One of the key messages I’m trying to inform General Managers about is that when it comes to consumers, we have to be expert psychologists. Nothing is ever as simple as it seems. And when it comes to consumers price is as much a perception as in any other area of consumer engagement. In part 7 of our pricing series lets take a look at…
The previous strategies either minimized the perceived size of your price or maximized the perceived size of reference prices. This next strategy will help you maximize the perceived distance between your price and higher reference prices.
When you compare your price to a higher price, people are more likely to buy your product because they feel less motivated to research the decision (Urbany, Bearden, & Weilbaker, 1988). They’ve already done their homework.
But here’s a neat psychological trick to enhance that comparison.
If you visually distinguish your price from a reference price (e.g., using a different font colour), you trigger a fluency effect. Consumers will misattribute that visual distinction to a greater numerical distinction (Coulter and Coulter, 2005).
That fluency effect not only works with font color, but it also works with physical distance. When your price is horizontally farther away from a reference price, people perceive a greater numerical distance (Coulter & Norberg, 2009).
And don’t forget about font size. Smaller font sizes are especially effective when they’re positioned next to a larger reference price (Coulter & Coulter, 2005).
Oftentimes, people use your own products for reference prices. To ensure that their comparisons are conducive for your bottom line, you should consider adding a “decoy product.”
You might be familiar with the infamous study. In Predictably Irrational, Ariely (2008) describes a strange offering from the Economist magazine. One day, he noticed three subscription options:
At first glance, it seemed like the “print only” option was a mistake. Who would choose that option when you could choose a web and print subscription for the same price?
But Ariely noticed an underlying motive. He conducted a study to test his hunch. And he was right. The “print only” option made a huge difference.
Without the “print only” option, people couldn’t accurately compare the options. How much should you pay for a web and print subscription? Who knows. Most people chose the web option because it was cheaper.
However, the “print only” option helped people compare those two options. Because it was a similar, yet worse, version of the “web and print” option, people could easily recognize the value of the web and print subscription. With more people choosing “web and print” (a more expensive alternative), the Economist generated 43% more revenue.
When you offer different versions of your product, people will naturally compare those options. To guide people toward the more expensive version, you can take the same approach.
By adding a similar, yet worse, version of your expensive product, you influence the comparison process. Suddenly your expensive product becomes more appealing.