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. This is part 5 in a series on dynamic psychological pricing.
There are no universal standards that dictate whether a price is high or low — it all depends on the consumers perception of that price and how consumers learn about how pricing works.
The previous strategy explained how numerical anchors can influence people’s perception of your price. However, anchoring effects stem beyond numerical values. You can also influence people’s perception through general magnitudes, by priming or stimulating their perception of prices.
For example, Oppenheimer, LeBoeuf, and Brewer (2007) found that people made lower numerical estimates if they were asked to draw a short line (compared to a long line).
If you want people to perceive your price to be smaller, you need to associate all of its related features with a small magnitude.
Here are some tactics that can help.
If you want people to perceive your price to be smaller, you should physically position your price to be on the left (Coulter, 2002).
It sounds odd, but keep reading.
Research shows that directional cues are associated with certain concepts. For example, your spatial concept for “up” is metaphorically associated with good qualities:
“…the righteous go ‘up’ to Heaven, whereas sinners go ‘down’ to Hell. In the media, movie critics give good movies ‘thumbs up’ and bad movies ‘thumbs down.’ …people who smoke marijuana ‘get high,’ but when the euphoria diminishes, they ‘come down’…” (Meier & Robinson, 2004 pp. 243)
Due to our association between “up” and “good,” priming the spatial concept of “up” can trigger associations with “good.” Meier and Robinson (2004)found that people recognized positive words faster when those words were positioned toward the top of a screen (and they recognized negative words faster when they were positioned toward the bottom).
The same principle applies to numbers. Dehaene, Bossini and Giraux (1991) found that people conceptualise numbers on an imaginary horizontal line, with numbers growing larger from left to right.
In their study, they presented participants with digits ranging from 0 and 9, and they asked participants to indicate its parity (i.e., whether it was odd or even). As expected, people responded faster to smaller numbers when using their left hand (and vice versa). In other words, people responded faster with the hand that matched the same side of their mental ruler.
How does that finding relate to pricing?
Since we conceptualize smaller numbers as belonging on the left, positioning prices toward the left can trigger people’s conceptualization for a smaller magnitude, thus altering their perception of your price (Coulter, 2002).
Since we can also associate numbers with a vertical magnitude (with smaller numbers positioned toward the bottom), you might want to position your prices toward the bottom-left.
In addition to directional cues, the physical size of your price can also influence people’s perception.
Thanks to processing fluency, people will perceive your price to be smaller if you display that price in a smaller font. This tactic is particularly effective when you contrast your price with a larger sized reference price (Coulter & Coulter, 2005).
And don’t forget about the font’s kerning — the spacing between letters. Fonts with smaller kerning should also influence people to perceive your price to be lower.
Besides font size and kerning, another consideration is punctuation. Researchers found that removing commas (e.g., $1,499 vs. $1499) can influence people to perceive your price to be lower (Coulter, Choi, and Monroe, 2012).
Why does that happen? Although physical length plays a role, there’s another principle involved. We’ve already discussed it.
Can you think of it? When you remove the comma, you reduce the phonetic length of your price.
Consistent with fluency, that adjustment can cause people to perceive your price to be lower.
Be careful when choosing the language near your price. Certain words can taint people’s perception.
For example, Coulter and Coulter (2005) presented participants with various descriptions for an inline skate. Some descriptions emphasized a “Low Friction” benefit. Other descriptions emphasized a “High Performance” benefit.
Even though participants rated those benefits as equally important, participants were more favourable toward the price when the description contained “Low Friction.”
When you choose the language near your price, choose words that are “congruent” with a small value (e.g., “low,” “small,” “tiny”).
Thomas, Simon, and Kadiyali (2007) analyzed 27,000 real estate transactions. What did they find? Buyers pay more money when prices are specific (e.g., $362,978 vs. $350,000).
Is it because of the negotiation aspect? If someone asks for a very specific price, wouldn’t potential buyers perceive less room to negotiate?
We highlighted earlier that rational purchases should have a believable rational number. Additionally, when are you more likely to use a precise value- when you’re dealing with small numbers (e.g., 1, 2, 3).
Bonus Tip: Since a house is a rational purchase, you could enhance the psychological impact by using a precise, non-rounded number (e.g., $362,798.76)