To Study Psychological Impacts of Pricing on Firms Performance: A Case of IKEA, UK

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[Degree Title], [university], 20XX

Research Proposal

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[Name of University]

[Date of Submission]

ABSTRACT

The study discusses the psychological impacts of pricing on firms performance through a case study of IKEA in UK. In order to collect the data of the research, both primary and secondary sources have been used. Moreover, the author has also used qualitative as well as quantitative data for the purpose conducting research. The results of the study indicated that pricing is one of the key aspects of marketing strategy implemented by the organization. There is a strong relationship between different elements of the marketing mix and therefore, its impact on organizations performance. The behaviour of consumer and purchase decision is influenced by customers psychology and perceived price. In order to meet aims and objectives of the organization, pricing is used as one of the key components of marketing strategy. The study is based on the collection quantitative data through the questionnaire survey; and qualitative data through interviews. The techniques used to analyse the relationship between the variables is termed as regression. The overall finding of the research identified that the relationship between psychological impacts of pricing and firms performance is strong and positive. The significant relationship explains that there is a need to implement successful and effective pricing strategies that can impact on consumer buying behaviour and consumer psychology to improve forms performance.

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

Signed __________________ Date _________________

Table of Contents

ABSTRACTii

ACKNOWLEDGEMENTiii

DECLARATIONiv

CHAPTER 1: INTRODUCTION1

1.1Background of the Study1

1.2Contextual Background2

1.3Research Problems4

1.4Aims and Objectives5

1.5Research Questions5

1.6Rationale of Study6

1.7Significance of Study6

1.8Defining the Key Terms7

1.9Structure of Study7

CHAPTER 2: LITERATURE REVIEW8

2.1Impact of Pricing Strategy on Firm Performance8

2.2Pricing Objective for Enhanced Performance9

2.3Factors Influencing Pricing11

2.4Efficient Pricing Leading to Profitability12

2.5Consumer Psychology13

2.6Factors Influencing Consumer Psychology13

2.7Perception-Price-Consumer Relationship15

2.8Formulation of Hypothesis16

CHAPTER 3: METHODOLOGY17

3.1Research Method17

3.2Data Collection Method18

3.3Sampling Method18

3.4Research Approach19

3.5Research Purpose20

3.6Research Strategy20

3.7Research Paradigm21

3.8Accessibility Issues21

3.9Ethical Issues22

3.10Data Analysis Plan24

3.11Research Limitations24

CHAPTER 4: ANALYSIS AND DISCUSSION25

4.1Questionnaire Analysis25

4.2Interview Analysis39

4.3Discussion42

CHAPTER 5 CONCLUSION AND RECOMMENDATIONS45

5.1Conclusion45

5.2Recommendations47

REFERENCES49

APPENDIX55

Appendix A: Questionnaire55

Appendix B: Interview Questions59

Pricing and Consumer Psychology 59

CHAPTER 1: INTRODUCTION

1.1 Background of the Study

The term price can be defined with the help of different perspectives like others aspects of marketing mix that may fall outside the simple concept of utilitarian. One of such perspective can be the psychological interpretation of price, which points towards the notion that the consumers depict the quality of the product on the basis of its price. Firms may easily make buyers to link the quality of the product with its price. For example, the product placed at $500 would be perceived as higher in quality that the one placed at $300 (Larson, 2014). There is customary price fixed in the mind of the consumer for every product and service being offered by the firm. When the consumer is able to associate certain price for a specific good, it is referred as customary price (Hammond, 2015). There are certain standardized prices that are referred as customary prices by the consumers. For instance, the price of six ounces bottled Coke and a pack of chewing with 5 sticks has been 5 cents for almost a decade now. The customary or the standardized price of a candy bar is 60 cents and the consumers perceive it that way. Manufacturers, at regular intervals, keep adjusting the prices of their products, which provide the authority to the retailers to use customary prices. Another pricing strategy utilized by firms is the use of odd prices, which impose positive impact on consumer decision making process. Prices such as $15.99, $129.55 or $445.63 tend to grab the attention of consumers and increase the demand of the firms product or service, if the consumers are of the perfectly rational mind set (Brennan & Laafai, 2003).

Pricing plays critical role while designing the business strategy. When the performance of a firm drops, it can be easily associated with the ineffective pricing strategies implemented. Firms when trying to meet the increasing demand of the consumer must adopt new pricing strategies or revise the old one, ensuring that they are still profitable for the business. When the business strategy of the firm do not meet its objective of profitability, then it is certain that the company is operating at a loss. In order to attain the growth and profitability, there is a need of adjusting the firms business strategy. This dissertation presents the case of IKEA UK, a renowned named in the furniture, household and appliance market. The case of IKEA UK is presented in this study to develop the understanding of the topic on practical grounds. The pricing strategy being implemented by IKEA is dependent on the price elasticities. There is an upsurge need of changing the price elasticity of IKEA based on the changes taking place in the consumers demands. These are the psychological characteristics of the consumers that are responsible for triggering the demands of a specific product or service being offered by the company, even at the time when the prices are highly inflated by the firm. Other strategies like discounts and reduction in the prices of goods also lead towards firms profitability and growth.

1.2 Contextual Background

Price point is triggered by psychological pricing. It is important to understand the relationship between the psychological effects of pricing and performance of a firm for the growth of any firm. Practically there is no such difference between $4.99 and $5.00; however, when it comes to pricing of the goods, the customers tend to go for odds digits. The only explanation available in this context is that consumer interprets prices in even digits as regular prices; whereas it pursues prices in odd digits as bargaining or sale prices (Yan & Wang, 2010). This encourages them to make a purchase decision that imposes positive impact on the performance of a firm. The consumer does get attracted towards even price offerings of the firm; however, it is the goods offered at odd digit pricing that grab their attention more. Deals like get two for the price of one or buy one get one free are the pricing strategies that also help in increasing the companys market share. Such pricing strategies adopted by the firm influence the purchase decision of the consumers and contribute towards increasing the growth and profitability of a firm (Yan, et al., 2012). The marketers are continuously emphasizing to study the relationship between the psychological impact of pricing and the performance of the firm, so that they may come up with strategies for achieving firms development by attracting more and more customers.

Today, the companies find themselves offering low prices to the customers on their offered goods and services. Psychological needs of the consumers play a significant role in influencing their buying intention (Chen & Dubinsky, 2003). The traditional economic model states that purchases are made by the consumers to fulfil their social, personal and psychological needs. As the consumers are turning out to be more literate, the competition in the market is increasing (Baker, 2004). The consumers have started to compare the prices offered by the firm with that of its competitors. The consumers also tend to relate the quality of the products with the price offered. This means that if the consumers will not be satisfied with the quality of the product and its price, they would not buy the product (Chen & Dubinsky, 2003). Therefore, there is an upsurge need of investigating the psychological impact of pricing on the performance of a firm.

In this dissertation the impact of psychological pricing is studied on a firms performance, by shedding light on IKEA UK, in order to generalize the study to specific market and country. IKEA continuously generates and implements pricing strategy that helps in differentiating the image of the firm in the mind of their target population (Bertini & Wathieu, 2010). Consumers may not view IKEA as a traditional restaurant; however its strategy of placing the menu at lowest prices has actually helped in reinforcing the low price profile of the firm and has resulted in increasing the sales of its furniture. This pricing strategy is adopted by IKEA UK, so that they may influence the consumers to buy the furniture when they actually come to eat at their restaurant. Almost all the firm are continuously coming up with pricing strategies to attract consumers; however IKEAs strategy to use food as a mean of attracting consumers and selling houseware, appliances and furniture is noteworthy. This pricing strategy of IKEA has been exposed to criticism, as there are consumers who just come to the store to enjoy cheap food rather than buying furniture or any product from IKEA. The company is completely satisfied with this, as it is sure that at some point when any consumer will make a purchase decision, it would turn to IKEA because of being so use of having its under-priced food. The company's psychological pricing strategy aim towards the fact that if the sales forecast predicts modest profit, then there is no harm in selling under-priced food to the consumers (Anon., 2015).

1.3 Research Problems

Pricing strategies such as extreme price cut are unethical means of attracting consumers (Springs, 2015). Such strategies can be adopted by the firms to sell their expired or outdated products, to make room for their new product line (Hammond, 2015). Such means adopted by the firms are considered to be illegal as well as unethical, as it negatively impacts the consumers. When a specific pricing strategy is adopted by a firm, it directly impacts the psychology of the consumers. This phenomenon occurred directly imposes an impact on the performance of the firm and its market share; therefore it is crucial for firms to understand the psychological impact of pricing on the performance of a firm, as it affects its development (Springs, 2015).

1.4 Aims and Objectives

The aim of the study is defined as a statement that allows the reader to paint a picture of the entire study. It generally focuses on what needs to be accomplished throughout the research and not on how it is needed to be accomplished. However the objectives of the study are the steps that help the researchers to answer the research questions that eventually lead towards attaining the aim of the study (Research Proposal - Aims and Objectives, 2015).

The aim of this study is to evaluate the psychological impact of pricing on the firms performance, by presenting the case of IKEA UK.

The aim discussed above is divided into smaller achievable steps.

Investigating the impact of Pricing strategies on consumers psychology and firms performance

Illustrating a link between Pricing strategy of the firm, consumers psychology and firms performance

Identifying the effective pricing strategies for IKEA UK that the firm may adopt to enforce positive growth and profitability

1.5 Research Questions

For the further progress of the research it is important to get the research question right. As finding the answer to a wrong question may waste awful a lot of time and resources of the researcher (Springett & Campbell, 2015).

What are the factors that directly influence the consumer psychology?

How do pricing strategies influence the consumer psychology?

What are the pricing strategies that most probably impose positive impact on consumer buying behaviour?

What are the effective pricing strategies that can be adopted by the Ikea UK to increase its growth and profitability?

What are the psychological impacts of pricing on the performance of Ikea UK?

1.6 Rationale of Study

There is a need of addressing the problem identified in the industry of UK, as in the long run it will affect the market share and growth of IKEA. This research takes into considerations the recent trends in the industry in terms of pricing strategies. In the past, the researchers have presented studies on the related topic; however the link of the identified variable with the industry of UK has not been drawn by many. The presented study would build the understanding of the current pricing trend in the furniture industry of the UK, to provide recommendations that will help IKEA to improve its performance.

1.7 Significance of Study

Evaluating the psychological impact of pricing on the performance is crucial for any firm to adjust its price due to its profound impact on the marketing strategies. When a firm adjusts the price of any product or services it directly affects their demand, depending on the price elasticity (Yan, et al., 2012). When a products price is placed too high or too low it is certain that the consumer would not buy them, which will limit the growth of the firm. Therefore an ineffective pricing strategy may negatively influence the firms cash flow and sales. Since pricing strategy directly impacts the revenue of the company; therefore setting the right price for a product or service can be critical for a firms success (Hammond, 2015).

1.8 Defining the Key Terms

Psychological Pricing: is defined as the process in which the emotional response of the consumers is utilized for encouraging sales (Larson, 2014). A firm may increase its performance and growth, by adopting pricing strategies that reduce the price of its offering. The perception of the consumers towards the price of a product or service lays the foundation of psychological pricing. This strategy triggers the emotional side of the consumer rather than emphasizing on their rationale side (Frost, 2015).

1.9 Structure of Study

The structure of this dissertation is divided into five chapters, namely introduction to the research, literature review, research methodology, data analysis and conclusion. In chapter one the topic is introduced while focusing on IKEA UK. The aims are also discussed in this chapter, which are followed by objectives and research questions. The rationale and significance behind conducting this research is also highlighted in this part of the dissertation. Sources such as journals, magazine and reliable websites are used for extracting and studying literature on the topic of the research in the second chapter which is the literature review. Research Methodology chapter covers topic such as research designs, research methodology and research philosophy. The qualitative and quantitative data collected through the means of questionnaire and interviews are studied under data analysis. In the last chapter, the findings of the research are summarized and recommendations are designed for IKEA UK.

CHAPTER 2: LITERATURE REVIEW

2.1 Impact of Pricing Strategy on Firm Performance

Pricing is considered as an important aspect of the organizations marketing strategy. The pricing element is linked with other components of the marketing mix which aims at providing the effectiveness of marketing mix variables (Pillai, 2007). Pricing is also known as an effective tool used by different companies in order to meet their aims and objectives. Even though there are other elements of the marketing mix (product, price, place and promotion), still price factor remains one of the most significant tools in achieving the marketing objectives of the company. The pricing factor is also witnessed as the most sensitive factor for an organization in the field of marketing (Adrian, 2004).

The importance of pricing could be understood from the fact that price generates revenue for an organization, while other marketing mix elements are associated with cost only. Moreover, it is also regarded as an adjustable variable that reacts and responds to frequent market changes. As we all know that every market is non-stagnant, which means that market condition changes quickly, thus there should be a variable that could respond and react positively to these vibrant market adjustments (Jennifer, 1998).

Pricing is also known as the strong backbone of a company as it reflects the quality image of the companys product and also the overall image of the organization (Beri, 2006). Thus, organizations need to manage the pricing factor in a strategic way so that the problem of under-pricing and over-pricing could be resolved. If the products are under-priced, it means that the company is not able to attain their due profit. On the other hand, if the products are overpriced, it would lead to customer dissatisfaction and loss of revenue. Both of them are regarded as the alarming situation for a company; therefore the pricing factor should be handled in a strategic manner. In other words, the effective management of pricing would always increase the organizations revenue and profit.

Rotimosho (2003) identified that if the organizations wants to achieve success in a highly competitive environment, they need to effectively comprehend their target market or target customer so that the customers needs can be met in an effective manner. To solve the customers needs, the organization needs to incorporate their marketing mix; strategy which includes product, price, place and promotion.

2.2 Pricing Objective for Enhanced Performance

The pricing objective is an essential part of an organization. Following are some of the objectives for setting up pricing:

2.2.1 Survival

One of the most fundamental objectives of pricing is to survive in the competitive market, as many different organizations can tolerate short term losses and other hurdles for the sake of continuing their business operations (Kotler, 2006). As mentioned in the above section that pricing is one the most flexible variables, therefore, it is often used in decreasing and increasing the products demand in order to match the organizations supplies and resources and also the fluctuations in the market environment.

2.2.2 Maximization of profit

Another objective of pricing strategy is to increase the profit for the organization. Pricing is directly related to the products revenue (Pillai, 2007). Appropriate pricing strategy results in customer satisfaction which increases the revenue of the organization, thus maximizing the profit.

2.2.3 Return on Investments

The return on investment is also linked to the above objective of profit maximization. A company should set its pricing objective in a manner that it provides maximum return on the investment made on the business (Beri, 2006).

2.2.4 Market Share

The amount of market share achieved is regarded as the standard of success for a company (Pillai, 2007). Due to this reason, the market share can be enhanced by the company which serves as an objective of pricing.

2.2.5 Cash Flow

Many different organizations plan their pricing strategy in a way that it recovers the cash as quickly as possible. Financial personnel of the organizations aims in fast recovery of the amount invested in product development (Achumba, 2002). To achieve this objective, companies could charge higher prices, which might allow its competitors to gain the market share (by adapting to low pricing).

2.2.6 Competition

Often a company sets their prices for the purpose of preventing new companies from obtaining market share of the industry (Aderemi, 2003). The big companies can lower their prices so that the new entrants can face difficulty in running their operations on such low prices.

2.3 Factors Influencing Pricing

There are various factors that have an influenced on the pricing the companys product. These factors are explained below:

2.3.1 Corporate and Marketing Objectives

The companys overall objectives have a direct impact and influence on product pricing. Pricing should be developed in a manner that it is properly aligned with the objectives of the company which needs to be fulfilled (Adrian, 2004).

2.3.2 Industrial Structure and Competition:

Many economists have now understood the significance of industrial structures and have formulated pricing models with regards to monopolistic, competitive and oligopolistic market conditions. The industrys price scale and competitors price range play an important part in setting the price of the companys product (Berenson, 2004).

2.3.3 Market Condition

The fluctuation of demand and supply has direct impact on the price of goods and services (Kotler, 2006). If a products demand increases, the price of the product also increases. For e.g. during monsoon season, there is more demand for knitted wear and umbrella, thus their prices would also increase.

2.3.4 Variation in cost of production

The cost of production has a direct relation to the products price. If the cost of the production is higher, the product price would also be higher.

2.3.5 Location

The location of the products is also one of the most important factors of pricing strategy. Goods sold in the marketplace are relatively cheaper than the goods sold in boutiques.

2.3.6 Marketing Mix Strategy

As stated in the above sections, price is one of component of marketing mix tools through which an organization achieves its marketing objectives. The decision about pricing depends on the product design, promotion and distribution (Beri, 2006).

2.4 Efficient Pricing Leading to Profitability

The main aim of every business entity is to maximize their profit. Even though, there are many other objective such as growth, expansion, increase in market share, etc. but the main objective is related to profit maximization (Pillai, 2007). For the purpose of profit maximization, companies are required to manage the marketing mix elements in a very efficient manner. While managing the marketing mix components, price should be effectively controlled and planned, taking all the pricing objectives into consideration which has an impact on the pricing strategy. The main aim of pricing strategy is not only to avoid the problems of overpricing or under-pricing, but also to block other competitors from entering into the industry (Kotler, 2006).

2.5 Consumer Psychology

According to the Society for Consumer Psychology, division 23 of the American Psychological Association, consumer psychology encompasses a wide range of theoretical and conceptual framework for understanding consumers. It is often deemed to be a sub-speciality of industrial psychology and known as psychology of marketing or psychology of consumer behaviour. (Cherry, K. 2015).

Buying patterns are based on consumer perception of goods and services. Consumer psychology discusses the drivers which influence buying patterns. Consumer attributes such as beliefs, thoughts, perceptions and feelings play key role how a consumer buys or relate to goods or services. In the contemporary era, it is very important for businesses to study and evaluate different factors influencing consumer psychology and his buying behaviour patterns for effective marketing of their products and boosted sales.

2.6 Factors Influencing Consumer Psychology

Studies reveal that there are four main factors that affect consumer buying behaviour. These factors are cultural factors, social factors, personal factors and psychological factors. The psychological factors that impact the consumers decision to buy a product are individuals motivations, perceptions, learning and his beliefs and attitudes (Callwood, 2013).

2.6.1 Motivation

Motivation is an internal need state which is followed by a goal-oriented behaviour in order to satisfy a need (Trehan, 2009). Recognition of need is identified as a starting point of buying process. A need can be termed as a deficiency or lack of something. An individual can be motivated to purchase a product for utility, self-pride, prestige and for being different from others (Khan, 2007). If marketers study the factors which are motivation drivers, they can develop better marketing tactics for consumer engagement and involvement with their brands and ads (Smoke, 2009).

2.6.2 Perception

Perception is an individual capacity to view his surroundings differently. Ever wonder why people purchase certain products? It is all due to perception. Perception is how individuals see the world around them based on information processed by their senses. Consumers subconsciously identify their needs, evaluate its value and importance; and on the basis of their evaluation, make a buying decision.

2.6.3 Learning

Learning is defined as changed individual behaviour due to past experience. Generally, perceptions are formed on former experiences, which establishes a set of assumptions or preparatory set and the framework into which new stimuli is organized. In easy words, we learn from our past experiences and strive to maintain a balance by evaluating new stimuli in terms of learned stimuli (Blythe, 2008). It is important for marketers to study learning theory in order to generate demand for a product by identifying its strong drives and using motivation cues (Lamb, 2010).

2.7 Perception-Price-Consumer Relationship

As cited by Lindsay and Norman, (1997), Perception is a process in which individuals decode and plan sensation to produce a meaningful experience to the world. Perception is different from sensation as sensation involves unprocessed response resulting from stimulation of sensory receptors, whereas perception follows by and defines how individual experience external stimuli in the environment and process messages from senses. However, practically sensation and perception are inseparable, since it is a continuous process and complement each other. For instance, the way consumers perceive and respond to prices and advertising messages is generally depending on their perceptions formed through analysis, by senses in their mind.

A major theoretical issue that divides the psychologists is the extent to which perception depends on the information, present in the stimuli. Some are of the view that, perceptual processes are not immediate; they are founded on the perceivers assumptions, expectations and former knowledge as well as information already in the stimuli itself. Establishing a link between price and perception in the study, buyers sensory experience of the price for a product includes the recognition of the effect in case of purchase, and their willingness to buy a certain product. A buyers price expectations are largely dependent on their previous experiences and recent perception about prices. Hence, building of perception follows a sequence of steps that initiates with the environment and progresses with the perception to stimulus and response to that stimulus.

Individuals extract information from the external world through their senses: taste, hearing, smell, touch, sight. The piece of information received is then integrated and evaluated in the decision making process. The decision is the outcome of the mental processes (cognitive process) that leads to frame a course of action plan with some alternatives. When a person enters a shop, inquires about the prices of products and perceive its relevance, in terms of under-pricing or over-pricing, determines his course of action comparing implied perception and interpretation of the price. The price perception can have buyers to buy on impulse. As general human behaviour people work out on the rule of getting maximized returns in the minimum offerings. There is a higher probability to buy a product with high utility and low price. Economists who study consumer psychology hold the view that consumers accept prices at face value or as quoted by the producers. Marketers acknowledge that customers decode pricing by accessing their knowledge and prior buying experience, formal communications (advertising and sales promotion), informal communication (friends and family), and point-of-purchase or online resources (Kotler and Keller, 2005).

2.8 Formulation of Hypothesis

H1a: There is a strong impact of firms pricing strategy on consumers psychology in IKEA, UK.

H10: There is a no impact of firms pricing strategy on consumers psychology in IKEA, UK.

CHAPTER 3: METHODOLOGY

The research methodology is the strategy that investigates the way in which the researcher conduct any particular study, while emphasizing on the methods crucial for the success of any study (Bergold & Thomas, 2012). The research methods being used in a study are the tools or means by the help of which the data is collected from the respondents. These tools also guide the researcher in analysing and calculating the results of the study (Fink, 2000). The research methodology applied to any study focuses on aspects such as sample size, sampling techniques, sampling sources, data collection and analysis instruments. The ethical and accessibility issues faced by the researcher during the course of their study are also studied under this topic. The research approach implemented for collecting data can also be defined by using research methodology (Bergold & Thomas, 2012).

3.1 Research Method

These are the aims and objectives of any study that help selecting the type of research investigation for a researcher. Research pattern is usually identified with the help of study; targeted towards discussing the designed approach used for collecting data (Glser & Laudel, 2013). There are two major approaches on the basis of which a study is designed by the researchers, which are qualitative and quantitative research. Quantitative data collected by the researcher must be quantifiable and measurable; whereas the qualitative data consists of approximations, observation and descriptive information (Ding & Liu, 2012). For this study, the researcher has used quantitative as well as qualitative research method as the mean of collecting data, that is, mixed method has been used. The quantitative data is collected by the means of questionnaire survey from the consumers of IKEA UK; whereas, qualitative data is collected by conducting interviews from the managers of the firm. Integration of data from two different resources will improve the credibility and authenticity of research.

3.2 Data Collection Method

The two methods of data collection are primary and secondary methods. Primary data is the information collected from the first-hand experience; therefore it is considered to be a more reliable source of information. Data collection tools include questionnaire surveys, interviews and observation tables. For the purpose of collecting secondary data sources such as annual reports of companies, online journals, magazines, newspaper, journals and publications are used. For this study the primary data is collected from the consumers of IKEA, UK and the managers of the firm, who have expertise in the area of the undertaken study. However, for collecting secondary data sources such as newspapers, publications, peer-reviewed journals, books and online articles from credible sources are used.

3.3 Sampling Method

Sampling is a research method which is implemented by the researcher for the purpose of data collection. While conducting any particular research, different sampling techniques can be used; however, the two types of sampling techniques identified in this dissertation are probability and non-probability sampling (Simple Random Sampling and Other Sampling Methods, 2015). The sampling method in any study is based on sampling technique and design. When probability sampling is applied to any study, each of the individuals has an equal chance of getting selected from the selected sample (Trochim, 2006). In the current study, the psychological impact of pricing is evaluated on the performance of a firm; therefore, the selected sample in this case are the consumers and the employees of the company. When the data was collected from 100 consumers of IKEA, convenience sampling was used due to lack of financial resources. 10 managers of IKEA, UK were selected by using snowball sampling because there is a need of certain expertise to answer the questions that are extracted on the basis of the reviewed literature. In this type of sample, respondents were accessed by the referral of previous respondent. The collection of data from multiples resources help in increasing credibility and authenticity of the research therefore, mixed method has been used using questionnaire survey and interview questions.

3.4 Research Approach

The research approach consists of the plans and procedures that are used in a dissertation. The research approach comprises of data interpretation, analysis and data collection methods (Fereday & Muir-Cochrane, 2006). The widely used research approaches are inductive and deductive reasoning. Deductive reasoning, also called the up to down approach, moves from general to specific; whereas, inductive reasoning is from specific to general. This kind of reasoning is also addressed as bottom up approach (Deduction & Induction, 2015). The approach used by the researcher in this study is deductive, as initially the concepts of pricing strategy and consumer decision making process is discussed. Later, the relationship between pricing strategies, consumer psychology and firms performance is drawn. The relationship between the two variables under observation, which are psychological pricing and firms performance, is studied and a hypothesis is generated, which is validated at the end of the study by the help of data collected through questionnaire survey and interviews.

3.5 Research Purpose

There are three broad categories in which the purpose of the research may fall. These identified categories are explanatory, exploratory and descriptive. Explanatory research identifies the variables in the research investigating the cause of a certain phenomenon and studies their relationship. Exploratory research takes into consideration the study of the environment in which a particular study is conducted. Descriptive research on the other hand provides detailed information on any social phenomenon (Types of research projects, 2015). In this research, explanatory research is practiced, in order to study the psychological influence of pricing on the performance of IKEA UK.

3.6 Research Strategy

Research strategy is based on questionnaire surveys, case study and experiments. Research requirements, like generating data can be fulfilled with the help of a questionnaire survey. Case study, on the other hand, focuses on a small group of individuals, by identifying links between different variables. Experimental research includes selecting a subject through random sampling (Research strategy and research ethics, 2012). For the research undertaken, the case of IKEA, UK is used as a significant research strategy and the impact of psychological pricing on the performance of the firm is studied, with reference to the firm. A questionnaire survey is distributed among the 100 consumers of IKEA UK for the purpose of collecting data.

3.7 Research Paradigm

Research paradigm consists of some brief but self-contained examples that are being used for defining different procedures; illustrating and theoretical points (Elliott & Lukes, 2008). The two identified paradigms that are broadly being used by the researchers are positivism and interpretivism. In the research paradigm like positivism, it is the cause of any phenomenon that determines its effects. Positivism measures the correlation between variables, which are being observed in the study. In this case the variables under study are psychological pricing and performance of the firm (Lather, 2006). Interpretivism, on the other hand, argues that there is a difference that exists between topic under investigation, with reference to natural and social science, to which the humans adds their own individual interpretations (Hammersley, 2015). The study conducted practices positivism philosophy, as the data studied through different literature would be tested against the results of questionnaires and interviews. The hypothesis that was generated will be tested against the data collected from the consumers and managers of IKEA UK.

3.8 Accessibility Issues

A number of accessibility issues were faced by the researcher during the course of the study. The access towards the literature related to the topic under observation was limited. As there were different sources which cannot be assessed without paying and due to limited financial resources the researcher did not have access towards this paid literature. The access to these academic literature is important for the research, as it helps in building a more credible and reliable picture in the mind of the readers. However, the accessibility barriers faced by the researcher settle for the information that was available within the convenience. Another major accessibility issue that was faced by the researcher was limited financial resources; therefore only a limited number of respondents were contacted, who were selected through convenience sampling. Initially it was decided that the questionnaire survey will be personally handed to the respondents; however due to lack of resources and time it was distributed among the customers of IKEA through mail or it was made available online for their easy access. Similarly, conducting personal interview from the employees of IKEA was not possible; therefore telephone interviews were preferred where the interviewees answered the questions.

3.9 Ethical Issues

It has been discussed by Horrocks and King (2010) that the research must give preference to addressing the ethical issues, as it increases the reliability of any study in the eye of the readers. In this study, the ethical concerns and issues are addressed by the researcher in detail, in order to minimize its impact while generalizing the study conducted. However, the three main ethical concerns that were addressed and observed by the researchers during the course of study are mentioned below:

2.2.7 Anonymity

It was ensured by the researcher that the data gathered through questionnaire surveys and interviews are not shared with any other person, without the consent of the respondent. It was made clear to the respondents on the first place that the personal information such as their age, name, religion, etc. will not be shared with anyone. The interest of the respondents for participating in the survey and interview increased when the researcher addressed this crucial ethical concern. It was due to the trust established between the interviewer and the respondents that the information delivered was more accurate and reliable.

2.2.8 Confidentially

The data collected from the customers and the employees of IKEA UK was not made accessible to any third party because of the confidentiality of data, which was strictly maintained during the research. The researcher also ensured that the reputation of IKEA is not harmed by publishing any statement that is negative for the companys image.

2.2.9 Avoiding Plagiarism

Proper citations and resources were provided for the information collected through sources like magazines, websites, books, journal and online articles. First, the in-text citation was provided for the information taken from the above mentioned resources. Secondly, the references for the citations were also mentioned at the end. The researcher ensured that the all the information mentioned in the dissertation is taken from credible sources. All the steps were taken confirm that the work is not plagiarized.

2.2.10 Autonomy

The information mentioned in the dissertation is gathered through legitimate means, as the respondents have the power to answer the questions they want and ignore the ones they dont like. This helped in the extraction of authentic and effective data for the research.

3.10 Data Analysis Plan

The quantitative and qualitative data collected from the consumers through questionnaire surveys and interviews is analysed for obtaining results. The data collected through questionnaire surveys from the consumers of IKEA UK was assessed, in order to estimate the findings of the study by using various kinds of research techniques and instruments. The research instruments that are used in this study are Excel Software and SPSS. The qualitative data that is collected from the managers of IKEA UK through interviews was analysed on the basis of the knowledge gathered from the literature and the judgement of the researcher.

3.11 Research Limitations

The limitations mentioned below were faced by the research during the course of the study:

The size of the sample selected for the filling questionnaire and conducting the interview was limited. This was a crucial limitation faced, as the conclusion drawn will be based on the interpretation of the data gathered from the responses of the consumers and manager of IKEA UK.

Time of the research was limited which was another constraint in the reliability of the study, as the data collected within this limited time was questioned for its credibility.

Some of the answers of the respondents were not considered as reliable as the others. The scope of human error was also present, which impacted the study to a certain extent.

The sources of data collection were limited, which indicates that information was collected from limited number of respondents i.e. only the consumers and managers of IKEA UK were selected, indicating that the focus of the study is towards a single industry and country.

CHAPTER 4: ANALYSIS AND DISCUSSION

Chapter 4 of the study aims to provide the analysis of findings from the research instrument. In this chapter, the researcher first analysed the information obtained from survey questionnaire. The information was collected, tabulated and interpreted with frequency distribution and then the research hypothesis was proven using regression analysis. The study aimed to find out the impact of the firms pricing strategy on consumer psychology. Secondly, the researcher analysed the data collected from interviews. The interview analysis was done from the managers of IKEA UK regarding their pricing strategy and the impact it has on consumers. Additionally, the discussion section will discuss how the research instruments, both questionnaire surveys and interviews, have helped in achieving the research objectives.

4.1 Questionnaire Analysis

One of the research instruments chosen for this study was questionnaire surveys, which were collected from 100 consumers of IKEA, UK who are regular IKEAs customers. The aim was to understand how consumer psychology is influenced by the pricing strategy of the firms. The respondents were selected by using convenience sampling technique for questionnaire and snowball sampling for the interviews. The respondents signed consent forms that clearly stated the objectives of the study and assured that the personal information of the respondents will be kept confidential. The data collected from the surveys was tabulated and interpreted using frequency distribution and regression analysis.

4.1.1 Frequency Distribution4.1.1.1. Gender

A sample of 100 consumers was chosen for convenience, and among those 100 participants, 45 were males and 57 were females.

4.1.1.2.Age Group

Out of the 100 chosen respondents, 5 were within the age group of 18-23 years, 15 respondents were within the age group of 24-28 years, 32 respondents were within the age group of 29-33 years, 25 respondents were within the age group of 34-88 years and the remaining 23 respondents were within the age group of 39 years and above.

4.1.1.3.Values of Product Characteristic

Among the 100 selected participants, 38 consumers replied that the products characteristic they value most is price, 15 consumers replied brand, 35 consumers replied quality, and the remaining 12 consumers chose availability. This shows that price and quality are two characteristics that consumers value most when it comes to purchasing a product.

Question 1

Additionally, for the question well-known brands are placed higher than other brands, 10 consumers strongly disagreed to the statement, 20 consumers replied in disagreement, 26 consumers replied neutral, 37 consumers agreed to the statement and the remaining 7 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 1: Well-known brands are placed higher than other brands.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

10

10.0

10.0

10.0

Disagree

20

20.0

20.0

30.0

Neutral

26

26.0

26.0

56.0

Agree

37

37.0

37.0

93.0

Strongly Agree

7

7.0

7.0

100.0

Total

100

100.0

100.0

Question 2

For the question product placed at $200 will be higher in quality than the product placed at $100, 12 consumers strongly disagreed to the statement, 12 respondents replied in disagreement, 29 consumers stayed neutral, 37 consumers agreed to the statement and the remaining 10 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 2: The product placed at $200 will be higher in quality than the product placed at $100.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

12

12.0

12.0

12.0

Disagree

12

12.0

12.0

24.0

Neutral

29

29.0

29.0

53.0

Agree

37

37.0

37.0

90.0

Strongly Agree

10

10.0

10.0

100.0

Total

100

100.0

100.0

Question 3

Regarding the statement I would rather buy product placed at $2.95 than the one placed at $3, 11 consumers strongly disagreed to the statement, 15 respondents replied in disagreement, 25 consumers replied neutral, 42 respondents agreed to the statement and the remaining 7 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 3: I would rather buy product placed at $2.95 than the one placed at $3.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

11

11.0

11.0

11.0

Disagree

15

15.0

15.0

26.0

Neutral

25

25.0

25.0

51.0

Agree

42

42.0

42.0

93.0

Strongly Agree

7

7.0

7.0

100.0

Total

100

100.0

100.0

Question 4

For the statement Pricing strategies affect my buying decision, 10 consumers strongly disagreed to the statement, 14 participants replied in disagreement, 26 consumers replied neutral, 38 respondents agreed to the statement and the remaining 12 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 4: Pricing strategies affect my buying decision

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

10

10.0

10.0

10.0

Disagree

14

14.0

14.0

24.0

Neutral

26

26.0

26.0

50.0

Agree

38

38.0

38.0

88.0

Strongly Agree

12

12.0

12.0

100.0

Total

100

100.0

100.0

Question 5

For the consumer psychology question In a store, I first look for discounted items, 9 consumers strongly disagreed to the statement, 13 participants replied in disagreement, 27 consumers replied neutral, 40 respondents agreed to the statement and the remaining 11 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 5: In a store, I first look for discounted items.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

9

9.0

9.0

9.0

Disagree

13

13.0

13.0

22.0

Neutral

27

27.0

27.0

49.0

Agree

40

40.0

40.0

89.0

Strongly Agree

11

11.0

11.0

100.0

Total

100

100.0

100.0

Question 6

Regarding the question Free gift offers attract my attention, 11 consumers strongly disagreed to the statement, 10 participants replied in disagreement, 25 consumers replied neutral, 40 consumers agreed to the statement and the remaining 14 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 6: Free gift offers attract my attention.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

11

11.0

11.0

11.0

Disagree

10

10.0

10.0

21.0

Neutral

25

25.0

25.0

46.0

Agree

40

40.0

40.0

86.0

Strongly Agree

14

14.0

14.0

100.0

Total

100

100.0

100.0

Question 7

For the statement I am entices by offers such as buy one get one free or two for one, out of the 100 participants, 9 consumers strongly disagreed to the statement, 15 consumers replied in disagreement, 30 consumers replied neutral, 35 consumers agreed to the statement and the remaining 11 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 7: I am entices by offers such as buy one get one free or two for one.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

9

9.0

9.0

9.0

Disagree

15

15.0

15.0

24.0

Neutral

30

30.0

30.0

54.0

Agree

35

35.0

35.0

89.0

Strongly Agree

11

11.0

11.0

100.0

Total

100

100.0

100.0

Question 8

Regarding the statement I am comfortable in buying product from a high priced store than driving to a discounted one, out of the 100 participants, 10 consumers strongly disagreed to the statement, 17 consumers replied in disagreement, 25 consumers replied neutral, 39 consumers agreed to the statement and the remaining 9 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 8: I am comfortable in buying product from a high priced store than driving to a discounted one.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

10

10.0

10.0

10.0

Disagree

17

17.0

17.0

27.0

Neutral

25

25.0

25.0

52.0

Agree

39

39.0

39.0

91.0

Strongly Agree

9

9.0

9.0

100.0

Total

100

100.0

100.0

Question 9

Among the 100 consumers who took part in the survey, 8 of the 100 consumers strongly agreed to the statement that they are attracted to the alternative products, if there is a good deal or discount offered. However, 39 consumers agreed, 26 consumers remained neutral, 16 disagreed and the remaining 11 consumers strongly disagreed. The frequency distribution table generated on SPSS is presented below.

Table 9: I am attracted to the alternative products, if there is a good deal or discount offered.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

11

11.0

11.0

11.0

Disagree

16

16.0

16.0

27.0

Neutral

26

26.0

26.0

53.0

Agree

39

39.0

39.0

92.0

Strongly Agree

8

8.0

8.0

100.0

Total

100

100.0

100.0

Question 10

For the question Rather than going for my favorite brand, I would compare its price with the similar product offered by its competitor, 12 of the 100 consumers strongly disagreed to the statement, 17 consumers replied in disagreement, 27 consumers remained neutral, 35 respondents agreed to the statement and the remaining 9 consumers strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 10: Rather than going for my favorite brand, I would compare its price with the similar product offered by its competitor.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

12

12.0

12.0

12.0

Disagree

17

17.0

17.0

29.0

Neutral

27

27.0

27.0

56.0

Agree

35

35.0

35.0

91.0

Strongly Agree

9

9.0

9.0

100.0

Total

100

100.0

100.0

Question 11

For the statement High prices do affect the decision of buying my favorite brand, 9 of the 100 consumers strongly disagreed to the statement, 21 participants replied in disagreement, 23 consumers remained neutral, 40 respondents agreed to the statement and the remaining 7 consumers strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 11: High prices do affect the decision of buying my favorite brand.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

9

9.0

9.0

9.0

Disagree

21

21.0

21.0

30.0

Neutral

23

23.0

23.0

53.0

Agree

40

40.0

40.0

93.0

Strongly Agree

7

7.0

7.0

100.0

Total

100

100.0

100.0

Question 12

For the question If a product is on sale, I would buy more units of it than I would usually have otherwise, 9 participants strongly disagreed to the statement, 15 respondents replied in disagreement, 29 consumers remained neutral, 36 consumers agreed to the statement and the remaining 11 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 12: If a product is on sale, I would buy more units of it than I would usually have otherwise.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

9

9.0

9.0

9.0

Disagree

15

15.0

15.0

24.0

Neutral

29

29.0

29.0

53.0

Agree

36

36.0

36.0

89.0

Strongly Agree

11

11.0

11.0

100.0

Total

100

100.0

100.0

Question 13

Among the 100 consumers who took part in the survey, 10 of the 100 consumers strongly agreed to the statement that they are satisfied with the price of a product offered by the firm, and they would also buy the other product of the same brand because of their previous satisfactory experience. However, 38 consumers agreed, 23 consumers remained neutral, 21 disagreed and the remaining 8 consumers strongly disagreed. The frequency distribution table generated on SPSS is presented below.

Table 13: If I am satisfied with the price of a product offered by the firm, I would also buy the other product of the same brand because of my previous satisfactory experience.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

8

8.0

8.0

8.0

Disagree

21

21.0

21.0

29.0

Neutral

23

23.0

23.0

52.0

Agree

38

38.0

38.0

90.0

Strongly Agree

10

10.0

10.0

100.0

Total

100

100.0

100.0

Question 14

Regarding the statement The balance of price and quality is what inclines my loyalty towards a brand, 11 of the 100 chosen consumers strongly disagreed to the statement, 13 respondents replied in disagreement, 29 consumers remained neutral, 36 consumers agreed to the statement and the remaining 11 respondents strongly agreed. The frequency distribution table generated on SPSS is presented below.

Table 14: The balance of price and quality is what inclines my loyalty towards a brand.

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Strongly Disagree

11

11.0

11.0

11.0

Disagree

13

13.0

13.0

24.0

Neutral

29

29.0

29.0

53.0

Agree

36

36.0

36.0

89.0

Strongly Agree

11

11.0

11.0

100.0

Total

100

100.0

100.0

Based on the above frequency distribution we can see the trend that majority of the respondents agree that price influences their behaviour and purchasing patterns.

4.1.2 Regression Analysis

In this study, the researcher has used SPSS for conducting regression analysis, in order to understand the psychological impacts of pricing on firms performance. The data was collected via Likerts scale questionnaire from 100 consumers. Regression analysis is a test for analysing the relationship between variables. The equation for linear regression analysis is:

y = a + bx

Where, Y is the criterion or dependent variable X is the predictor or independent variable, b denotes the regression coefficient, which defines the slope of the line, and a denotes the Y intercept, which is the value of Y when X is 0.

Table 15 presents the regression analysis test between pricing strategy and consumer psychology. The analysis explained that pricing strategy had a significant impact on consumer psychology.

Table 15: Regression Analysis of Pricing Strategy and Consumer Psychology

Variables Entered/Removedb

Model

Variables Entered

Variables Removed

Method

1

Pricing Strategya

.

Enter

a. All requested variables entered.

b. Dependent Variable: Consumer Psychology

The following table presents the model summary of the regression analysis. The results in the table suggest how well regression model fits and how good is the level of prediction. The purpose of this table is to show the strength of the relation between the dependent and independent variable. R value is the magnitude multiple correlation coefficient, which is 0.704. The R value explains that a strong relationship exists between firms pricing strategy and consumer psychology. The R2 value is the coefficient of determination, which is 0.496, meaning that around 50% of the variation is explained by the regression model.

Model Summary

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

1

.704a

.496

.491

.681

a. Predictors: (Constant), Pricing Strategy

The Analysis of Variance of ANOVA table gives a measure of absolute fit of the model to the data. Here, the F-test result is highly significant as the significant value is less than 0.05. Thus, the table depicts that the relationship between firms pricing strategy and consumer psychology is strong.

ANOVAb

Model

Sum of Squares

df

Mean Square

F

Sig.

1

Regression

44.743

1

44.743

96.547

.000a

Residual

45.417

98

.463

Total

90.160

99

a. Predictors: (Constant), Pricing Strategy

b. Dependent Variable: Consumer Psychology

Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

B

Std. Error

Beta

1

(Constant)

1.044

.238

4.396

.000

Pricing Strategy

.684

.070

.704

9.826

.000

a. Dependent Variable: Consumer Psychology

In this study the researcher used linear regression analysis to find the impact of firms pricing strategy on consumer psychology. The equation for regression analysis is:

y = a + bx

Therefore,

Consumer Psychology = 1.044 + 0.684(x)

The above regression equation can be sued to predict the impact of the firms pricing strategy on consumer psychology.

4.2 Interview Analysis

A separate sample was chosen for the interviews. The researcher selected a sample of 10 managers from IKEA UK using the sampling technique. This section presents the analysis based on the data collected from managers via interviews.

IKEA is the largest furniture manufacturer and retailer in the world. It is known for its commitment to provide high value in creative, multi-purpose designs and quality products with low prices. IKEA has been able to develop unique and respected strategic position in the market.

Regarding the question of IKEAs competitive strategy of pricing, there was somewhat unanimous reply from all the respondents. According to the respondents, IKEA has been able to create a competitive strategy of pricing which are different from its rivals. The main focus of IKEA is to develop creative designs through competition among its huge network of freelance designers. Freelance designers are a great source of flexible and valued creativity for IKEA. This huge network of freelancers and the teamwork of all workers with diverse personal as well as professional backgrounds provide substantial creativity in design, which reflects in IKEAs products. The designers at IKEA develop innovative and multi-purpose designs for the customers. Additionally, their focus is to use material with efficiency without any compromise on the quality and durability of the product.

Regarding the question of main elements of IKEAs pricing strategy, the respondents replied that the company focuses on numerous strategies to bring down the cost of their products. One of those pricing strategies is not to rely on third-party manufacturers and develop innovatively engineered low-cost designs and modular furnishings which can be assembled by the customer at home. IKEA has also been able to differentiate itself from its competitors by displaying the product in domestic settings. Usually, in rival furnishing stores, the furniture is displayed in separate rooms i.e. the tables are displayed separately from the sofas and chairs are displayed separately from other accessories. On the other hand, the customers at IKEA are able to view the furniture in complete combinations i.e. tables, chairs, sofas etc. as they are furnished for a house. This innovative display technique reduces the need for sales persons or decorators for helping customers imagine the look of the furniture in their homes. Based on this approach IKEA has been able to keep low costs as fewer sales persons are required. IKEA has also been able to keep its costs low but eliminating the delivery service. The modular design of furniture means they can be packed in small packages and assembled at home.

Regarding the third and fourth question of IKEAs target market and its low-cost furnishings and its ability to keep prices low, most of the respondents had similar replies. The main target customers of IKEA are people who are looking for value and quality but at low price. However, IKEA requires them to earn their value by doing some work. It provides valuable and quality products but the customers have to make some tradeoffs. IKEA does not employ sales people to attend the customers; instead the company deploys a self-service approach for customers to see and decide on their own. Another key method for lower the furniture cost is the packaging technique. IKEA uses Flat packages for storing and shipping the items which requires low shipping cost. Additionally, smaller items can be taken by consumers on their won as flat-packed boxes can easily fit a conventional car.

Regarding the fifth question of effective pricing strategies and low cost of IKEA products have positive impact on companys performance, almost all managers replied that IKEA has adopted Porters generic strategy for gaining competitive edge in the market. The mission of IKEA is to provide quality products and maintain cost leadership in the market. Nonetheless, with its unique and valuable way of incorporating customer in value chain, IKEA has also been able to apply indirect differentiation strategy. Combination of these two strategies shows IKEAs focus strategy.

The sixth question asked manager how low cost of IKEA products affects consumers psychology and what is the intention behind it, and managers unanimously replied that the target market for IKEA is the young consumer searching for fashionable and stylish furniture and other household items at low cost. Keeping this market audience in mind, the company offers household furnishings with combination of good design, multi-purpose functionality and quality at lower prices. Managers at IKEA explain that low cost has always been a priority for the company and it is remembered in each phase of their manufacturing as well as retailing activities.

For the last question, the researcher asked managers about the market goals of IKEA and intentions of the firm to maintain, increase, or decrease its product prices. Most of the managers answered that for past several years the company has managed to stand out from its rivals due to the valuable and fashionable designs of furnishings at low prices. However, the cost of raw materials and logistics has increased considerably, which may force IKEA to revise its prices. In the future we will see if IKEA is able to sustain its cost leadership in the market after the revision of prices or whether external environmental factors will challenge IKEAs strategy of differentiation from rival stores.

4.3 Discussion4.3.1 Research Objective 1

Investigating the impact of pricing strategies on consumers psychology and the firms performance:

Understanding the influence of pricing strategy on consumer psychology in order to improve firms performance is crucial; therefore, this study on the psychological response of consumers on the price information of IKEA products is significant. From the survey responses, it has been found that two characteristics of a product are very important for the consumer, i.e. price and quality. As IKEA provides quality products at low prices, it has enjoyed a larger market share in the furniture and home decoration industry. The regression analysis gave a significant value of less than 0.05, which proved the first objective of the study that pricing strategies of the firm impacts the consumer psychology as increases purchase intentions.

4.3.2 Research Objective 2

Illustrating a link between pricing strategy of the firm, consumers psychology and firms performance:

This study also aimed at illustrating a link between pricing strategy of the firm, consumers psychology and firms performance. The researcher was able to prove this objective by exploring the survey results of consumers and IKEAs low pricing furniture and consumers purchase intentions. The frequency distribution generated in this study revealed that consumers are price conscious and to retain them, it would take companies to offer low price products but with value and quality. Managers, like those of IKEA, need to understand the psychology of consumers and device pricing strategies for the companies to not only attract but retain the consumers. Price of the product should not be more than that of rival companies ,as it would lead to less sales resulting in poor firm performance.

4.3.3 Research Objective 3

Identifying the effective pricing strategies that IKEA may adopt to enforce positive growth and profitability:

Another objective of the study was to identify effective pricing strategies that may result in positive growth and profitability for IKEA. This researcher proved pricing strategy with the combination of interviews from the UK managers of IKEA and past published research articles. The researcher found that IKEA has been able to maintain its leadership in the market by maintaining good quality, functional design and low prices. The forward-thinking strategy of IKEA made it the largest furniture manufacturer and retailer in the world. Before, IKEA was founded, people thought of purchasing furniture as an investment for the next 15-20 years. However, IKEAs entry in the furnishing market changed the perception of using furniture. The company offers stylish furniture, which may sometimes lack durability. Now people can purchase furniture with quality and creative designs on low prices. One of the key factors for IKEAs low cost is the sourcing of its products, which is done in low-wage countries against basic service level. This is how IKEA has been able to provide low-cost products to its consumers by pursuing its best-cost and low-overhead strategy.

CHAPTER 5 CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion

Price is a crucial factor when it psychological impacts of pricing of the consumers, as it can be directly linked to either increase or decrease in the frequency of sales of a product, therefore making a direct impact on organizations performance (Teunter, 2002). This is the reason that the organizations have been constantly implementing strategies that impose positive impact on the consumer buying behaviour and increase the sales of a product (Keller, et al., 2011). In the ideal economy, where the consumers have enough money to spend on the products they want, price of the product would affect their buying decision. Under these consequences, the consumers have spare money and they are willing to pay any amount for the product of their choice to fulfil their demands. In such market conditions, the seller will also use strategies like price skimming, where the prices are set high to earn healthy profits. The actual problem arises in the economies where people do not have money to spend; it is then that all the pricing strategies come into practice (Elmaghraby & Keskinocak, 2003).

Cost plus is considered to be an effective marketing strategy for the organizations to implement. This strategy allows the organization to increase the price by a certain percentage, yet keeping it competitive (Cavusgil, et al., 2003). Product Collection Pricing is another pricing strategy that deploys the profit margins of the organization for the purpose of satisfying the consumers (Hameed, et al., 2012). According to the law of demand, price is a factor that is dependent on the income of the consumers. It has been suggested by the Economists that consumers expect the prices that are based on the marketing conditions. These marketing conditions predict that there are times when the quality products are sold at lower prices. When the whole seller sets the price of a certain product, it becomes difficult for the competitors to cut their price below the price that is being offered in the entire market. The benefit associated with this pricing strategy is that no consumer can claim that some other company is selling the product at a lower price (Keller, et al., 2011).

In the end, it can be concluded that pricing strategies affect the performance of the firm, as they directly triggers their buying behaviour. Pricing must be based on what the consumers are willing to pay for the offering of the company and this is directly dependent on the market a company operates in and the characteristics of the consumers (Lane, 2002). For example, if a firm is targeting consumers between upper middle class to a higher class then its pricing strategy must be designed accordingly. Pricing strategies impose great impact on the consumer psychology; therefore it is important for organizations to keep certain aspects in mind before setting the price of their offering (Keller, et al., 2011).

In the perspective of the consumers, price is something that they give in exchange of the offering of the company and in return they acquire something. So in order to stimulate the interest of the consumers in the companys offering, there is a need of developing effective and competitive pricing strategies. There are some basic pricing strategies that should be immediately implemented by the consumers that would lead towards lower sales. For example, the price of the offering should be lower than that of the competitors, as it would help in grabbing more market share, considering the fact that the company provides higher quality than the others firms operating in the market. Pricing strategies should be based on the geography and the demographics of the target population. Pricing is a factor that is considered to be a crucial aspect of the marketing mix that is responsible for generating revenue for any organization (Zikmund & Babin, 2006).

5.2 Recommendations

Based on the conclusion of the study there are some basic strategies that can be implemented by IKEA to improve their performance in the UK. It is important that IKEA identifies the characteristics of the market, they are operating in. It should segment the market by the product attributes and after assessing the demand level in that specific market. There is also the need of implementing price elasticity model in IKEA, after benchmarking the products and service of the competitors. The following recommendation can be drawn from the conclusion to help IKEA increase its market share in the industry of the UK.

Creating a positive Price Image: This is a critical factor for the success of any company. In order to create a positive price image in the mind of the consumers, IKEA must lower its price, without worrying about its profit margins. The most effective way through which IKEA can create a positive price image is by considering itself as a consumer.

Implementing loss leader strategy: This strategy suggests that IKEA must place its product at a loss or break even. This may seem like a ridiculous strategy, but it will require marketing efforts of IKEA. When everyone in UK will be aware of the fact that the company is selling quality price at the cheapest and most affordable price, then the increase in its sales would be drastic.

Considering Mark-ups not Margins: While Pricing its product, it is better and more effective for IKEA to consider the profit margin rather than markup. If IKEA plans to use mark-ups, then it is certain that the company is losing a lot of money.

Utilizing Price Anchoring: Price anchoring is to place a watch worth $2,000 right next to the one worth $10,000. This is referred to anchoring, which is a common cognitive bias. This strategy is effective because the consumers rely way too much on the information of the first piece while making purchase decision about the second one. This tactic can be used by IKEA, where it can place its expensive products right next to the cheaper ones.

Increase Profits by offering wider choices: IKEA should provide the best versions of its products. Consumers like having wider pricing options, instead of being exposed to take it or leave its strategy. This strategy allows the consumers to choose between wider options and select the best price.

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APPENDIXAppendix A: QuestionnaireSurvey

The Psychological Impact of Pricing on the Firms Performance

Demographics

Age:

a. 18-23

b. 24-28

c. 29-33

d. 34-38

e. 39 and above

Gender:

a. Male

b. Female

Pricing Strategy

1. The characteristic of the product that I value the most is:

a. Price

b. Brand

c. Quality

d. Availability

2. Well-known brands are placed higher than other brands.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

3. The product placed at $200 will be higher in quality than the product placed at $100.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

4. I would rather buy product placed at $2.95 than the one placed at $3.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

5. Pricing strategies affect my buying decision

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

Consumers Psychology

6. In a store, I first look for discounted items

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

7. Free gift offers attract my attention.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

8. I am entices by offers such as buy one get one free or two for one.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

9. I am comfortable in buying product from a high priced store than driving to a discounted one.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

10. I am attracted to the alternative products, if there is a good deal or discount offered.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

11. Rather than going for my favorite brand, I would compare its price with the similar product offered by its competitor.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

12. High prices do affect the decision of buying my favorite brand.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

13. If a product is on sale, I would buy more units of it than I would usually have otherwise.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

14. If I am satisfied with the price of a product offered by the firm, I would also buy the other product of the same brand because of my previous satisfactory experience.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

15. The balance of price and quality is what inclines my loyalty towards a brand.

a. Strongly Disagree

b. Disagree

c. Neutral

d. Agree

e. Strongly Agree

Appendix B: Interview Questions

Interview Questions for IKEAs Employees.

1. As a world famous company of furnishing, what is the competitive strategy of pricing?

2. What are the main elements of IKEAs pricing strategy?