The focus of this blog is shopper-facing prices. More detail on how shoppers react to price and examples of what this means for execution can be found in my book. But here is a short summary.
Price helps shoppers make purchase decisions in two main ways; first it helps them understand the expected quality of a product relative to a consideration set, and second it helps them allocate their budget.
Value = benefits – price
The shopper sees value therefore when benefits exceed price. (Chen, Monroe, & Lou, 1998)
Shopper marketing helps by either amplifying the brand’s benefits, or framing the price in a way that enforces the products value to the shopper.
Framing refers to the way that the price information is provided to the shopper. Here are some examples:
• Buy one get one free
• Was $2, now $1
• For a limited time only
• While stocks last
Price framing is important because we do not process all of the numerical information in the price. We use shortcuts in reading and understanding prices in the same way we do with other elements of the marketing mix that confront us in stores. (Striving & Winer, 1997)
Retailers are able to influence shopper behavior with price frames that impact the shoppers ‘price processibility’ (the ease with which shoppers can compare products in store) and ‘price perceptibility’ (the ease with which a shopper can see the actual prices in-store). (ZIELKE, 2006)
The elements that can impact these two areas include the following:
Price endings and beginnings
Shoppers read prices from left to right and when comparing products pay less attention to left digits that are the same for the products under consideration. When this occurs, they use the digits towards the right as the basis for their price comparisons. (Poltrock & Schwartz, 1984)
When the left most numbers are different though, shoppers will use them as the basis for their initial comparison.
Here is an example:
Option A: $79 $93, Option B: $75 $89
When tested many people report option A as being most different. (Monroe & Lee, 1999)
This effect is produced because as shoppers we seem to trick our perception of magnitude by primarily referring the left most digit in price and rounding numbers down. (Asamoah & Chovancová, 2011) (Thomas & Morwitz, 2005)
Unit prices
Unit pricing refers to the presence on the price ticket of a relative price for a rounded quantity of the sku. For example, a 30 pack of baby diapers might have a price of $21.95 and a unit price 0.73 cents per diaper. These unit prices are provided in the hope that they help the shopper make quicker judgments on the products value.
Colors
In another interesting test, it was found that males perceive greater saving when prices are shown in red versus black! (Puccinellia, Chandrashekaran, Grewal, & Suri, 2013)
Physical distance between prices
Another interesting finding is that when it comes to the display of the standard shelf price, for example $7 versus the sale price $5, a greater horizontal separation between these prices leads to higher discount perceptions. It seems that our internal ‘magnitude representations” is impacted by the space between the two prices. (Coulter & Norberg, 2009)
Font size
Another interesting example of this magnitude effect can be seen in pricing font size.
When the regular price is in a larger font than the sale price, people perceive the sales price as small in comparison to when the sale price is written in a larger font than the regular price.
Sale signs
Fact: the presence of a sale price in-store, without a price discount, has been shown to increase sales. (Inman, McAlister, & Hoyer, 1990)
The simple shelf flag that announces the price offer is often enough to capture the shopper’s attention and trust. The fact that they have found motivating deals using these signs in the past re-enforces their relevance for finding deals in the future. However, when sale signs are placed on more than 30% of the skus within the category, their effectiveness drops. (Anderson & Simester, 2003)
Works Cited
Anderson, E., & Simester, D. (2003). Mind Your Pricing Cues. Harvard Business Review September, 96-103.
Asamoah, E. S., & Chovancová, M. (2011). 16. THE INFLUENCE OF PRICE ENDINGS ON CONSUMER BEHAVIOR: AN APPLICATION OF THE PSYCHOLOGY OF PERCEPTION. ACTA UNIVERSITATIS AGRICULTURAE ET SILVICULTURAE MENDELIANAE BRUNENSISVolume LIX 3 Number 7, 29-38.
Chen, S.-F. S., Monroe, K. B., & Lou, Y.-C. (1998). The Effects of Framing Price Promotion Messages on Consumers\’Perceptions and Purchase Intentions. Journal of Retailing, Vol. 74 (3), 353-372.
Coulter, K. S., & Norberg, P. A. (2009). The effects of physical distance between regular and sale prices on numerical difference perceptions. Journal of Consumer Psychology 19, pp. 144–157.
Inman, J. J., McAlister, L., & Hoyer, W. D. (1990). Promotion Signal: Proxy for a Price Cut? Journal of Consumer Research, Vol.17(1).
Monroe, K. B., & Lee, A. Y. (1999). Remembering Versus Knowing: Issues in Buyers Processing of Price Information. Journal of the Academy of Marketing Science, Vol 27, No. 2, 207-225.
Poltrock, S. E., & Schwartz, D. R. (1984). Comparative Judgments of Multidigit Numbers. Journal of Experimental Psychology:Learning, Memory, and Cognition Vol. 10, No. 1, 32-45.
Puccinellia, N. M., Chandrashekaran, R., Grewal, D., & Suri, R. (2013). Are Men Seduced by Red? The Effect of Red Versus Black Prices on Price Perceptions. Journal of Retailing 89 , 115-125.
Striving, M., & Winer, R. S. (1997). An Empirical Analysis of Price Endings with Scanner Data. Journal of Consumer Research Vol 24, 57-67.
Thomas, M., & Morwitz, V. (2005). Penny Wise and Pound Foolish: The Left-Digit Effect in Price Cognition. Journal of Consumer Research Vol. 32, 54-64.
ZIELKE, S. (2006). Measurement of Retailers’ Price Images with a Multiple-item Scale. Int. Rev. of Retail, Distribution and Consumer Research Vol. 16, No. 3, 297-316.
