Matching prices blindly is not the answer for retailers to win over customers. Overly aggressive price matching pushes the market to the bottom and erodes profitability. This paper introduces the concept of Price Perception Index or PPI, a numerical way to quantify customer psychology on price perception. PPI can be used as an effective tool to drive profits and long-term market share by building customer trust.
The paper also places PPI in the context of today’s retail marketplace, driven by the largest retailers, Amazon and Walmart, and by the ultra-connected mobile consumer. Using current examples, it examines the relationship between competitive pricing and the psychology of price perception. The latter portion of this paper provides illustrations of the Price Perception Index, and presents strategies for implementation.
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