Choosing reference price without knowing the pricing information

Choosing an event
company to organize an event is a difficult decision which is formed by several
aspects including the price. When a product or service is priced too low it
will not be profitable and when it is priced too high customers will not be
willing to pay for it.  Research in
marketing has acknowledged the importance of pricing methods. It is suggested
by many literature that consumers evaluate the price of a service based on what
they expect from it and compare this to what they actually get out of it
(Mamun, Rahman and Robel, 2014).

When studying the
customer expectations of price, it is essential to make a distinction between
the observed price, the reference price and the perceived price.  The observed price is defined as the total price
a customer pays to receive or make use of a service (Han and Hyun, 2015).  When studying the price expectations, it is
essential to know the reference price of a targetgroup. The reference price is
the price the customer is expecting to pay for it (Gupta & Kim, 2010). Wicker
& Hallmann state that customers can have a reference price without knowing the
pricing information of the industry, they will have a maximum price in mind in
comparison with what they expect from it (2013).

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 So far, very little research has been done
about the expectations of the Dutch event market. However, there are studies
available from key event cities. Prior research has shown that the reference
price in London per event is estimated at 65.943 pounds (€75.645).
The entire UK business event industry is worth 58,4 billion pounds. With the
information that there are 1.3 million events in London per year it can be said
that the observed price is 8% lower than the reference price of the customers (Eventbrite,
2017).

The perceived
price is described as the customer’s personal assessment of the price. The
perceived price results from the difference between the observed price and the
reference price (El haddad & Assaker, 2015).  To study the perceived price, it can be
divided into two variables: the price gain and price loss of a product or usage
of a service (Pelegrin-Borondo, Arias-Oliva & Gonzalez-Menorca, 2015).  When a customer pays less than expected the
difference is negative, in this case the customer perceives the price as cheap
which results in perceived price gain (Han, Gupta & Lehmann, 2001). Most of
the time this will have a positive effect on the likelihood of purchase.
However, some authors argue that when a customer perceives the price as cheap
there will be doubts about the quality of the product or service (Fernandez
Barcala, Gonzalez Diaz & Prieto Rodriguez, 2009). When the customer pays
more than expected the difference is positive and the customer will perceive
the price as expensive which will result in perceived price loss (Han,
Gupta & Lehmann, 2001). From these studies, it can be said that price
expectations will influence the expectations regarding the quality of the
product or service as well. But comparing this to a study conducted by Erdem,
Keane & Sun it is proven that the main factor which will influence the
price and quality expectations of customers are the promotion sellers. They can
give a wrong impression of the product or service which can result in high
expectations or rather low expectations which are not realistic (2008).  The observed price is linked to the quality
assessment. Studies have shown that the observed price is the most crucial
factor when customers are assessing a product on quality.  

Products & Service expectations | Wat verwachten klanten van de producten
& service.

In this paragraph, the expectations of the business market regarding products
& services will be investigated.  Many authors acknowledge the fact that products are goods
and services offered by an organization for sale. Customers are not paying for the
tangible product but for the benefit it will delivers them. The term product
can be defined as ‘anything
that can be offered to a market to satisfy the want’ (Kotler and Keller, 2012).

In the event industry products can be described as events. The
expectations of events are diverse and depend on the purpose of each event. In
2016 and 2017 the most common reason to organize an event was for education and
training of employees purposes. The least popular reason to organize an event
was for marketing purposes such as brand or product launch (Eventbrite, 2017).  This is a surprising finding since
experiential marketing is becoming more important. In 2009, an experience is
proven to be one of the most effective tools to make a business more
competitive in the industry (Petersson and Getz, 2009). 

The product expectations are also linked to the price
expectations. Research indicates that the business
event customers in the UK are willing to pay the most for conferences and
meetings and the least for corporate social events because of the result they
get out of these events. In the event industry, a lot of factors are important.
Studies show that in 2017 the location is the most important and most costly
for business event customers in the UK. The least important factor for an event
is print. Currently the biggest trend in the event industry
is technology. Customers want to integrate this into their event programme by
making use of social media, mobile event apps and analytics software (Eventbrite,
2017).

Nowadays services are of big importance in a lot of
industries. The service is responsible for a big part of the revenue stream in
the tourism, event and hospitality industry (Spohrer & Maglio, 2008). Because
every industry has a different perception of a service, it is hard to formulate
one complete definition of what a ‘service’ is.

Services
are mostly defined by authors as something intangible, however
most of the services also exists out of tangible aspects such as advising or
consulting customers (Sampson and Froehle, 2006).  A product is a thing in comparison with a
service which is an activity. A service is a process which takes care of the
customer or something which belongs to them (Sampson, 2005).  Fitszimmons and Fitszimmons state that a
service is an activity,

which are offered as a solution for the problems of
a customer (2000).

The problems of the customers are investigated in a
customer expectation study. The major findings in this study is that customers
expect personalized and customized service with a consistent level of service.  The major frustrations in customer service are
that problems we’re resolved quickly and that
hidden costs or fees for extra service (Choi & Mattila, 2008) The way of
communicating is crucial to satisfy the customers. A study conducted in the UK
states that the event customers prefer to have contact with a representative of
an event company by email, social media and face to face (Eventbrite, 2017).

Since customers are more important
than ever, customer service and experience is one
of the key factors in the service industry. Researchers of the
institution KPMG expect that in the coming 5 years, customer service and
experience will be more important compared to the product or price of a company
(Hernandez, 2016).

To recap the key topics in the literature review, it can be
said that the price, product and service are fundamental aspects to consider
when understanding a targetgroup. When customers make a purchase, all these
topics are taken into consideration.  

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