Consumer Studies: Understanding consumer Price points

The price point is a particular price value on a scale of possible prices. There are different prices any commodity can assume in the market. The price assumed by the particular commodity determines whether the price will be termed as expensive or cheap or mid-range.

The price point of a particular good is one of the biggest factors in determining the consumer demographic that the good will appeal to.

Coronation Merchant Bank carried out research in the Nigerian Consumer market in 2017 and made very interesting discoveries. Even though the population of Nigeria was growing exponentially the consumer market was not growing commensurately. They set out to find out what the problem was.

Upon conducting their research, it was discovered that the purchasing power of the average household in Nigeria was very low; this made them opt for goods with price points that would not overstretch their finances.

The companies that produced those goods were not registered on the stock exchanges; they simply made their money as an individual, almost unnoticed businesses. They did not have the unnecessary paraphernalia that made the prices higher for bigger companies such as P&G.

Purchasing Power Parity

This is a theoretical exchange rate that allows you to buy the same amount of goods and services in every country.

This is indicative of the fact that exchange rate does not typically determine the true value of a particular country.

If you want to live inexpensively you can compare the prices of a bottle of coke in a different country, For example, a can of coke sells for $0.2 in Nigeria while it sells for as high as $4 in some parts of united states.

This is a practical example of purchasing power parity. Government agencies use this to compare the output of countries that use different exchange rates.

Purchasing power and Pricing

Purchasing power is the ability of a group of people to purchase a particular good, better put, it is how much a person is willing to pay for a particular product or service while considering many factors including income and the importance of the product or service.

In poorer countries, the population generally have a very low purchasing power and spend most or all of their income on buying food. Staying alive naturally tops the list of their needs, while getting internet connectivity can be forgone conveniently because they cannot afford it.

understanding consumer price points
Understanding consumer price points

What factors influence pricing?

  1. Brand Reputation
    The reputation of the brand selling a particular product is one of the biggest influence in determining the cost of the product.

    In plain terms, Brand reputation is one of the foremost requirements for building consumer loyalty. Consumer loyalty means you have customers who are willing to pay any amount to have your products.

    E.g. Apple, Apple Inc. is one of the most valuable brands in the world because it has developed a reputation for its brand. This reputation makes the customer go to any length to defend the brand and also pay any amount to have the latest of the gadgets.
  2. Quality of Goods
    Quality goods have higher price points compared to fake products.
  3. Geographical Location
    Purchasing power differs from country to country. This basis for the difference in price points is tied to geographical location.
  4. Government Laws
    DIfferent government laws concerning doing business, foreign investments, importation, exportation, trade laws etc greatly influence the price of goods in that territory.
  5. Taxation

Understanding Price Points

In doing business in a particular nation, selling to a particular consumer demographic or type of business, it is paramount to understand the price points that work, This will ensure that maximum value is derived from that preferred consumer segment.

Apple, was able to fly easily with its premium pricing because it started in America, the population was large, decent and elite enough to make the whole world follow like their life depend on it.

The over priced products didn’t matter to them because the population could afford it if they found it worthy,

Apple making its products worthy of that pricing wont have mattered if in the first place the population could not pay for it.

In a country like Nigeria, sachet products have taken over the consumer market, as the population continues to slide further down the poverty line, the sachet consumables is a frantic attempt by companies to ensure the bulk of the population is still able to afford those products. This Nigerian Consumer Satchet Quiz by Zikoko contains most of these kind of sachet products.

It is important to understand the consumer demography, the geographical location and brand positioning to determine the price point of your product or service in prospective markets. This understanding helps ensure that the price is set to acceptable levels and give way for the expansion of the company through increased revenue.

John Omokayode

Mechanical Engineering | Business Developer - I have a particular liking for the business side of everything. African businesses are capable of shaping the world economy!