quantity when products were offered at discounted prices. Johnson et al. (2018)
investigated the impact of price discounts on consumer behavior in a retail setting. The
findings revealed that price discounts significantly increased consumers' intention to buy
and their actual purchasing behavior. Similarly, Lee and Kim (2019) explored the
influence of different discount framing techniques on consumer behavior. The study
found that consumers were more likely to purchase products when presented with
percentage discounts compared to equivalent amount discounts. This supports the
hypothesis and suggests that discount pricing positively influences consumer buying
behavior

H1: There is a significant relationship between discount pricing and consumer buying
behavior.

Bundle Pricing and Consumer Buying Behavior

Chen et al. (2016) investigated the influence of bundle pricing on consumer behavior.
The study found that consumers perceived bundle pricing as a value-enhancing strategy,
leading to increased purchase intentions and actual buying behavior. Additionally, Wang
and Li (2017) examined the effects of bundle pricing on consumer decision-making
processes. The findings indicated that consumers perceived bundle pricing as a cost-
saving opportunity, which positively influenced their purchase intentions and buying
behavior. Liu et al. (2018) explored the role of price bundling in shaping consumer
attitudes and purchase intentions. The study revealed that price bundling had a significant
positive effect on consumer attitudes, which, in turn, positively influenced their purchase
intentions.

H2: There is a significant relationship between bundle pricing and consumer buying
behavior.

Psychological Pricing and Consumer Buying Behavior

Martinez and Chen (2016) examined the impact of psychological pricing techniques on
consumer behavior. The study found that pricing strategies like charm pricing (ending
prices with a 9) and prestige pricing (setting high prices to signal quality) significantly
influenced consumers' perceptions of value and their buying behavior. Zhang et al. (2017)
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conducted a meta-analysis to explore the effects of odd pricing (e.g., pricing products at
$9.99 instead of $10) on consumer behavior. The findings revealed that odd pricing had a
significant positive effect on consumer purchase intentions and actual buying behavior.
Park et al. (2018) investigated the influence of reference prices (comparison prices) on
consumer behavior. The study found that when consumers perceived a reference price as
lower than the actual price, it positively influenced their purchase intentions and buying
behavior. This supports the above hypothesis by indicating a significant relationship
between psychological pricing and consumer buying behavior.

H3: There is a significant relationship between psychological pricing and consumer

buying behavior.

Competitive Pricing and Consumer Buying Behavior

Research indicates that competitive pricing can influence consumer buying behavior. Rao
et al. (1999) examined the impact of competitive pricing on consumer purchase behavior.
They found that consumers are more likely to choose products from retailers offering
competitive prices, leading to increased buying behavior. Additionally, Tellis et al.
(2000) explored the effects of competitive pricing on consumer purchase behavior in the
context of new product introductions and the findings suggested that lower prices, when
perceived as competitive, positively influenced consumer adoption and purchasing
decisions. Moreover, Gerstner and Hess (2011) focused on the impact of competitive
pricing strategies on consumer responses in the online retail context. They found that
consumers were more likely to engage in buying behavior when they perceived a lower
price compared to competitors. Above hypothesis is built upon the above discussed
studies.

H4: There is a significant relationship between competitive pricing and consumer buying
behavior.

Penetration Pricing and Consumer Buying Behavior

Studies suggests that penetration pricing can have a significant impact on consumer
buying behavior. A study by Lal et al. (2017) examined the effects of penetration pricing
on consumer behavior in the context of a new product introduction. They found that
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consumers were more likely to adopt and purchase a new product when it was introduced
with a low price, indicating a positive relationship between penetration pricing and
consumer buying behavior. Furthermore, research by Song and Chintagunta (2008)
explored the impact of penetration pricing on consumer perceptions of value and product
quality. They found that consumers perceived products with lower prices as offering
higher value, leading to increased purchase intentions and consumer buying behavior.
Additionally, a study by Huang and Sarigollu (2014) investigated the impact of
penetration pricing on consumer purchase decisions in the smartphone industry. Their
findings indicated that consumers were more likely to engage in buying behavior when
smartphones were introduced with lower prices as part of a penetration pricing strategy.
Based on these findings, above hypothesis can be built by saying that there is a
significant relationship between penetration pricing and consumer buying behavior.

H5: There is a significant relationship between penetration pricing and consumer buying
behavior.

Significance of the Study

Retail outlet managers that have a strategic understanding of how pricing strategies affect
consumer purchasing decisions may find this study to be useful. They might be able to
position themselves competitively and, as a result, choose the appropriate pricing strategy
for their target market if they are aware of how many of their rivals use comparable
pricing strategies. The results of this study could be significant to the management of the
retail industry in improving both their current customer management policies and
marketing methods.

By comprehending the numerous price options available, customers and the general
public are likely to gain from the research as well. When they are deciding what things to
buy, where to buy them, and how much they can buy, this information may be useful.

This study might contribute to closing the information gap on factors influencing
customer buying decisions. By offering yet another approach to analyzing the pricing
tactics and variables affecting consumer buying behavior, the study may be helpful to
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academics looking for knowledge in this field of marketing. As they pursue additional
research on this subject, future researchers may also gain from this work.

Limitation of the Study

While this study is intended to provide valuable insights into impact of pricing strategies
on consumer buying behavior of FMCG products in retails, it is important to
acknowledge that it also has some limitations that warrant consideration. Following are
some of the study’s drawbacks:

 This study will be conducted in Kathmandu valley So, the findings of this study
may not be generalized for Nepal as a whole.
 Although there are various types of pricing strategies that influence consumer
buying behavior, this study will only focus on the majorly used pricing strategies
in retails.
 This study only considers impact of pricing strategies on consumer buying
behavior FMCG products, not other products.

Organization of the Study

This research report will consider a total of five chapters: introduction; literature review;
research methodology; data analysis and findings; conclusion and recommendations. The
preliminary section would include abbreviations as well as the relevant documentation
and approvals. This section would also include a list of graphs and tables that will be
utilized and referred to during the study process.

Chapter 1: Introduction

This chapter includes background information about pricing practices over the retail
markets, the necessity of using the right pricing strategies for sustaining in today’s
competitive retail market, situation of FMCG companies of Nepal in relation to their
pricing strategies. Similarly, this section also states the problem as well as an in-depth
discussion of the purpose of the study, the significance of this study in the current
context, and a couple of limitations associated with the study.
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Chapter II: Literature Review

This chapter will examine different study papers, articles, and journals that have been
published by various researchers. The literature review is divided into two sections, the
first of which includes research from world and the second from around Nepal. The
conceptual framework, which depicts the link between the dependent and independent
variables as well as the moderating variable, is also included in this chapter. The gaps in
the literature today are also covered in this chapter.

Chapter III: Research Methodology

The third chapter focuses on the nature and structure of the research. It also comprises the
methodology used for the study, which covers the discussion of the research design and
strategy, population and sample size estimation, data sources, data collection techniques,
data instrumentation, validity and reliability, and data analysis methods. SPSS and MS
Excel software will be used to collect and enter data for analysis.

Chapter IV: Data Analysis and Interpretation

This chapter covers how to present and analyze data from the research questionnaire. It
primarily focuses on the structured representation of acquired data. Information will be
presented in tabular form with graphics to ease its interpretation. Different dependent and
independent data are examined and presented properly. Numerous analytical techniques,
such as frequency distribution, descriptive analysis, correlation, independent sample t-
tests, and one-way ANOVA, will be used to conduct the analysis.

Chapter V: Conclusion and Recommendations

Chapter five will thoroughly examine the study's findings before moving on to a
discussion, conclusion, and recommendations. The data that has been gathered and
reviewed will be used to draw the relevant conclusions and suggestions. In a sense, this
chapter will serve as the study paper's conclusion. At the conclusion of this study,
references, annexes, and other necessary materials will be provided.
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CHAPTER II

LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK

This chapter gives a detail about the conceptual framework of the study and includes the
review of related literature associated with the impact of pricing strategies on consumer
buying behavior of FMCG products. The first part of this chapter consists of an in-depth
review of similar research work carried out across the world. The second part of this
chapter presents a theoretical framework along with the specification of the variables
carried out.

Literature Review

Global Context

Kotler and Keller (2012) stated that price is the one element of the marketing mix that
produces revenue; the other elements produce costs. They also stated that purchase
decisions are based on how consumers perceive prices and what they consider the current
actual price to be. Understanding how consumers arrive at their perceptions of prices is
an important marketing priority. Hinterhuber and Liozu (2020) indicate that organizations
spend a lot of time and resources figuring out the best pricing strategy for their products
because a wrong strategy can cost them important customers and therefore result into loss
of revenue. Pricing, according to Riggs (2008) is the process of choosing prices for goods
and services and applying them. Prices are set with a certain level of assurance that
consumers will pay them, depending on how supply and demand are balanced. To better
understand consumer buying habits, numerous studies have been carried out. These
studies present a detailed picture of the different aspects that affect consumers'
purchasing decisions. Given that one of the primary parameters of personal variables is
price. The price you decide to charge for a good or service has a big impact on how the
customer acts. Customers may buy more from you if they think your price is less
expensive than that of competitors. But the response can be unsatisfactory if the price you
set is substantially more than expected.
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Discount pricing is reducing the price for a given quantity or increase the quantity
available at the same price, thereby enhancing value and create an economic incentive to
purchase (Armstrong & Chen, 2013). Price reductions (cut off pricing) are a significant
factor in encouraging new customers to test the products being offered. According to
Chao and Liao (2016), if a business decides that price reductions or other discounts can
considerably and favorably enhance consumers' desire to make purchases. In the flash
sale campaign, the discount price has a favorable and considerable impact on consumers'
buy intentions. To entice customers to buy, businesses often set the price of their goods
below the suggested price and occasionally even below the cost.

Price discount can leave a positive or negative impact on perceived quality (Huang et al.,
2014). They also may have no impact at all. Consumers may receive a low-quality
service if they gain a high price savings. On the other hand, if customers know they can
rely on the product's quality like at Starbucks, where the same coffee is always served to
every customer, they will be happy to receive a price reduction and will give the
company a favorable review (Huang et al., 2014). Lee and Stoel (2016) examined the
economic implications of price discounts and found that a price cut results in a financial
benefit, which acts as an inducement for customers to buy the goods. Numerous earlier
researches have shown that consumers perceive greater levels of savings for a product
when a larger price discount is offered. According to Krishna et al. (2012) the perceived
savings concept has been the most frequently used variable for evaluating consumers'
reactions to price discounts. It has been demonstrated that perceived savings is a useful
indicator of how customers feel about price discounts.

Price bundling is the practice of combining a number of goods or services into a single
comprehensive package at a thoroughly reduced cost (Hermann, 2015). Smith (2016)
says price bundling, is a strategy that retailers use to sell lots of items at higher margins
while providing consumers a discount at the same time. According to Wuu and Lui
(2017) the profitability of price bundling sales results from a reduction in the variation in
customers' product evaluations. This suggests that when a bundle is made up of two
products, the consumer will pay the two products' individual reservation prices. When
product kinds are negatively associated, the bundle's price will be higher than the price of
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the individual items. Bundling of products is perhaps the most widely used tactic to apply
discriminated prices, although its logic often goes unnoticed. According to Abdallah et al.
(2017) , competition plays a significant role in determining whether price bundling is
successful or unsuccessful. This competition may come from businesses that are in the
same category as the bundled offering, from their own offerings, which may include both
single products and bundles, and from businesses in other categories that offer different
combinations of bundles and single products.

Uripi et al. (2021) examined the effect of pricing bundling capability on price value
offerings and marketing performance. According to the findings, pricing bundling ability
has a favorable impact on pricing capacity on marketing effectiveness and price value
offerings. Additionally, it demonstrates how price value offerings moderate the impact of
pricing capability on marketing performance and how price value offerings have a
beneficial impact on marketing performance.

According to Caldwell (2017) psychological pricing is a pricing strategy that utilizes

specific techniques to form a psychological or subconscious impact on consumers. It
integrates sale tactics with price. It can also be described as setting prices lower than a
whole number. Pandey and Kumar (2017) conducted a qualitative study to investigate the
effects of psychological pricing strategy on customer buying habits. The research
revealed that psychological patterns like representativeness, product availability, and
securing intuition, as well as socio-demographic factors like age, income, education,
gender, lifestyle, family size, and social roles and status, are crucial influences on what
consumers buy. Additionally, buyers who are more price conscious are more likely to
choose pricing with nine ending prices. In fact, clients who are less engaged, have a
smaller emotional and symbolic attachment profile, are less educated, have lower
incomes, and are younger are more likely to choose nine-ending priced goods and
services.

According to Husemann (2018), psychological pricing is a marketing or pricing strategy

based on the hypothesis that different prices have psychological consequences on
consumers' perceptions of prices, attitudes toward prices, and purchase decisions. Over
time, marketers and organizations have employed this technique to sway consumers'
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choices, particularly in the retail industry and price promotion. The fundamental idea
behind psychological pricing is that prices that are placed slightly below the nearest
ringed number evoke higher demand than is anticipated at that level. This indicates that
the demand curves kinked where the purchasing likelihood for just-below-price goods
was to the right of projected demand curves (Dholakhia, 2017).

Kevin et al. (2004) define penetration pricing as setting a new product's initial pricing
cheap in order to appeal to the mass market right away. With low prices and aggressive
marketing, the company could successfully enter the market. This approach results in the
largest or fastest gain in market awareness and market share. A corporation must have
manufacturing or a long-term competitive advantage that would benefit the company's
unit in order to benefit from this strategy. Low price and little promotion can also help
the company break into the market (Lamb et al., 2004). It functions well in markets with
strong price elasticity. Additionally, it performs better in markets with high competition
and little promotion flexibility. Penetration pricing is used by a corporation when the goal
of its new product is to establish a low price in order to attract a big number of customers
and a large market share. When price changes with respect to less price sensitive
customers than it cannot guarantee an increase in sales or market share of the company
(Karki, 2022). Retailers could undoubtedly change the price when there is no immediate
competition by examining the sensitivity of customer's price, and the organization's
expenses and benefit. Supermarket can be successful by applying low price strategy
which will ultimately increase net income through low gross margins and low cost of
operation.

Research by Broniarczyk and Hoyer (2006) suggests that when consumers encounter
lower prices for a product, they engage in more extensive information search, compare
prices across different retailers, and become more likely to switch brands. Dholakia
(2005) found that price-sensitive consumers tend to engage in more price comparisons
and are more likely to switch brands based on pricing strategies. Price sensitivity refers to
the degree to which consumers are responsive to changes in price. Also, price-matching
guarantees, where retailers promise to match competitors' prices, have gained popularity.
Kinney et al. (2009) examined the effect of price-matching guarantees on consumer
 15

behavior and found that such guarantees positively affect consumers' purchase intentions
and decrease their price sensitivity.

Khaniwale (2015) says that studying consumer buying behavior involves looking at how
people select, use, and arrange goods and services to satisfy their needs as well as the
impact these actions have on both the individual consumer and society at large.
Consumer behavior includes all of an individual's thoughts, emotions, and actions before,
during, and after purchasing any good, service, or concept. The idea of buyer behavior
addresses the what, why, how, when, and where of a transaction. As a result, the buyer's
choice is the product of their behavior. Consumer buying behavior, according to
Bhattacharya and Sen (2003), refers to the mental and emotional processes and the
discernible behavior of consumers during the search for, purchase of, and use of a good
or service. Consumer behavior research includes examining how, what, when, and why
consumers make purchases.

Literature Review in the context of Nepal

Several studies have explored the relationship between pricing strategies and consumer
behavior in the FMCG sector. In a study conducted by Singh and Sharma (2017), it was
found that consumers tend to be highly price-sensitive when purchasing FMCG products.
They identified that price promotions and discounts significantly influence consumer
buying behavior, leading to increased purchase intention and higher sales volumes. These
findings suggest that pricing strategies have a direct impact on consumer decision-
making processes in the organized retail sector.

Shakya and Bhandari (2019) investigated the effects of price discounts on consumer
buying behavior in organized retail stores in Nepal. The study found that price discounts
had a significant impact on consumers' perception of product value and affordability,
leading to increased purchase intentions. Similarly, Pokharel and Maharjan (2021)
explored the influence of value-based pricing strategies on consumer buying behavior in
the FMCG sector in Nepal. The research indicated that consumers were willing to pay
higher prices for products that offered superior value, such as better quality, convenience,
and sustainability.
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Moreover, research by Khatiwada (2019) investigated the impact of perceived value on

consumer responses to pricing strategies in the FMCG sector in Nepal. The study
revealed that consumers' perception of the value they receive from a product influences
their willingness to pay and subsequent purchase behavior. This implies that pricing
strategies should not only consider price discounts but also focus on creating value
perceptions to effectively influence consumer buying behavior in organized retail
settings.

A study by Pokharel and Shrestha (2018) examined the relationship between pricing
strategies and brand loyalty in the FMCG sector. They found that price positioning,
including premium pricing or competitive pricing, affects consumers' perception of a
brand's value and, subsequently, their loyalty towards the brand. This highlights the
importance of aligning pricing strategies with the desired brand image and target
consumer segment to foster long-term brand loyalty in the organized retail sector.

Consumer Purchase Decision of low involvement products often involve very little
thought process, information gathering and proper decision making (Adhikari, 2019). For
example, buying a pack of chewing gum or chocolate while checking out in a retail store
barely takes more than a few seconds as these products are low involvement and
consumers buy these products on their impulses. This is primarily because low
involvement products are often low priced and carry low cost of failure. Information
available to take a buying decision of such products may not strongly guide a purchaser
while taking buying decision. However, consumers are very price conscious when buying
high involvement products.

Research Gap

There are studies which have used different methodologies when looking at the influence
of pricing strategies on consumer buying behavior in the past. Li and Peng (2020) studied
how heterogeneous consumer behavior affect pricing strategies of retailers. The results
showed that the strategic behavior of heterogeneous consumers does not always
have a negative impact on the profits of two retailers. The offline retailers can
strategically choose to set higher prices to increase profits, and online retailers can also
reduce the impact of heterogeneous consumer behavior by disclosing product attribute
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information. Consumers today are very conscious about the price they are going to pay
for products. Due to the growth of online platforms, retailers have faced various
challenges and the biggest of them is the price they set for products. Consumers are
aware as they check the price upfront in their smartphones which is why retailers must be
correct on using the right pricing strategies to keep on the competition.

While existing research has delved into the influence of pricing on consumer choices,
there is a notable gap in understanding the nuanced impact of various pricing strategies
on diverse consumer segments. For instance, Smith et al. (2018)explored the general
effects of discounts on consumer behavior, but there remains a need to investigate how
dynamic pricing, personalized pricing, and bundle pricing strategies specifically resonate
with different demographics and psychographics. This gap in the literature is significant
as it hinders the development of targeted and effective pricing strategies that can optimize
both consumer satisfaction and business profitability.

Moreover, the current body of research often focuses on the immediate impact of pricing
on purchasing decisions, neglecting the long-term consequences and potential loyalty-
building aspects. Jones and Brown (2020) touched upon the importance of considering
the temporal dimension in pricing strategy research, emphasizing the need for
longitudinal studies to capture the evolving dynamics of consumer-brand relationships
influenced by pricing. Therefore, it should aim to bridge this gap by encouraging studies
that not only explore the immediate behavioral outcomes of pricing strategies but also
shed light on their lasting implications for brand loyalty and consumer retention.

While there is extensive research available on pricing strategies and consumer behavior
in various contexts, there is limited empirical evidence addressing this relationship
specifically in Kathmandu's organized retail sector. The unique cultural, economic, and
market dynamics in Kathmandu demand a localized understanding of how pricing
strategies, such as discounts, bundling, psychological pricing, competitive pricing, and
penetration pricing, influence consumer buying behavior in the FMCG sector. Exploring
this research gap can provide valuable insights for retailers and marketers operating in
Kathmandu's organized retail sector to develop effective pricing strategies tailored to the
local market and consumer preferences. Furthermore, the research can contribute to the
 18

broader literature on pricing strategies and consumer behavior by examining their

interplay in a distinct geographical and cultural context like Kathmandu.

Conceptual Framework

Conceptual Framework shows the interdependence between independent and dependent

variables. In this study, the independent variables. In this study, the independent variables
are discount pricing, bundle pricing, psychological pricing, competitive pricing and
penetration pricing safety and the dependent variable is the consumer buying behavior of
FMCG products. The conceptual framework of this study has been developed based on
Ali and Anwar (2021).

 Discount Pricing
 Price Bundling
 Psychological Consumer buying behavior
Pricing
 Competitive Pricing
 Penetration Pricing

Figure 1: Conceptual Framework

Specification of Variables

 Consumer Buying Behavior

We are all consumers, regardless of how young, intelligent, wealthy, or skilled we are.
Thus, for marketers, dealers, and salespeople, knowing consumer behavior becomes a
crucial challenge. Consumer buying behavior is the study of how people acquire and
dispose of products, services, ideas, or experiences in order to fulfill their needs and
desires (Keller et al., 2016). Consumer Behavior refers to decision processes and acts of
 19

people involved in buying and using products. The price of the product directly
influences the consumer buying behavior pattern. Khaniwale (2015) states that the study
of consumer behavior involves studying how people go about using products and services
to satisfy their needs, as well as how these actions affect both the individual consumers
and the broader community.

Independent Variables

 Discount Pricing
Discount pricing is a technique where items are offered at a reduced cost (Sheng et al.,
2007). With a discount pricing strategy, a retailer will sell a product for less than it would
normally cost for a specific period of time. With the ultimate purpose of boosting sales, it
involves reducing goods prices and providing various bargains. This variable can be
measured by taking factors like basket size, sales volume, purchase intention and
conversion rate into considerations.

 Bundle Pricing

Bundle pricing is a business approach where businesses put together a number of

products and offer them all for a single price rather than assigning separate prices to each
item. Price bundling refers to packages sold at a discount without any integration of the
goods and services involved (Vamosiu, 2018). Ancarani (2002) described and analyzed
the role of internet to present bundles of information goods using online tools.
Furthermore, Simon and Butcher (2001) demonstrated that profitability could increase
10% to 40% using bundle pricing. This variable can be measured by looking into factors
like bundle adoption rate, cross-selling and up-selling.

 Psychological Pricing

According to Kotler et al. (2016), psychological pricing refers to altering prices in a way
that has a psychological impact on the consumer and directly alters his behavior. In other
words, psychological pricing involves taking advantage of a customer's psychological
characteristics and mental trends to convince him/her that the price is lower than it should
be, encourage them to pay more, or send a message about the product. This variable uses
 20

brand perception, perception of fairness, consumer trust, price sensitivity like factors for
measurement.

 Competitive Pricing

Anderson and Narus (2004) define competitive pricing as simply setting prices relative to
what competitors are charging. Pricing that is based on the prices of other companies is
known as a competitive pricing strategy. This pricing strategy just considers the publicly
available prices of your rivals; neither the perceived value of the product by customers
nor the cost of production are considered. Thorough market research serves as the
foundation for a pricing strategy that is both competitive and strong. Knowing the rates of
the prices of your top competitors in your market and how those rates may match client
expectations gives you a foundation for figuring out the rates of the prices of your own
goods or services. Competitive pricing is an effective strategy for companies to attract
consumers and gain a competitive advantage in the market. Price sensitivity, purchase
decision, brand loyalty, and perceived quality are all factors that are influenced by
competitive pricing. However, it is important for companies to strike a balance between
price and perceived value, as pricing too high or too low can have a negative impact on
consumer behavior. This variable can be measure by taking factors like market share,
competitive advantage, competitive response into account.

 Penetration Pricing

Penetration pricing is a marketing strategy used by businesses to attract customers to a

new product or service by offering a lower price during its initial offering. Henard (2001)
said that the penetration pricing strategy is implemented by establishing a new product's
price comparatively low in order to penetrate the market more deeply in the immediate
term and provide a larger market share in the long term. In order to attract a large number
of clients and increase market share, a company may use a pricing approach called
penetration pricing. The goal of penetration pricing is to build a loyal client base by
undercutting competitors and well-known brands while giving the most affordable price
on the market. A marketing technique is penetration pricing as well. The company is
attempting to attract public awareness of its entry into the market by offering eye-
 21

catchingly cheap prices. Penetration pricing uses factors like sales volume, market share,
profitability, brand perception for its measurement.
 22

CHAPTER III

RESEARCH METHODOLGY

Research Methodology is a set of sequential processes that a researcher must follow

when investigating a problem with specific objectives. It involves the various stages that
the research will undergo to achieve its goals. It is also a means of identifying the impact
of a particular issue on a research problem that requires appropriate methodology. The
data analysis technique addresses the 'how to' and 'what to' aspects of the research and the
steps to be taken in data collection, empirical study, and analysis. Moreover, the research
methodology provides a detailed discussion of sample size, data sources, data collection
procedures, data instrumentation, and data analysis methodologies. This section also
considers the reliability and validity of the data.

Research Design and Plan

Explanatory research design will be used for this study. The explanatory research design
is useful to examine the cause-and-effect relationship between the variables. Its objective
is to establish a causal link between variables and to comprehend how changes in one
variable impact changes in another variable. In this study, explanatory research design
helps to shed light on the complex relationship between the independent factors (discount
pricing, bundle pricing, psychological pricing, competitive pricing and penetration
pricing) and the dependent variable (consumer buying behavior).

Study Area and Population

The study area chosen for the study is Kathmandu valley which comprised of three
districts namely Kathmandu, Lalitpur and Bhaktapur which is located in province 3 of
Nepal. There are numerous retail outlets which categorizes in organized retails like Bhat-
Bhatbhateni, Salesberry, Big-Mart and unorganized retail shops in every junction in
Kathmandu valley which are used by the majority of people living in Kathmandu Valley
for meeting their daily needs of FMCG products.
 23

Sampling Technique

Convenience sampling technique will be used for selecting sample for the study.
Convenience sampling is a non-probability sampling technique where the researcher
selects participants who are readily available and accessible for the study. In the context
of the topic "Impact of various pricing strategies on consumer buying behavior",
convenience sampling can be used to select participants who are easily accessible to the
researcher.

Population and Sample Size Determination

The population of the study constitutes consumers who buys products in retail markets
over Kathmandu Valley. The population of the study constitutes users who purchase fast-
moving consumer goods in Kathmandu Valley. The population size is unknown for this
study; thus Cochran (1977) formula will used to determine the sample size:

2
Z pq
n 0= 2
e
where,
𝑛𝑜 is the required sample size,
Z = 1.96
𝑝 is the estimated proportion of the population which has the attribute in consideration, (p
= 0.5)
𝑞 is 1- p,
𝑒 is margin of error, (95% Confidence Interval)
Hence, the minimum sample size for the study is 384.
The research will employ the non-probability sampling technique, in which all members
of the population will not have an equal chance of being selected for participation. To
collect data, the convenience sampling technique will be utilized due to its simplicity and
absence of complex procedures for selecting participants. Additionally, this method is
faster and more efficient as participants are chosen based on their availability.
 24

Nature and Source of Data

The nature of the data in this research study is primary and secondary data. Primary data
refers to information that is collected directly from the source, in this case, people visiting
retail shops in Kathmandu valley. Primary data, including a questionnaire as a means of
data collecting, will be applied in this research. Direct responses from retail shop users
will be gathered using a questionnaire, and that information will be applied for
assessment purposes. To guarantee the accuracy and authenticity of the data, respondents
will be required to complete a survey that will include aspects of discount, bundle,
psychological, competitive and penetration pricing. Similarly, secondary data from
secondary sources like The ProQuest, journals, research articles, books, and websites like
Academia, ResearchGate, etc. will also be used to gather Likert Scale statements and to
comprehend the research topic. Both primary and secondary data will be used for this
research study.

Research Instrument and Data collection

Structure questionnaire will be the main research instrument used in this study. The
primary data will be collected through survey and interview with the people visiting retail
stores to fulfill their FMCG product need. Only close-ended question was designed to
address the issue of study. After the preparation of Questionnaire, the researcher will
focus on the sequencing and arrangement of the questionnaire. The formulated structured
questionnaires will be administered in Google Form for data collection. A pilot survey of
a few sample questions will be tested in order to confirm the consistency, accuracy of the
instrument, and as well as the language of the questions.

Data Collection Procedure

The research will adopt the primary method of data collection by distributing a structured
questionnaire to 385 relevant consumers who buys fast-moving consumer goods at retail
stores inside Kathmandu Valley. This study will use convenience sampling method, one
of the non-probability sampling techniques. The data will be collected where 70% of the
data will be collected through online Google form and 30% data will be collected through
physical questionnaire. The google form will be forwarded through various messaging
 25

platform like Messenger, Viber, WhatsApp, etc. for online collection of data whereas
physical questionnaire will be distributed to people who are visiting organized retail
stores like Bhat-Bhateni, Bigmart, Salesberry, etc.

Instrumentation of Data

A formal questionnaire will be formulated to collect data for this study. The
questionnaires will contain structured questions with the main aim of eliciting
information on the effects of various pricing strategies on consumer buying behavior in
reference to FMCG products that are sold from retails. The questionnaire will be
structured with closed ended questions which makes it easier to compare the views of the
respondents. It also provides standardized responses and makes data analysis easier. The
questionnaire will have a mix of ordinal, nominal and five-point Likert scale to collect
demographic data as well as consumer’s views on the independent and dependent
variables.

The questionnaire will be divided into two sections. Questions in the first section will be
used to collect demographic information. Close ended questions and multiple-choice
single response questions would be used to convey the demographic variables.
Moderating variables would collect data on age, gender, and income level using ordinal
and nominal. In the second section, likert scale questions will be used. Likert scale
questions will be used to link the independent variables and their relationship with
purchase intention while purchasing skin care products.

The impact of pricing strategies used in retails stores on consumer buying behavior will
be investigated by using a Likert scale. A five-point Likert scale will be used which will
rate dependent and independent factors on a five-point scale, with 1 indicating strongly
disagree, 2 indicating disagree, 3 indicating neutral, 4 indicating agree, and 5 indicating
strongly agree. The questionnaire will be formulated out of the concepts that were raised
in the review of the literature.
 26

Validity and Reliability

Validity refers to the extent to which a research study measures what it intends to
measure and accurately captures the phenomenon under investigation. It refers to how the
researcher turns theoretical information into operational, quantifiable questions and
variables. In other words, it examines whether the research study provides accurate and
meaningful results that reflect the intended constructs or variables. External validity
indicates the ability to generalize research findings to diverse populations, whereas
internal validity indicates that the study investigates what it is intended to evaluate.

Reliability refers to the consistency, stability, and repeatability of research measurements

or findings. It assesses the extent to which a study or measurement instrument produces
consistent results when repeated under similar conditions or with similar participants.
Internal consistency will be assessed using a metric known as Cronbach's Alpha.
Cronbach's Alpha increases as the inter-correlations between the variables in the research
increase. The result is more reliable when the Cronbach's Alpha test score is more than
0.6.

In order to enhance comprehension and minimize potential confusion, the questionnaire

will be formulated using a straightforward structure and uncomplicated terminologies.
The questionnaire survey will be standardized, ensuring that an identical questionnaire is
administered to all participants in the study.

Data Analysis Plan

The data obtained from the questionnaires survey will be analyzed through SPSS. For,
reliability and validity Cronbach’s Alpha will be done and for the test of normality EDA
(Exploratory Data Analysis) will be carried out. Moreover, the instruments are
descriptive statistics and inferential statistics. The descriptive analysis will be conducted
to summarize and describe the main features of a dataset. It will provide a preliminary
knowledge of the data and aid in the identification of patterns, trends, and linkages within
the dataset. Various central tendency tools like Mean, Standard deviation, Range,
dispersion etc. will be used. The result obtained from descriptive analysis will be
presented in various tables, graphs, diagram etc. The inferential statistics will be used to
 27

test the significance of the relationship between the study variables their correlations and
linear regressions. Correlation analysis is a measure of association between two variables
while controlling or adjusting the effect of one or more additional variables, and it was
used to test for significance among the study variables. The linear regression analysis will
also be used to examine the level of influence the independent variables have on the
dependent variable. Frequencies, percent, mean, median, standard deviation, correlation
and test of significance as well as regression analysis will be used in this study to
measure the determinants for consumer buying behavior.

Regression equation model

y = a + β1x1+ β2x2+ β3x3+ β4x4+ β5x5+ e

where,
y = dependent variable i.e., consumer buying behavior in Kathmandu Valley
a = y-intercept or constant
β1, β2, β3, β4, β5, β6, = regression coefficients
x1, x2, x3, x4, x5, x6 = independent variables i.e., discount pricing, bundle pricing,
psychological pricing, competitive pricing and penetration pricing
e = error term or residual

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 33

APPENDIX I:

Dear Respondent,

My name is Hemant Khanal a student at the Ace Institute of Management, pursuing a

Masters of Business Administration (MBA) Degree in Marketing. I am currently
undertaking a thesis on; IMPACT OF PRICING STRATEGIES ON CONSUMER
BUYING BEHAVIOR OF FAST-MOVING CONSUMER GOODS: A STUDY IN
ORGANIZED RETAILS OF KATHMANDU.

I hereby request your utmost cooperation; responses will be treated with the utmost
confidentiality. I would be grateful if you can kindly spare a few minutes to fill this
questionnaire. Your cooperation will be highly appreciated.

Thank you in advance.

Section A: Demographic Section

1. Gender:
Male
Female
Others

2. Age:
15-20
21-25
26-30
31-35
36 and above

3. Income Level (NPR):

Below 20,000
20,000 - Below 30,000
30,000 – Below 40,000
 34

40,000 – Below 50,000

50,000 and above

4. Frequency of purchase of FMCG products in retails stores or supermarkets

Weekly
Every fortnight (15 days)
Monthly
Quarterly

Section B: Independent Variables

Please read each statement carefully and tick on the most appropriate answer that indicate
how strongly you agree or disagree with the following statement, where (Strongly
Disagree = 1, Disagree = 2, Neutral = 3, Agree = 4 and Strongly Agree = 5)

a. Discount pricing and Consumer Buying Behavior

Discount pricing is reducing the price for a given quantity or increase the quantity
available at the same price, thereby enhancing value and create an economic incentive to
purchase. Please rate the following statements about discount pricing as it relates to
consumer buying behavior using the scale mentioned above.

Statement 1 2 3 4 5
Price discounts motivate new customers to try
products being offered.

High price discount shows consumers that

they are receiving low-quality products or
service.
Consumers reckon that they can save more on
a product when a higher price discount is
 35

provided.
Customers expect seasonal discounts as part
of the annual retail calendar.
Seasonal discounts are used by retailers to
move inventory that is going out of season.

I tend to buy more items or spend more

money when there are discounts available.

I am more likely to recommend a retail store

to others if they consistently offer attractive
discounts and promotions.
Discount pricing encourages customer loyalty
to a retail store.

b. Bundle Pricing and Consumer Buying Behavior

Price bundling is combining several products or services into a single comprehensive

package for an all-inclusive reduced price. Please rate the following statements about
bundle pricing as it relates to consumer buying behavior using the scale as above.

Statement 1 2 3 4 5
Price bundling increases profits because it
promotes the purchase of more than one item.

I find bundle pricing to be a cost-effective

way to purchase multiple products or services
at once.
Bundling of products is the most widely used
tactic by supermarkets.

Bundle pricing provides a sense of added

value and savings compared to purchasing
products individually.
 36

High-end customers are less sensitive to

mixed-leader bundling strategies.
Bundling of products is the most widely used
tactic by supermarkets.

I am more likely to consider purchasing a

bundle if it includes products that
complement each other well.
Bundle pricing encourages me to try new
products or services that I may not have
considered purchasing individually.
Bundle pricing alone is not enough to make
me choose a retail store; other factors such as
product quality and customer service are
equally important.

c. Psychological Pricing and Consumer Buying Behavior

Psychological pricing is a pricing strategy that utilizes specific techniques to form a

psychological or subconscious impact on consumers. It integrates sale tactics with the
price. Please rate the following statements about psychological pricing as it relates to
consumer buying behavior using the scale.

Statement 1 2 3 4 5
Prices set just below the nearest ringed
(whole) number leads to customers reading
them slightly lower and treat it lower than the
price is.
Psychological pricing influences consumers'
decision-making processes over time.

Higher price points provide customers with

the impression that the products they are
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purchasing are of a high-value.

The price of a product reflects the level (the
social class) of consumers.
Odd pricing (for example Rs 999) makes the
customer believe that the price has been
discounted.
Higher and low-tier price points act as anchor
prices that enable customers to make a fast-
purchasing decision
Customers are indecisive when it comes to
choosing a product to buy when they have
many different products to choose from.
Consumers will pay more when exposed to an
average price compared to a range of prices
for a product.

d. Competitive Pricing and Consumer Buying Behavior

Competitive pricing strategy refers to the approach taken by businesses to set their prices
in a way that enables them to effectively compete with other companies in the market.
The goal of competitive pricing is to attract customers and gain a competitive advantage
by offering prices that are perceived as better or more favorable than those of the
competitors. Please rate the following statements about competitive pricing as it relates to
consumer buying behavior using the scale.

Statement 1 2 3 4 5
Consumers actively compare prices between
different retailers before making a purchase.

Retailers that offer lower prices are more

likely to attract consumers towards purchasing
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from them.
Competitive pricing encourages healthy
competition among retailers, leading to better
prices and deals for consumers.
Consumers are more likely to switch from
current retailer to a competitor if they
consistently offer lower prices for similar
products.
Competitive pricing influences consumer’s
overall perception of a retail store's value and
competitiveness.
Competitive pricing motivates me to become
a repeat customer of a retail store.

I am willing to sacrifice other factors, such as

brand loyalty or convenience, if a retail store
offers significantly lower prices.
Competitive pricing alone is not enough to
make me choose a retail store; other factors
such as product quality and customer service
are equally important.

e. Penetration Pricing and Consumer Buying Behavior

Penetration pricing is a pricing strategy commonly used by businesses to gain a foothold

in a market and attract customers. The main objective of this strategy is to set the initial
price of a product or service lower than competitors' prices. By doing so, businesses aim
to stimulate demand, capture market share, and establish a customer base. Please rate the
following statements about competitive pricing as it relates to consumer buying behavior
using the scale.

Statement 1 2 3 4 5
I am more likely to purchase a product or
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service from a retail store that offers a lower

introductory price through penetration
pricing.
Penetration pricing creates a perception of
value for money and affordability.
I am more likely to make repeat purchases
from a retail store that initially attracted me
through lower pricing.
Penetration pricing encourages me to compare
prices and offerings between retail stores
before making a purchase.
Lower pricing alone is not enough to make
me choose a retail store; other factors such as
product quality and customer service are
equally important.
I am more likely to shift to original retailers
once the price offered by new rises.

I am more likely to recommend a retail store

to others if they offer lower prices in
products.

Thank you for your time!