Reference price is the price that a consumer considers justified to pay for a product/service in comparison to competitor products or in comparison to the previously advertised price of the same product/service.
1. Reference price can be a strategy where a firm sets its price in reference to its competitors- just below the competitor price. The competitor price will serve as a reference price for the customers and the lower price of your product will appear as a better deal. This way the firm will be able to tap the price sensitive customers if the product is similar.
Example: Competitor price is 55 Rs for a pack of coil and you launch the product with Rs 55 crossed and price written as Rs 50 with a message save Rs 5, introductory offer
2. Many firms also follows the strategy of keeping high prices initially and later offering high discounts. By keeping high price initially customers have a high refernce price and when they see a high discount based on the high base price, they have a notion that it is a very great deal. This lead to increase in sales.
Example: A store launches new clothes range for fall and after a week or two offers 50% discount on them
Hence, this concludes the definition of Reference Pricing along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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