Price is an essential component of the marketing mix. It has to be defined so that the customers buy the product and the company does not make any loss: if it is too high, people will not buy the product and if it is too low, the sales revenues will not be sufficient to allow profits.
HSBC mortgages interest rates are given on the website of the company. As an example, if we use the Mortgage Finder with a property value of £700,000 and a deposit value of £200,000 to be repaid in 20 years, the interest rates that are given vary between 2.99% and 4.29%. According to the Ashton and Hudson article, the choice of these rates is a method to force customers to see the interest rate lower than it really is. Indeed, they are inclined to round or truncate the interest rate ate the inferior integer. They perceive a lower interest rate and will buy the product more easily than it had a round interest rate. It is very significant in UK mortgage markets although the degree of clustering varies with the customers.
There are other factors that have an impact on the price of a product. For instance the promotions: HSBC Insurances launched a promotion one year ago for their Mortgage Protector Policy, which cut interest rates to provide against customer’s demise. This leads to a range of interest rates very competitive with the competitors’. According to The long-term effect of Marketing Strategy on Brand Sales, some research show that there is a positive effect of discounts on the sales level because a higher number of people buy the product (purchase reinforcement), but some others are more pessimistic and found a negative correlation between cutting prices and sales levels. The aim of a discount is to focus the customer on the price regardless of all the other characteristics of the product; however it may not be attractive enough to attract the number of customers needed to reach the break-even point and make a...
References: * John K. Ashton, Robert S. Hudson, 2007. Interest rate clustering in UK financial services markets.
* M. BERK ATAMAN, HARALD J. VAN HEERDE, and CARL F. MELA, 2010. “The Long-Term Effect of Marketing Strategy on Brand Sales”
Please join StudyMode to read the full document