Choosing reference price without knowing the pricing information

Topics: BusinessMarketing


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Last updated: May 28, 2019

Choosing an eventcompany to organize an event is a difficult decision which is formed by severalaspects including the price. When a product or service is priced too low itwill not be profitable and when it is priced too high customers will not bewilling to pay for it.  Research inmarketing has acknowledged the importance of pricing methods. It is suggestedby many literature that consumers evaluate the price of a service based on whatthey expect from it and compare this to what they actually get out of it(Mamun, Rahman and Robel, 2014). When studying thecustomer expectations of price, it is essential to make a distinction betweenthe observed price, the reference price and the perceived price.  The observed price is defined as the total pricea customer pays to receive or make use of a service (Han and Hyun, 2015).  When studying the price expectations, it isessential to know the reference price of a targetgroup. The reference price isthe price the customer is expecting to pay for it (Gupta & Kim, 2010).

Wicker& Hallmann state that customers can have a reference price without knowing thepricing information of the industry, they will have a maximum price in mind incomparison with what they expect from it (2013).  So far, very little research has been doneabout the expectations of the Dutch event market. However, there are studiesavailable from key event cities. Prior research has shown that the referenceprice in London per event is estimated at 65.

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943 pounds (€75.645).The entire UK business event industry is worth 58,4 billion pounds. With theinformation that there are 1.3 million events in London per year it can be saidthat the observed price is 8% lower than the reference price of the customers (Eventbrite,2017).

The perceivedprice is described as the customer’s personal assessment of the price. Theperceived price results from the difference between the observed price and thereference price (El haddad & Assaker, 2015).  To study the perceived price, it can bedivided into two variables: the price gain and price loss of a product or usageof a service (Pelegrin-Borondo, Arias-Oliva & Gonzalez-Menorca, 2015).  When a customer pays less than expected thedifference is negative, in this case the customer perceives the price as cheapwhich results in perceived price gain (Han, Gupta & Lehmann, 2001).

Most ofthe time this will have a positive effect on the likelihood of purchase.However, some authors argue that when a customer perceives the price as cheapthere will be doubts about the quality of the product or service (FernandezBarcala, Gonzalez Diaz & Prieto Rodriguez, 2009). When the customer paysmore than expected the difference is positive and the customer will perceivethe price as expensive which will result in perceived price loss (Han,Gupta & Lehmann, 2001).

From these studies, it can be said that priceexpectations will influence the expectations regarding the quality of theproduct or service as well. But comparing this to a study conducted by Erdem,Keane & Sun it is proven that the main factor which will influence theprice and quality expectations of customers are the promotion sellers. They cangive a wrong impression of the product or service which can result in highexpectations or rather low expectations which are not realistic (2008).  The observed price is linked to the qualityassessment. Studies have shown that the observed price is the most crucialfactor when customers are assessing a product on quality.  Products & Service expectations | Wat verwachten klanten van de producten& service.

In this paragraph, the expectations of the business market regarding products& services will be investigated.  Many authors acknowledge the fact that products are goodsand services offered by an organization for sale. Customers are not paying for thetangible product but for the benefit it will delivers them. The term productcan be defined as ‘anythingthat can be offered to a market to satisfy the want’ (Kotler and Keller, 2012). In the event industry products can be described as events. Theexpectations of events are diverse and depend on the purpose of each event. In2016 and 2017 the most common reason to organize an event was for education andtraining of employees purposes. The least popular reason to organize an eventwas for marketing purposes such as brand or product launch (Eventbrite, 2017).

 This is a surprising finding sinceexperiential marketing is becoming more important. In 2009, an experience isproven to be one of the most effective tools to make a business morecompetitive in the industry (Petersson and Getz, 2009).  The product expectations are also linked to the priceexpectations. Research indicates that the businessevent customers in the UK are willing to pay the most for conferences andmeetings and the least for corporate social events because of the result theyget out of these events.

In the event industry, a lot of factors are important.Studies show that in 2017 the location is the most important and most costlyfor business event customers in the UK. The least important factor for an eventis print. Currently the biggest trend in the event industryis technology. Customers want to integrate this into their event programme bymaking use of social media, mobile event apps and analytics software (Eventbrite,2017).Nowadays services are of big importance in a lot ofindustries. The service is responsible for a big part of the revenue stream inthe tourism, event and hospitality industry (Spohrer & Maglio, 2008).

Becauseevery industry has a different perception of a service, it is hard to formulateone complete definition of what a ‘service’ is. Servicesare mostly defined by authors as something intangible, howevermost of the services also exists out of tangible aspects such as advising orconsulting customers (Sampson and Froehle, 2006).  A product is a thing in comparison with aservice which is an activity. A service is a process which takes care of thecustomer or something which belongs to them (Sampson, 2005).  Fitszimmons and Fitszimmons state that aservice is an activity, which are offered as a solution for the problems ofa customer (2000). The problems of the customers are investigated in acustomer expectation study.

The major findings in this study is that customersexpect personalized and customized service with a consistent level of service.  The major frustrations in customer service arethat problems we’re resolved quickly and thathidden costs or fees for extra service (Choi & Mattila, 2008) The way ofcommunicating is crucial to satisfy the customers. A study conducted in the UKstates that the event customers prefer to have contact with a representative ofan event company by email, social media and face to face (Eventbrite, 2017). Since customers are more importantthan ever, customer service and experience is oneof the key factors in the service industry. Researchers of theinstitution KPMG expect that in the coming 5 years, customer service andexperience will be more important compared to the product or price of a company(Hernandez, 2016). To recap the key topics in the literature review, it can besaid that the price, product and service are fundamental aspects to considerwhen understanding a targetgroup.

When customers make a purchase, all thesetopics are taken into consideration.  

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