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One of the most intriguing subjects for marketers is how consumers perceive prices. When they see a price tag, can they rationally evaluate the costs, industry norms, competitor prices, etc. before making a purchasing decision? And what are the ways to influence their price perception, as well as their final decision?
Let’s look into how consumers perceive price, which factors affect that evaluation, and ultimately, what marketers can learn from consumer behavioral research.
A two-faceted notion
Price has two reciprocal roles in a consumer’s mind.
The first role is negative, the monetary sacrifice one has to make in exchange for a product/service. On the positive side, price is a cue of high quality.
If shoppers perceive price in its positive-weighted side, it’s more likely that they’ll purchase the product.
A fundamental duty of a marketer is to find the perfect perceived sacrifice/perceived quality balance. So, they need to price a product in a way that’ll attract many customers, but also maintain the perceived quality to a certain degree.
Factors that affect price perception
Consumers build internal reference prices in time through exposure to different prices. When they see a new price tag, they compare it to the reference price and form an opinion.
In other words, previous exposures to different prices have an effect on how we perceive the price in hand. Knowing this fact, marketers developed a tactic called price anchoring.
Price anchoring is a marketing tactic where marketers aim to increase the internal reference price via exposure to a higher price point.
Like the one above, all sizes of e-commerce companies benefit from anchoring, mostly due to ease of its implementation.
Amazon displays anchor prices on nearly all of its product pages under the name of ‘list price’.
TIP: Use anchor prices on your product pages, as well as the search pages to test whether if it works. While doing so, beware of the fact that shoppers frequently use comparison shopping engines. So, if you display artificially high prices that are much below competitors’, they will detect it.
Research suggests that consumers’ perception of the highest and the lowest price for a product impacts their purchasing decision. That is to say, not only the anchor price of a specific product, but all the prices they see influence their purchasing decision.
Make sure that shoppers do not encounter cheap products when they’re searching for premium ones.
Perhaps this is not the best combination to be displayed together.
Similar findings of another research revealed that presenting products in descending order encourages shoppers to choose a higher-priced option. The reason behind this tendency is that the presentation order influences which role of the price (negative or positive) is weighted more.
TIP: To avoid limiting users’ freedom, sort your products in descending order but also provide other options.
The limitations on marketers’ influence
The tactics we’ve mentioned above are useful to some degree.
Scholars argue that the more a consumer experience different prices, the harder influencing her price perception. In other words, the people who experience a wide range of prices are not easy to influence.
In the e-commerce industry, online shoppers regularly see different prices for the same product. That’s why the amount of a price change required to influence demand has increased.
Another study revealed that highly price-sensitive consumers (who make purchasing decisions based primarily on price) tend to search for a better price regardless of the level of discount. Meaning, offering a high-level discount doesn’t guarantee their loyalty.
TIP: Researchers recommend offering a low price guarantee to reduce this tendency. They also state that to be able to do so, retailers need to monitor competitor prices. If you falsely claim that you’re offering the best price, you run the risk of damaging your brand image.
Build a lasting perception
Many people think Amazon is the cheapest place to buy any products. That’s why the company has nearly half of the US e-commerce market share. But that suggestion is not accurate.
Amazon offers the best deals for the most popular products, but for the rest, it’s a different story. Their real success is in forming a perception in shoppers’ minds that the website is the cheapest destination for any product.
What’s the secret of their success?
Well, there is no cut-through to building another Amazon, but you can work on integrating their successful strategies into your marketing strategy.
A keystone of the company’s success is its dynamic pricing strategy. Dynamic pricing is a strategy where marketers set flexible prices that change according to the current demand, competitor prices, stock, etc.
Amazon built an in-house pricing engine that makes thousands of price changes in a day to competitively price its products. So, if Amazon wants to offer the best deal for a product, the engine simply makes it happen.
Avoid alienating customers
The future of pricing is impossible to imagine without the dynamic pricing strategy. Most of the retail giants already pursued this strategy to segment their audience and target them at different prices.
Although some say that it’s unethical, it’s a common strategy to offer customers different deals in brick and mortar sales. Since the final decision is left to the consumer (who has many other options and tools to check them out within seconds), it’s not unethical to offer different prices to different customers.
However, we can’t deny the fact that no one would like to pay more than another person for the same product.
Consumer behavior research suggests that shoppers only perceive volume discounts as favorable, but not the ones that result from customer segments.
So, how can we overcome this problem?
TIP: Offer personalized discounts that won’t reveal the price discrimination. Send discount coupons to your return customers via e-mail, offer discounts in the basket to reduce cart abandonment. To put it bluntly, don’t let your customers know they buy at different prices.
Price is a two-sided notion that creates both positive and negative feelings in consumers’ minds. If the positive feeling it creates is dominant over its negative symbol then there is a high likelihood of purchase.
There is a certain degree to which marketers can emphasize price’s positive meaning, and that’s not a long term solution. The long term solution is to set a persistent brand image in consumers’ minds that your website is the best destination for high product quality and best deals at the same time.
Frequently Asked Questions
How consumers perceive a price, which might be significantly different from the actual price.
Price has two reciprocal roles in our minds. One is positive, where it’s a cue of high quality. The other is negative, as a monetary sacrifice we make in exchange for a good or service. The ultimate duty of the marketer is to emphasize the positive role of price, which impacts the perceived value of a product/service.
Perceived benefits are the positive feelings that arise from using/possessing/consuming a product or service. For example, the perceived benefit of a luxury car is significantly higher than the perceived benefit of a regular car.