Pricing Case

This paper written by John Gourville and Dilip Soman connects the two important dots which many people were unaware of i.e. Pricing and the consumption. The author starts the article by relating pricing with demand and with consumption .The firms gives more importance to the former than the latter. In the world where word of mouth is considered to be an effective marketing strategy, companies are trying to make the customers to use the product so that they can increase the sales. To make this happen, firms must use the most important tool i.e. pricing. On the other side, consumers are more likely to use the product if they are aware of the cost. But there are some practices followed by the companies which hinder the above fact. Some of those pricing strategies are advance sales, price bundling, season tickets etc. The author then explains each of these pricing tools with an example. Advance sales take place in most of the gyms, clubs and in magazine subscription. People are more likely to read the magazine if they pay cash each time they get the magazine than the subscription. The author then explains the mentality of the consumers with the term Sunk cost. Once the consumers are aware of the cost of the product, they are unlikely to forgo the product under any circumstances. Because they have paid for the product, it creates the feeling of wasting money and they end up using the product. He then explains that mode of payment also plays an important role while using the product. Customers who pay by cash use the product than customers who pay by credit card. Another important question arises in the minds of the firms i.e. when to charge for the product. If the companies charge for the product long before its consumption then its consumption rate falls as the sunk cost gets depreciated each day. This was evident in the annual, semiannual and monthly payment in the gyms. Customers who pay for the gym monthly use the facility more than the other two customers. Then the