Dissertation 4

To Study Psychological Impacts of Pricing on Firms Performance: A Case of IKEA, UK
by
[Your official name]
[Degree Title], [university], 20XX
Research Proposal
[Name of program]
[Name of University]
[Date of Submission]
Pricing and Consumer Psychology
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
ABSTRACT....................................................................................................................................ii
ACKNOWLEDGEMENT..............................................................................................................iii
DECLARATION............................................................................................................................iv
CHAPTER 1: INTRODUCTION....................................................................................................1
1.1
Background of the Study...............................................................................................1
1.2
Contextual Background.................................................................................................2
1.3
Research Problems........................................................................................................4
1.4
Aims and Objectives.....................................................................................................5
1.5
Research Questions.......................................................................................................5
1.6
Rationale of Study.........................................................................................................6
1.7
Significance of Study....................................................................................................6
1.8
Defining the Key Terms................................................................................................7
1.9
Structure of Study..........................................................................................................7
CHAPTER 2: LITERATURE REVIEW.........................................................................................8

2.1
Impact of Pricing Strategy on Firm Performance.........................................................8
2.2
Pricing Objective for Enhanced Performance...............................................................9
2.3
Factors Influencing Pricing.........................................................................................11
2.4
Efficient Pricing Leading to Profitability....................................................................12
2.5
Consumer Psychology.................................................................................................13
2.6
Factors Influencing Consumer Psychology.................................................................13
2.7
Perception-Price-Consumer Relationship...................................................................15
2.8
Formulation of Hypothesis..........................................................................................16
CHAPTER 3: METHODOLOGY.................................................................................................17
3.1
Research Method.........................................................................................................17
3.2
Data Collection Method..............................................................................................18
3.3
Sampling Method........................................................................................................18
3.4
Research Approach......................................................................................................19
3.5
Research Purpose........................................................................................................20
3.6
Research Strategy........................................................................................................20
3.7
Research Paradigm......................................................................................................21
3.8
Accessibility Issues.....................................................................................................21
3.9
Ethical Issues...............................................................................................................22
3.10
Data Analysis Plan...................................................................................................24
3.11
Research Limitations...............................................................................................24
CHAPTER 4: ANALYSIS AND DISCUSSION...........................................................................25

4.1
Questionnaire Analysis................................................................................................25
4.2
Interview Analysis.......................................................................................................39
4.3
Discussion...................................................................................................................42
CHAPTER 5 CONCLUSION AND RECOMMENDATIONS.....................................................45

5.1
Conclusion...................................................................................................................45
5.2
Recommendations.......................................................................................................47
REFERENCES..............................................................................................................................49
APPENDIX....................................................................................................................................55
Appendix A: Questionnaire...................................................................................................55
Appendix B: Interview Questions.........................................................................................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 underpricing 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
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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
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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
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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 underpricing, 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
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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
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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
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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.
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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
17
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
18
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.
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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.
20
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
21
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
22
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
23
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.
24
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
25
4.1.1.1.
Frequency Distribution
Gender
A sample of 100 consumers was chosen for convenience, and among those 100
participants, 45 were males and 57 were females.
Gender
43
57
Males
4.1.1.2.
Females
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.
26
Age
5
23
15
25
32
18-23
34-38
4.1.1.3.
24-28
39 and above
29-33
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.
Value of Product Characteristic

12
38
35
15
Price
Availability
Question 1
Brand
Other
Quality
27
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
Valid
Cumulative
Percent
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
7.0
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.
28
Table 2: The product placed at $200 will be higher in quality than the
product placed at $100.
Valid
Cumulative
Percent
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
below.
Table 3: I would rather buy product placed at $2.95 than the one placed
at $3.
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
7.0
7.0
100.0
Total
100
100.0
100.0
29
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

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
below.
30
Table 5: In a store, I first look for discounted items.

Cumulative
Percent
Valid
Strongly
Disagree
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
Table 6: Free gift offers attract my attention.

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
31
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.
Valid
Cumulative
Percent
Strongly
Disagree
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
32
Table 8: I am comfortable in buying product from a high priced store

than driving to a discounted one.
Valid
Cumulative
Percent
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
9.0
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.
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
8.0
8.0
100.0
Total
100
100.0
100.0
Question 10
33
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
Table 10: Rather than going for my favorite brand, I would compare its
price with the similar product offered by its competitor.
Valid
Cumulative
Percent
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
9.0
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.
34
Table 11: High prices do affect the decision of buying my favorite brand.
Cumulative
Percent
Valid
Strongly
Disagree
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
7.0
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.
Valid
Cumulative
Percent
Strongly
Disagree
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
35
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.
Valid
Cumulative
Percent
Strongly
Disagree
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.
36
Table 14: The balance of price and quality is what inclines my loyalty
towards a brand.
Valid
Cumulative
Percent
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
37
Variables Entered/Removedb
Variables
Variables
Model Entered
Removed
Method
Enter
Pricing
Strategya
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
Adjusted R
Model R
1
.704a
Std. Error of
R Square Square
the Estimate
.496
.681
.491
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.
38
ANOVAb
Sum of
Model
1
Squares
df
Mean Square F
Sig.
Regression 44.743
44.743
.000a
Residual
45.417
98
.463
Total
90.160
99
96.547
a. Predictors: (Constant), Pricing Strategy

b. Dependent Variable: Consumer Psychology
Coefficientsa
Model
1
Unstandardized
Standardized
Coefficients
Coefficients
Std. Error
(Constant)
1.044
.238
Pricing
.684
.070
Beta
.704
Sig.
4.396
.000
9.826
.000
Strategy
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.
39
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
40
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 flatpacked 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
41
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 Discussion
4.3.1
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.
42
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
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
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
43
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.
44
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
45
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).
46
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.
47
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.
48
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53

APPENDIX
Appendix A: QuestionnaireSurvey
The Psychological Impact of Pricing on the Firms Performance
Demographics
Age:
a.
b.
c.
d.
e.
18-23
24-28
29-33
34-38
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.
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.
b. Disagree
c. Neutral
d. Agree
e. Strongly Agree
5. Pricing strategies affect my buying decision
b. Disagree
54
55
c. Neutral
d. Agree
e. Strongly Agree
Consumers Psychology
6. In a store, I first look for discounted items
b. Disagree
c. Neutral
d. Agree
e. Strongly Agree
7. Free gift offers attract my attention.
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.
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.
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.
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.
b. Disagree
c. Neutral
d. Agree
56
e. Strongly Agree
12. High prices do affect the decision of buying my favorite brand.
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.
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.
b. Disagree
c. Neutral
d. Agree
e. Strongly Agree
15. The balance of price and quality is what inclines my loyalty towards a brand.
b. Disagree
c. Neutral
d. Agree
e. Strongly Agree
57
Appendix B: Interview Questions

Interview Questions for IKEAs Employees.
1.
2.
3.
As a world famous company of furnishing, what is the competitive strategy of pricing?

What are the main elements of IKEAs pricing strategy?
What is your target market and how do you provide low-cost furnishings with bringing
4.
5.
sustainability into peoples lives?

How does IKEA manage to keep its prices low?
Can effective pricing strategies and low cost of IKEA products have a positive impact on
6.
companys performance?
How does low cost of IKEA products affect consumers psychology and what is the
7.
intention behind it?

What are the market goals of IKEA? Does the firm want to maintain, increase or decrease
its product prices?

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

[Degree Title], [university], 20XX

Pricing and Consumer Psychology

Pricing and Consumer Psychology

Pricing and Consumer Psychology

Pricing and Consumer Psychology

Background of the Study...............................................................................................1

Aims and Objectives.....................................................................................................5

Defining the Key Terms................................................................................................7

CHAPTER 2: LITERATURE REVIEW.........................................................................................8

Impact of Pricing Strategy on Firm Performance.........................................................8

Pricing Objective for Enhanced Performance...............................................................9

Factors Influencing Pricing.........................................................................................11

Efficient Pricing Leading to Profitability....................................................................12

Factors Influencing Consumer Psychology.................................................................13

Data Collection Method..............................................................................................18

Pricing and Consumer Psychology

Data Analysis Plan...................................................................................................24

CHAPTER 4: ANALYSIS AND DISCUSSION...........................................................................25

CHAPTER 5 CONCLUSION AND RECOMMENDATIONS.....................................................45

Pricing and Consumer Psychology

1.1 Background of the Study

Pricing and Consumer Psychology

1.2 Contextual Background

Pricing and Consumer Psychology

Pricing and Consumer Psychology

1.3 Research Problems

Pricing and Consumer Psychology

1.4 Aims and Objectives

Investigating the impact of Pricing strategies on consumers psychology and firms

1.5 Research Questions

Pricing and Consumer Psychology

1.6 Rationale of Study

1.7 Significance of Study

1.8 Defining the Key Terms

Pricing and Consumer Psychology

1.9 Structure of Study

Pricing and Consumer Psychology

CHAPTER 2: LITERATURE REVIEW

2.1 Impact of Pricing Strategy on Firm Performance

Pricing and Consumer Psychology

Pricing and Consumer Psychology

Pricing and Consumer Psychology

Corporate and Marketing Objectives

Industrial Structure and Competition:

Variation in cost of production

production is higher, the product price would also be higher.

Pricing and Consumer Psychology

Marketing Mix Strategy

Pricing and Consumer Psychology

Pricing and Consumer Psychology

perceptions are formed on former experiences, which establishes a set of assumptions or

Pricing and Consumer Psychology

Pricing and Consumer Psychology

3.1 Research Method

Pricing and Consumer Psychology

3.2 Data Collection Method

3.3 Sampling Method

Pricing and Consumer Psychology

3.4 Research Approach

Pricing and Consumer Psychology

3.5 Research Purpose

3.6 Research Strategy

Pricing and Consumer Psychology