CUSTOMER PERCEPTION OF PACKAGING AND PRICE ON LOYALTY OF

DULUX PRODUCTS IN THE NORTH-WEST OF JOHANNESBURG

by

TSHEPISO DUMASI
STUDENT NUMBER: 9715967

Submitted in partial fulfillment of the requirements for the degree

M-TECH (BUSINESS ADMIN)

In the discipline

MARKETING

In the faculty of

MANAGEMENT SCIENCES

at the

VAAL UNIVERSITY OF TECHNOLOGY

Supervisor: Dr. M. DHURUP

Co-Supervisor: Ms. N McFarlane

OCTOBER 2005

Declaration
I declare that:

“Customer perception of packaging and price on loyalty of Dulux products in the

North-West of Johannesburg”

is my own work, that all the sources used quoted, have been indicated and
acknowledged by means of complete references, and that this dissertation had
not previously been submitted by me for any degree at another institution.

Tshepiso Dumasi
15 October 2007

Acknowledgements

2
Executive Summary

3
Table of contents

4
Chapter 1

5
 CUSTOMER PERCEPTION ON PACKAGING AND PRICE ON LOYALTY OF
DULUX PRODUCTS IN THE NORTH-WEST OF JOHANNESBURG

Keywords: Branding, loyalty, packaging, pricing, perceptions.

1. INTRODUCTION AND BACKGROUND TO THE STUDY

Perception is the process by which an individual selects, organizes, and interprets the
information received from an environment (Sheth & Mittal, 2004:129). Perceptions are
influenced by customer characteristics, notably what customers already know and feel
about a stimulus. The line between perception and reality is a thin one. Consumers
respond to packaging with a whole set of prejudices, learned reactions, and individual
preferences that help make products winners (Aaker, 1991:78-90). Certain shapes,
colours, sizes, and textures cause consumers to respond positively, while others evoke
negative reactions. One reason that the physical container of a product has an impact on
consumers is that it’s the first intangible encounter a consumer has with that product.
Packaging was once considered part of the production process and was regarded as so
insignificant that it was overseen by purchasing people (Sheth & Mittal, 2004:131).

Companies are recognizing the power of well-designed packages to contribute to instant

recognition of the company or brand (Duffy, 2003:339). Rising consumer affluence means
consumers are willing to pay a little more for the convenience, appearance, dependability
and prestige of better packages (Kotler, 1991:147). Good packaging attracts consumer
attention, convincing consumers to pick-up the package in order to examine it more
closely. Paint manufacturers often include interior decoration options to give consumers
other reasons for purchase.

In addition, the number of price complains attained from monthly surveys conducted by
Dulux has uncovered that the pricing strategy is the central theme of the business.
According to the survey conducted (http://dulux.marketing/research/html), the price
structure of the business is not accepted by most of the customers, thus reflecting on the

6
selling price of the company’s products. This will ultimately force the company to change
their pricing structure. In the last two years, Dulux market price has increased by over
forty percent, thus inducing consumers to withdraw their purchases towards the brand
(http://dulux.marketing/research/html). The reactions of potential and existing consumers
to different prices vary considerably. A small increase in the price of a product may lead
to a relatively substantial decrease in sales (Lucas, 1983:473-479). The assumption often
made in the economic price theory, namely that lower prices usually lead to increased
loyalty and vise versa, is not always true. Shapiro (1998:233) found the following
regarding the price-quality relationship. Firstly, the price is generally an indicator of
quality. Secondly, the influence of price is not more important than product reference.
Price as an indicator of quality is important to determine the loyalty of the consumer
(Kotler, 1991:499). Improper pricing of a product may nullify the effect of the marketing
mix. The company has to look at the following factors before it determines their pricing
strategy. Firstly, if you have low prices in the market, consumers may think your product
is off inferior quality or the product is defective. Secondly, a higher price may carry some
positive meanings to consumers: the product is “hot” and might be unobtainable unless it
is bought soon; the product represents an unusually good value or the product is excellent
in quality (Linstrom, 2003:312-332).

The proliferation of brands within the Dulux brand product category reflects a major shift
in consumer tastes and preferences. The direct indicators which influence the perception
of the consumers are; colours, textures and price (Dick, 1996: 19-20).

This study investigates the consumer perspective to Dulux brands by analyzing how
consumers perceive Dulux products and the meanings they associate with different
individual products. The Dulux brand is well-known and established in the region.

2. PROBLEM STATEMENT
In the ongoing effort to grow the market, Dulux has turned to brand alliance, a marketing
strategy wherein two brands, Dulux and Rockgrip join to form one brand, Dulux
Rockgrip. Brand alliance may also cause a problem in that consumers think that the

7
Rockgrip range is of inferior quality. Numerous market trends suggest a growing role for
product packaging as a brand communication vehicle (Underwood, Klein & Burke, 2001:
402- 403). More recently, research examining the visual impact of packaging includes
studies measuring the impact of relative package appearance (e.g. typical, novel, colour)
on consumer attention, categorization and evaluation, as well as examination of visual
attention during brand choice (Chisnall, 1997: 112-122). Despite these works, little is
known about the specific type and amount of product information that is appropriate for
the package stimulus in order to maximize communication effectiveness at point of
purchase (Underwood, et al., 2001: 403- 404).

The Dulux pricing strategy changes too often, thus making the consumer unsure of the
company’s prices. Consumers may be willing to focus their attention on another brand of
paint, due to price variations. The overall quality of the Dulux brand, especially products
like Bergermaster and Rockgrip may be perceived as being of inferior quality, because of
the low price strategy. Consumers tend not to follow the instructions on the packaging,
thus leading to product failure and if they do, they are often misunderstood due to
contracting information. Price plays a major role on consumer’s perceptions of brand
quality, because consumers often use price to infer product quality (Uusithlo, 2001: 216-
218). On the other hand, packaging that does not describe the product’s features and data
sheets, presents the consumer with an unusable product.

According to (Underwood et al., 2001: 404), there are three important questions that need
to be answered about packaging:
• Does the inclusion of a picture of a product on the package significantly influence
attention to the product choice?
• Do the effects of placing a product picture on the package differ according to the
degree of consumer familiarity with the brand?
• Do the effects of placing a product picture on a package differ for products that vary
in the level of experiential benefits they provide?

8
The positive effect of package pictures on consumers’ perceptions and choice may not be
equally strong for all products (Underwood et al., 2001:407). Consumers perceive the
Dulux brand as a brand that does not have sub products, because of the lack of awareness.
3. THE OBJECTIVES OF THE STUDY
3.1. PURPOSE OF THE STUDY
The main purpose of this study is to evaluate consumer perceptions of packaging and
price on Dulux brand loyalty.
3.2 THEORETICAL OBJECTIVES
In order to achieve the primary objectives, the following theoretical objectives are
formulated for the study:
• To conduct a literature study on product branding.
• To establish from literature, the importance of packaging on consumer brand
perception.
• To establish from literature the importance of pricing on consumer brand
perception.
3.3 EMPIRICAL OBJECTIVES
The following empirical objectives were formulated to support the primary and
theoretical objectives:
• To assess the importance of intrinsic cues (size, ingredients and application) on
loyalty.
• To assess the importance of extrinsic cues (brand name, packaging and price)
on loyalty.
• To assess the overall level of satisfaction in terms of Dulux branding among
consumers.
• To identify gaps in Dulux branding strategy by comparing consumer’s
perceptions and Dulux positioning strategy in the market place.
4. HYPOTHESES
• Intrinsic cues (size, ingredients and application) may significantly influence
brand choice.

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 • Extrinsic cues (brand name, packaging and price) may significantly influence
brand choice.
5. SCOPE OF THE STUDY
For the purposes of this study, the research will be conducted with consumers who buy at
Dulux retail outlets. The study will be conducted within the North West region of
Johannesburg. The towns that are included in the region are, Randburg, Cresta, Fourways,
Honeydew and Roodepoort.
6. RESEARCH METHODOLOGY/DESIGN
Two methods of research will be undertaken:
6.1 LITERATURE REVIEW
A literature study on customer perception on packaging and pricing will be undertaken.
This would include books on packaging and pricing, journals, magazines, newspaper
articles and the Internet to establish a theoretical background. The literature study will
primarily focus on customer perceptions, packaging and pricing, and the importance of
branding.
6.2 THE SAMPLING DESIGN PROCEDURE
The following steps as eluded by (Nel, Radel & Loubser 1998: 289-314) will be used in
developing the sampling procedure.
6.2.1 TARGET POPULATION
The target population will be restricted to the North West Johannesburg district. For the
purposes of the study, the population will comprise individuals, male and female thirty
years and over, from the designated areas.
6.2.2 IDENTIFICATION OF THE SAMPLING FRAME
Hair, Bush & Ortinau (2002: 330) maintains that it is often very difficult to gain access to
accurate or representative sampling frames. The survey location (i.e. retail outlets) will be
used to conduct the research.
6.2.3 SAMPLING TECHNIQUE
A non probability sampling technique will be used in the study. The nature of the research
necessitated the use of convenience and judgment sampling. Convenience and judgment
sampling allows a large number of respondents to be interviewed in a relatively short
period of time.

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6.2.4 SAMPLE SIZE
Since the sample size formulas cannot be appropriately used for non-profitability
samples, the determination of sample size is usually a subjective, intuitive judgment made
by the researcher based on past studies. The goal of this study is to understand a particular
phenomenon more profoundly. A sample of 200 respondents from ten retail stores will be
selected. The sample size is consistent with consumer research done in this field
(Fullerton, 2004:103).
6.3 METHOD OF DATA COLLECTION AND MEASURING INSTRUMENT
Data on consumer perceptions will be collected through personal interviews. Primary data
will be collected by means of a structured questionnaire. The questionnaire will comprise
three sections. Section A will address packaging perceptions, section B will focus on
pricing and section C will concentrate demographic questions.
6.4 STATISTICAL ANALYSIS
Descriptive statistics will be undertaken to analyze the composition of the sample.
Categorical and graphical frequency distribution will be undertaken to analyze the
questionnaire. Prior to the analysis, the scale reliability will be tested using coefficient
alpha (Cronbach alpha). Analysis of variance (ANOVA) and Pearson correlation
coefficient will be computed to analyze relationships between variables. Validity analysis
will also be undertaken. The statistical package for social scientists (SPSS) version 11.0
for windows will be used for the above analysis.
6.5 CHAPTER CLASSIFICATION
Chapter one will compromise the scope and background of the study focusing on the
perception of consumers on packaging and price. It highlights the problem statement, the
research objectives and scope of the study. The research methodology is spelt out in this
chapter.
Chapter two will provide an overview of the importance of packaging, pricing and
loyalty.
Chapter three will concentrate on the design and the research method utilized in the
research.
Chapter four will deal with analysis, interpretation and evaluation of the research
findings.

11
Chapter five, the recommendations to the findings will be highlighted.

Chapter Two

PACKAGING, PRICING AND LOYALTY

2.1 INTRODUCTION

The growth within retail chain outlets has been operating in a slow growth environment
and thus the pursuit for market share is becoming more aggressive in relation to
packaging, pricing and loyalty. As a result, according to Wells, Farley and Armstrong
(2007: 677) food product development and innovation continues to be seen as a
fundamental strategy for competitive success and survival within a competitive global
market. The retail structures are becoming more increasingly standardized and
homogeneous. Over two decades ago, Rossiter (1976: 523) warned us that consumer
research has largely ignored product-relevant information stored in visual memory,
information that may be quite sufficient to engender product choice.

This is presenting companies with challenges of sourcing other marketing avenues to

improve market share. In the last two years there has been an increasing emphasis on
improving the quality of packaging, maintaining competitive pricing and creating loyalty
programs for existing customers. It was yet perceived that marketers turned a blind eye on
the importance of visual memory because 20 years later, Zaltman (1997: 425-6) echoed
this concern by reminding us that most market research tools are verbocentric and should
be enriched with techniques that accommodate non-verbal expressions of perception,
learning and thought since two-thirds of all stimuli reach the brain through the visual
system.

In today’s competitive retail environment consumers are exposed during each visit to a
retail store to thousands of messages on packs and merchandising. This presents
marketing with a challenge to depend heavily on the visual communication of packaging

12
to inform and persuade consumers both at the point of purchase and at the point of
consumption (McNeal & Ji, 2003: 401). According to Welles (1986) nine out of ten
shoppers at least occasionally buy on impulse and a survey of studies shown in a paper by
Phillips and Bradshaw (1993) suggest unplanned purchase of items might be as high as 51
percent of purchases (Nancarrow, Tiu Wright & Brace, 1998:110). This suggests the
opportunity to persuade at point of sale is one that cannot be ignored but that the
competitive environment is a challenging one. The importance of communicating the
right product and brand values on pack is paramount as well as achieving the appropriate
level of aesthetics and visual stand-out. Rettie and Brewer emphesise this through the
research conducted which estimates that 73 percent of purchase decisions are made at
point of sale; the design of packaging must play a key role at point of sale.

Packaging seems to be one of the most important factors in purchase decisions made at
the point of sale, where it becomes an essential part of the selling process (Silayoi &
Speece, 2004: 607). Klevas (2005: 116) also stresses the importance of the pack design,
packaging and logistics which become highly interdependent and together they have a
great impact on supply chain activities. Marketers need to ensure that the latter are
correlated, Silayoi and Speece (2004: 607) have indicated that with the move to self
service retail formats, packaging increases its key characteristic as the “salesman on the
shelf” at the point of sale. Due to the importance of packaging, visual cues such as taste,
odour, information from labeling and images increases the chances of your product being
sold at point of sale (Imram, 1999: 226).

Pricing can present a unique opportunity to create loyalty and retain existing and
prospective customers. In terms of providing a basis for inter-company price setting in
order to attract and retain customers to the brand, the most significant of these, certainly is
standard engineered component part industries where lean and collaborative principles are
arguably most mature, has proved to be a target costing and kaizer costing. This combined
approach has been taken from the Japanese automotive industry where it plays a central
part in the achievement of the quality, customer retention, cost and delivery goals
stipulated in customer specification (Hines, Francis & Bailey, 2006: 241)

13
The price like other key variable in the exchange relationships is one of the tools
marketers may use to face the market, either attracting and retaining clients or fighting
against competitors. Most of the companies especially in the service market use
promotional tools such as price to motivate the sale of a specific product (Campo &
Yague, 2007: 269). For instance, Dulux (a South African paint manufacturer), may use
pricing on strategic lines like Bergermaster and Rockgrip brands to compete more
aggressively against regional paint manufacturers. Dulux has built its reputation in the
market by offering good quality paint at afforadable prices. Two strategies often used by
leading paint manufacturers should not be forgotten. These are the every day low prices
(EDLP) and the high and low prices (hi-lo) (Cataluna, Franco & Ramos, 2005:331). The
use of simple, one-dimensional prices, quoting single figures (e.g. 10), has made way for
complex price communication strategies aimed at exploiting particular information
elaboration process or perspective biases associated with specific price presentations, e.g.
instead of pricing the product at R10.00, you price it at R9.99 (Romani, 2006:131).

Another phenomenon which poses a challenge to marketers is reference pricing, Anttila

(2004: 47) describes it as a price against which consumers compare the listed price of a
product or service. In this way consumers evaluate whether a price is too low or too high
and thus making their product choices. Due to the sensitivity of price, retailers started to
introduce generic products or house brands to try and cater for the price sensitive section
of the market (Yelkur, 2000: 446). But this is contrary to consumers who react differently
to price promotions, for some consumers, high price simply means giving up more
resources for the product but some consumers believe that high prices are directly related
to better quality and prestige (Jin & Sternquist, 2003: 647).

Ang, Leong and Tey (1997: 116) issue a stern warning that, the practice of promoting
products on sale can accomplish both short and long term objectives. So it is vital for
markers to choose their strategies in terms pricing correctly. Having said that Herrmann,
Xia, Monroe and Huber (2007: 49) argue that satisfaction is a function of price,
performance and expectations with support for the expectations-satisfaction link being

14
weak and they propose that perceived price fairness might be the dominant determinant of
satisfaction. Often marketers debate whether to introduce a fixed or discounted price.
According to Nagle and Holden (1994: 91) a fixed price offer suggests to a consumer that
the price is non-negotiable or will remain the same whenever they decide to purchase the
product. A fixed price offer implies that the product is excluded from consumer
promotions or price discounts but some retailers prefer the every day low price strategy as
it ensures consistency (Suri, Manchanda & Kohli, 2000: 194). Prices are used by retail
establishments as an advertising appeal to attract consumers (Alvarez & Casielles, 2005:
54). It is important for marketers to choose price communication strategies, both at the
point of sale and by the means of various media forms, that are capable of drawing
consumers’ attention to the product’s value and thus induce them to buy (Romani, 2006:
130).

Both academics and practitioners recognize the importance of loyal customers, because
such customers usually spend more, buy more frequently, have more motivation to search
for information, are more resistant to competitors’ promotions, and are more likely to
spread positive word of mouth. Research has shown that increases in consumer retention
result in increased profitability for companies that compete in mature and highly
competitive markets. Recently both academics and consultants have recommended that
companies orient their strategies for customer retention toward superior customer value
delivery, because customer value is a key antecedent of customer retention (Jiang &
Rosenbloon, 2005: 151).

2.2 Packaging methods or techniques

There are different kinds of packaging methods marketers can use to attract and retain
customers. A pack has many functions – some, if not all, presenting marketers with the
opportunity to gain competitive advantage.
2.2.1 Bonus packs

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The bonus pack is of the dozens of techniques used in sales promotion. A bonus pack is a
special factory pack that offers the consumer extra product at no additional cost. For
example, Dulux periodically offers a free one litre of paint when you buy the normal five
litre drum. Many companies have reported successes with bonus packs promotions, yet
somehow, bonus packs have eluded marketing scholars’ attention (Reiter, 1994).

2.2.1.1 Positive roles of bonus packs

Since today’s shoppers are more value-conscious than ever, bonus packs promotions are
rapidly becoming the accepted way for a company to boost sales. Furthermore, this
technique saves the company form having to reduce prices in order to gain a competitive
edge (Ong, Ho & Tripp, 1996: 2).

In most cases, bonus packs promotions represent limited time offers, designed to
stimulate short term sales and boost product awareness (Reitek, 1994). That extra value
for a consumer presents a good opportunity for a company to win a sale. In the Dulux
Paints Summer Promotion for 2006, sales rose by 20% by selling the normal 5 litre paint
and the consumer benefited by receiving a free 1 litre drum.
(http://dulux.marketing/research/htm).

2.2.1.2 Drawbacks of bonus packs

Marketing bonus packs can have drawbacks in terms of production capability,

warehousing, shipping, inventory and shelving. Some oversize containers need significant
modifications in the filling process. In some cases, the bonus pack container may be an
inch higher and thus not fitting on the shelf. Paint manufacturers often complain that retail
stores are reluctant to take bonus packs for this reason (Ong, Ho & Tripp, 1996: 2).

When a consumer sees a container of paint labelled “Extra one litre for free”, he may
think that in the past the company has been robbing him. In addition, consumers may not
realise that the ‘bonus’ is a temporary offer, and hence not appreciate its ‘value’ (Ong, Ho

16
& Tripp, 1997: 103). Shultz et al., (1994) pointed out that bonus packs are generally
unappealing to consumers who do not usually buy the product “(If I don’t usually use
margarine, why should I want an extra 6oz of the product?)”. Also in many cases,
consumers may not believe that they are getting an extra product for their money,
suspecting that the price had been raised or that the new quantity offered is actually the
regular amount (Ong, Ho & Tripp, 1997: 103).

2.2.2 Packaging decisions

Packaging can be described as the group of activities concerned with the design,
production and filling of a container or wrapper with the product item in such a way that
it can be effectively protected, stored, transported and identified, as well as successfully
marketed. Packaging should be designed in such a way that the product can be handled
without damaging the quality of the contents. Even more important is the fact that
packaging should promote product sales. The consumer should be able to identify the
packing standing on the shelf and distinguish it from that of numerous other competing
brands (Cronje, Du Toit, Motlala & Marais, 2003: 314-317).

2.2.2.1 Different kinds of packaging

Marketing management usually devotes a great deal of attention to choosing packaging

and a packaging design that will show off the contents in the possible way. The different
kinds of packaging that can be chosen are the following (Cronje, Du Toit, Motlala &
Marais, 2003: 314-317):

• Family packaging. All the products in the range are more or less identically
packed – the same packaging material is used, and the size is more or less the
same. Family packaging is usually related to family brands. All KOO jams are
sold in identical packaging – obviously with different labels to indicate the
contents.

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 • Specialty packaging. This gives an image of exclusivity of the product. Perfume,
jewellery and expensive liquor (like Chivas Regal whisky) are often sold in
specialty packaging. Such products are popular gifts.
• Re-usable packaging. This creates the impression that the consumer perceives a
‘free’ container if he or she buys the product. The container can be re-used for
something else later. A paint container is often used as a bulk storage bucket, you
will notice this at different ceremonies where the bucket is cleaned and re-used as
a liquid storing facility.

2.2.2.2 Choice of packaging design

Choice of packaging design might hugely affect the perception of the consumer with
regards to the product in the pack itself. This is where the decisions of marketers become
critical because this can make or break the brand. Glass bottles containing bottled fruit
are, for example more attractive than cans, but they are impractical to transport and even
more expensive. The shape of the packaging may have a specific functional value, such as
margarine in re-usable plastic tub. The shape may have a specific symbolic value, which
may subconsciously influence buyers.

2.2.3 Product differentiation

Marketing management also has to decide on the way in which the product should be
differentiated from other competing brands. Product differentiation means that the
business distinguishes its product, whether physically and/or psychologically, from what
are essentially identical competing product, so that it is regarded as a different product by
consumers in a specific target market. Physical and psychological differentiation can take
place on the basis of design, quality, colour, taste, size, brand, packaging or any other
distinguishing feature such as price of the product, the marketing communication message
used to bring it to the attention of consumers, and the type of distribution outlet where it
offered for sale.

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2.2.3.1 Different kinds of differentiation

 Differentiation by means of packaging and brand. The various types of margarine

on the market are distinguished by the use of different types of packaging, such as
plastic, foil or waxed paper, the brands, the designs on the labels and the colours
used.
 Differentiation by advertising appeals. Advertising appeals for one brand of
detergent emphasize the ‘enzyme active ingredients’, for another, the ‘stain
removing power’, and for yet another, the ‘clean fresh smell’.
 Differentiation on the basis of price. There are big differences in the pricing of
cosmetic products, for example, Revlon products vs. Estee Lauder products.
 Differentiation on the basis of distribution outlet. Rolex watches are available only
at the biggest and best known jewellers.

2.3 Role of the pack in marketing communications

A pack has many functions – some, if not all, presenting marketers with the opportunity to
gain competitive advantage. A typical pack design brief will clarify the following
(Nancarrow, Wright & Brace, 1998: 1-2):
• What it needs to hold and in what form
• The amount
• Shelf life required and under what conditions
• Point of sale communication requirements
• Branding requirements
• Conditions for accessing/dispensing contents
• Copy/illustrations needed to encourage optimum use

In addition the pack design brief will specify the marketing and legal requirements of the
pack. In the latter case there may be regulations about showing the amount of contents

19
and ingredients or similar. There are, broadly speaking, seven occasions when marketers
become involved in the pack design:
• Of a new product or variant
• A dated/tired pack
• A product (Changing what it competes with and/or its functional or symbolic
benefits)
• Its target market
• Cost reductions in packaging are required
• Legal or regulation requirements demand it
• New packaging technology becomes available

In all instances, an understanding of the consumer is central to the success of a pack

design. We examine relevant model of consumer behaviour and the psychological
processes in perception and information processing.

2.4.1.1 The elaboration likelihood model (ELM)

Advertising by manufacturers is used as a ‘persuasive’ tool to encourage product change

or take-up. The elaboration likelihood (ELM) of persuasion (Petty and Cacioappo, 1983,
1984) takes account of the way in which consumers evaluate advertised messages in order
to provide an understanding of the thought process underlying the way in which
‘persuasion’ takes place. The context in which consumers process the information
presented to them on the labels of packaging is, therefore, of significance.

The need for attention to be paid to more effective labelling by manufacturers is

reinforced by the Financial Times (1995) estimate that 1,000 new consumer products
reach British supermarket shelves each month. In 1994 supermarket shelves had 312 new
yoghurts and 375 new sauces and pickles. Effectiveness in labelling would help
consumers, as the Financial Times suggests, choosing ‘between rows and rows of almost
identical products’. Since the business of advertising is an expensive one, the knowledge

20
gained about the psychology of their consumers is important to assist manufacturers to
understand the ‘hows’ and ‘whys’ of consumer responses to their packs and
advertisements. Effective labelling on the packaging would underpin the main forms of
marketing communications of advertising, personal selling, publicity, public relations,
direct marketing and sponsorships.

Persuasion is likely to occur when brand associations are positive. Executional cues in the
design of labels and advertisements where brand familiarity is strong, result in cognitive
shortcuts on the part of purchasers along the peripheral route (underlying the need for
semiotic analysis of the competitive set). In the whiskey market, consumers use a number
of design cues to infer ‘aged’, yet these could be misleading. It may be tempting in some
markets to ‘imply’ certain product characteristics when they do not exist.

Consumers become motivated and able to elaborate when the message content is
perceived as relevant to their needs and when they have the knowledge and ability to
think about these messages. For example, cognitive processing of food claims on product
labels can be influenced by the need to be efficient in allocating disposable income or
selecting a diet meeting nutritional needs and avoidance of harmful products for
consumption.

This illustrates the sequence of stages in consumer behaviour:

• Product exposure using the major forms of marketing communications;

• Information search, sometimes may be difficult by lack of data or standardization
in product labelling;
• Reception of food claims and contents information concerning the addition of
flavourings and additives;
• Motivation and ability to elaborate (process messages and information) along the
central and peripheral routes to persuasion;
• Integration, retention of information and action in purchasing.
2.4.1.2 How can we ensure the pack and its messages are noticed?

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It is important that, when we are considering the visual impact of a pack in store,
consumers’ perceptual processes and their limitations are understood. Two key aspects are
considered, namely, selective attention processes; and what is detected and what is
registered.

Selective attention

How can a pack capture a shopper’s attention? Schiffman and Kanuk (1983) examine a
number of aspects of human perception principally based on the work of experimental
and cognitive psychologists. They argue that in a typical supermarket, there is a multitude
of potential distractions from your product – competition, other shoppers, smells wafting
from other sectors, and sounds in and out of the store. Yet the shopper regularly manages
to accomplish the shopping mission. This is because the shopper ‘exercises selectivity in
perception’. This selectivity is influenced by two internal factors:

• Experience (what the shopper expects to see, known as perceptual set);

• Motives (needs, wants or desires, interest and values)

Of course, the nature of the stimulus (the design characteristics of the pack) will also have
a bearing on whether the pack is noticed and how it is perceived. While a pack should
clearly signal its relevance to the needs and wants of its target shopper, it will often need
to stand out in a display of many other offerings.

Marketing research producers are available to check the visibility of the pack and its key
elements. Eye scan apparatus track the movement of a customer’s eye across a display of
packs – showing what the eyes travel across and time spent at any point. The test is
carried out in a laboratory because of the limitations of the apparatus and the need to
control the test and exclude extraneous stimuli. Different new packs can be tested against
competitors’ pack. Of course eye movement does not necessarily mean attention is being

22
paid. The consumer may be thinking about other things. It may be necessary, therefore, to
follow up with a questionnaire to determine what was noticed or recalled.

What was noticed or detected

There may be occasions when a change to the pack is designed to affect the consumer
perceptions but the marketer may not wish the change to be noticed. The need is to keep
the product looking up-to-date without loosing the benefit of the look in which so much
marketing spend has been invested to make the brand familiar and build a specific image.
The Campbell Soup Company has made subtle changes to their packaging in terms of its
typography and logotype over the years – keeping it up-to-date in appearance without any
loss of image. Other examples in the USA include Ivory Soap and Crackerjack.
Psychologists describe the minimal difference between two stimuli that can be detected as
the differential threshold or the just noticeable difference (JND). Marketers have tive
adopted the concept in several areas - pricing, pack design and size in particular. In the
case of up-dating packaging, research procedures can be set up to test new more up-to-
date designs to see whether consumers notice a change. A similar research procedure may
be used to see at what point a reduction in size or increase in price might adversely affect
sales.

2.4.1.3 How can we check if the pack communicates effectively and appealingly?

In addition to checking the visibility or visual impact of new or revised pack designs, it is
important to establish whether they communicate effectively and in an appealing way.

While qualitative research may be helpful in diagnosing what elements of a pack work or
do not work, marketers seek marketing research that is more reliable (based on a larger
and more representative sample). The typical study will probe impressions of the product
the consumer forms based on the new pack. These impressions may be captured by asking
research participants to rate the product on a battery of relevant attribute scales probably
based on preliminary qualitative research. However, because the impact test may

23
influence (bias) the way in which research participants responds to the ‘communication’
check, the two exercises may be carried out on different samples.

The following issues need to be considered in such checks:

• There are several new designs, for cost reasons it may be decided to test them
against each other on the same respondents, then test the wining pack at a later
stage against the competition. If this is the case, if two of four pack designs are
very similar to each other, beware the split vote phenomenon.
• In some markets the immediate competition may not be easily defined (for
example certain convenience desserts). In such situations you may decide to test
the new pack monadically (without competition present), letting the consumer rate
the product with his/her unique competitive set in mind.
• There is a more clearly defined competitive set you may still need to change the
display reflecting the research participant’s normal retail outlet. Generally, this
means putting the relevant own label in the display.

3. Pricing

Pricing is a highly conspicuous element of the marketing mix and therefore has many
publics to satisfy. Furthermore, in the buying public there are many other interested
parties such as competitors, society and government – particularly if there is a domestic
prices and incomes board, other governments if the item is exported and possibly even
supranational bodies, such as the EU. For management there is no such thing as ‘perfect
knowledge’ of any market situation nor is there ‘perfect competition’ where all companies
active in a market are equal.

The major problem with price setting is that there are few goal posts. Pricing within the
domestic market, there are strategic implications as to whether one chooses to price high,
low, or merely be a price follower, and the same strategies can be pursuit internationally
(Paliwoda & Thomas, 1998: 252).

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3.1 Price determination process

The price determination process consists of the following four phases:

 Determination of the cost price. The first step in determining the price of a product
is the responsibility of the cost accounting department, and not the marketing
department. The unit cost to produce and market the product are calculated. The
product cost cannot be lower than cost because this would entail financial loss,
which would ruin the business.
 Determination of the market price. The market price is the price a consumer is
prepared to pay, or the current market price at which competing products are sold.
It is marketing management’s task to determine the market price. This can be done
by launching a marketing research project involving consumers or dealers.
 Determination of target price. The target price is the price that will realise the
target rate of return, taking into consideration the cost structure, the business
capital needs, and the potential sales volume of the product. One way of
calculating the target price is the cost-plus method. This is done by adding the
profit margin to the product unit cost.
 Determination of the final price. The final price is the price at which the product is
offered to consumers. This price is determined through a reconciliation of the
market price and the target price. The final price therefore lies somewhere
between the market price and the target price.

3.2 Adaptations of the final price

3.2.1 Skimming prices

If the product is an innovation, and therefore a unique new product, the final price may
have a much higher profit margin. There are consumers who would be prepared to pay the
high price, because such new inventions usually have prestige value.

25
3.2.2 Market penetration prices

Marketing management may decide against setting a high skimming price and rather set a
market penetration price. Here, the initial price of a new product is lower, and the
marketer hopes to penetrate the market rapidly, discouraging competitors in the process.

3.2.3 Market price level

This strategy is followed if there is keen competition and numerous similar products have
to compete against one another. In such a situation the marketer has to maintain the
market price. If he or she sets the price of the product higher than those of competitors,
consumers will tend to avoid the product. If the price is lower than those of competing
products, consumers will think there is something wrong with the product.

3.2.4 Leader prices

Leader pricing concerns special offer widely used by retailers – the so-called ‘specials’. A
very small profit is made on leader prices products. These products are sold at a lower
than the current market price for a limited period only.

3.2.5 Odd prices

Odd prices indicate that the final prices of products have odd numbers. The even prices,
for example, R2, R4, and R10 are avoided, and products are rather marked R1.99, R3.79
and R9.95. It is thought that consumers are more likely to accept odd prices because they
appear to be lower than even number prices.

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3.2.6 Bait prices

Bait prices are unethical and therefore avoided by honest retailers. A bait price item has a
particularly low price and it is widely advertised. On arriving to buy it, purchasers are
then encouraged to buy a far more expensive item (Cronje, Du Toit & Motlala, 2003:
321–323).

3.3 Pricing strategies

Prices and promotional activities may affect the image that customers have from stores. In
addition, pricing allows companies to segment markets, define products, create incentives
for consumers and even send signals to competitors. Different kinds of pricing strategies
are used to affect the latter (Cataluna, Franco & Ramos, 2005:2-4). A supplier has to price
goods and services in a way that achieves profitability for the company and satisfy
customers, while adapting to various constraints. Pricing is a crucial strategic variable due
to its direct relationship with the company’s goals and its interaction with other marketing
mix elements. A pricing strategy must be consistent with the company’s overall image
(positioning), sales, profits and return on investment goals (Berry & Joel, 1998:428-444).
There are six basic pricing strategies:

3.3.1 Soft discounts

The soft discount establishments present a commercial offer distributed approximately at

50 percent national brands and private labels. Soft discounts are normally applied to
cheaper brands where everyday low price strategy is implemented.

3.3.2 Hard discounts

They use the price variable more aggressively in all their references, using mainly private
labels that take up between 90 and 95 percent of the total assortment. The stores usually

27
have a poor environment and customer service is scarce. The number of references the
offer is also smaller, usually under 1,000 items.

3.3.3 Multiple item discounts

This involves advertising one item for half the price if the consumer buys another item.
Retailers often use this as a form of selling slow moving goods. To ensure the success of
the promotion, point-of-purchase materials should accompany the promotion.

3.3.4 Discount orientation

It uses low prices as the major competitive advantage of the company – which will trade
off a low-status image and low per unit margins in return for a target market of price-
based customers, low operating costs, and high inventory turnover.

3.3.5 At-the-market orientation

The company has average prices, and offers solid service and a friendly atmosphere to the
middle class customers. Profit margins are moderate to good, and average to above-
average products are stocked.

3.3.6 Up-scale orientation

It is where a prestigious image represents the company’s major competitive advantage.

The company is willing to trade off a smaller target market, higher operating costs and
lower inventory turnover in return for customer loyalty, distinctive services and product
offerings and high per unit profit margins.

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3.4 The consumer and retail pricing

There is often a relationship between price and consumers’ purchases, perceptions and
loyalty. Thus the retailers should understand the price elasticity of demand that they face.
The price elasticity of demand relates to the sensitivity of customers to price changes in
terms of the quantities they will buy. If a relatively small percentage change in price
results in a substantial percentage change in the number of units purchased, price
elasticity is high. This occurs when the urgency for a price is low or acceptable substitutes
exist. However, if a large percentage change in price has a small percentage change in the
number of units bought, demand is considered inelastic. This occurs when purchase
urgency is high or there are no acceptable substitutes (Berry & Joel, 1998: 428-444).

Figure 3.1 Factors affecting retail price strategy

Manufacturers,
Current and
wholesalers
potential
and other
Consumers Government competitors
suppliers

Total Effects on Pricing Strategy

Consumer price sensitivity varies by market segmentation. Here are some of them:

29
  Economic consumers – they perceive competing retailers as similar to one another
and shop around for the lowest possible prices. The segment has grown
dramatically in recent years.
 Status orientated consumers – they perceive competing retailers as quite different
from one another. They are more interested in prestige brands and customer
services than in price.
 Assortment-Oriented customers – they seek retailers with strong assortments in
the product categories being considered. They look for fair prices.
 Personalizing customers – they shop where they are known. There is a strong
personal bond with retail personnel and the company itself. These shoppers will
pay slightly above-average prices.
 Convenience-Oriented consumers – they shop only because they must. They want
nearby locations and long hours, and may shop by catalogue. These people will
pay higher prices.

Figure 3.2 Factors affecting retail pricing strategy

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 FACTORS AFFECTING RETAIL PRICE STRATEGY
Retail Objectives
Sales
Profit in Rands
Return on investments
Early recovery of cash

Broad Price Policy

Selection of target market
Choice of retail image
Composition of retail mix
Selection of price policy

Price Strategy
Demand
Cost
Competitive
Integrated

Implementation of Price Strategy

Customary & variable pricing
One price & flexible pricing
Odd pricing
Leader pricing
Multiple unit pricing
Price lining

Price Adjustments
Markdowns
Additional mark-ups
Employee discounts

3.4.1 Pricing objective

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Table 3.1 provides a list of specific pricing goals other than sales and profits. Although a
number of objectives are enumerated in the table, each company must determine their
relative importance given its particular situation and plan accordingly. Furthermore, some
goals may be incompatible with one another, such as ‘not to encourage customers to
become overly price conscious’ and a ‘we-will not-be-undersold philosophy’.

Table 3.1 Selected specific pricing objectives

• To maintain proper image
• To not encourage customers to become overly price conscious
• To be perceived as fair by all parties (including suppliers, employees and
customers)
• To be consistent in setting prices
• To increase customer traffic during slow periods
• To clear out seasonal merchandise
• To match competitors’ prices without starting a price war
• To promote a ‘we-will not-be-undersold philosophy’
• To be regarded as the price leader in the market area by consumers
• To provide ample customer service
• To minimize the chance of government actions relating to price advertising and
antitrust matters
• To discourage potential competitors from entering the market place
• To create and maintain customer interest
• To encourage repeat business

3.5 Price reductions and promotional deals

There is ample evidence that in-store price reductions affect brand decisions. The general
pattern involves a sharp increase in sales when the price is first reduced, followed by a

32
return to near-normal sales over time or after the price reduction ends (Del, Roger & Best,
2001: 603-732).

Sales increases in response to price reductions come from four sources:

 Current brand users may buy ahead of their anticipated needs. Stockpiling often
leads to increased consumption of the brand, since it is readily available.
 Users of competing brands may switch to the reduced price brand. These new
brand buyers may or may not become repeat buyers of the brand.
 Non-product category buyers may buy the brand because it is now a superior
value to the substitute product.
 Consumers who do not normally shop at the store may come to the store to buy
the brand.

High quality brands tend to benefit more than brands from lower quality tires when prices
are reduced (and to suffer less when prices are reduced). Like brands, households respond
to price reductions and deals differently. Younger and less educated consumers tend to be
somewhat more responsive to deals.

3.6 Pricing issues

Consumer groups want prices that are fair (generally defined as competitively
determined) and accurately stated (contain no hidden charges).
Unit Pricing is the presentation of price information on a common basis such as per
ounce across the brands. Such information, when properly displayed, can greatly facilitate
price comparisons. Perhaps the most controversial pricing area today is the use of
reference prices. An External Reference Price is a price provided by the manufacturer or
retailer in addition to the actual current price of the product.

33
3.7 Consumer sensitivity to pricing

Sampson (1964) has argued that many desensitizing factors operate to diminish the
impact of price changes. Insensitivity will therefore be greater where the following
conditions prevail (Stanley, Paliwoda & Thomas, 1996:256):

 Personal selling, and therefore, variation in point of sale effectiveness

 Promotion is local rather than standardized nationally
 Service after sales is important
 Consumer loyalties are significant
 Products are highly differentiated and difficult to compare
 There are multiple dimensions of product quality
 Unit price is low
 The product is sophisticated

Shapiro and Jackson (1978) cite five principles of a customer approach to pricing, which
are:

 The customer chooses products by measuring benefits against costs

 Benefits include more than physical attributes, and additional components such as
services are important in differentiating products
 Cost involves more negative aspects of the purchase price alone
 Benefits and costs must be understood in terms of a complete usage system, not as
an isolated part of the system
 Different customers view benefits and costs in different ways, meaning that
careful market segmentation is necessary.

3.8 A multi stage approach to pricing

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There are six major elements which have been identified by Oxenfeldt (1960) in a
domestic pricing decision, which in sequential order are:

 Selecting market targets

 Choosing a brand image
 Composing a marketing mix
 Selecting a pricing policy
 Determining a pricing strategy
 Arriving at a specific price

However, international pricing has to take many more variables into consideration, and
this is, of course assuming that payment will be made almost immediately.

4. LOYALTY

Loyalty is defined as consistently purchasing a brand over time due to an emotional

attachment to the brand (Hawkins, Best & Coney, 2001: 421-430). Service and store
loyalty are generally defined in the same or similar manner. Thus a loyal or committed
customer has an emotional attachment to the brand or company. The customer likes the
brand in a manner similar to a friendship.

Loyalty can arise through identification, where the consumer believes the brand reflects
and reinforces some aspects of the consumer’s self-concept. This type of commitment is
most common for symbolic products such as automobiles. Loyalty may also arise through
performance so far above expected that it delights the consumer. Such superior
performance can be related to the product or the company itself. Committed customers are
unlikely to consider additional information when making a purchase. They are also
resistant to competitors’ marketing efforts – for example coupons (Hawkins, Best &
Coney, 2001: 421-430).

35
Even when loyal customers do buy a different brand to take advantage of a promotional
deal, they generally return to their original brand for their next purchase. Committed
customers are likely to be a source of positive word-of-mouth communications. Positive
word-of-mouth communications from a committed customer increases both the
probability of the recipient becoming a customer and of the recipient sharing the positive
comment with a third person (Hawkins, Best & Coney, 2001: 421-430), e.g. “I have not
used Dulux paint yet but Tshepiso raves about the amazing look and quality of his walls”.

Figure 4.1 Customer satisfaction outcomes

Our total
products Increased
use

Repeat
purchases
Consumer Superior Perceived
decision value Sales value
process expected delivered
Brand
loyalty

Brand
Competitors’ switching
total products

4.1 Brand loyalty

While repeat is more immediate, brand loyalty is a measure of how loyal your consumers
are over a period of time. If your customers primarily use only your company’s products,
they are brand loyal. If they use your product at a majority of the time but occasionally
use your competitors’ products, they are moderately brand loyal. Low brand loyalty exists

36
if brand or product switching occurs regularly in your category or with your products
(Hawkins, Best & Coney, 2001: 421-430).

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