Tag: The Psychology of Price: How to use price to increase demand profit and customer satisfaction

💎 Pricing two items equally makes choosing harder (and could result in fewer sales)

Kim, Novemsky, and Dhar (2013) ran this gum experiment in South Korea. Participants were given W1,000 (about $1) and asked which gum they would like to buy. Participants could also choose to keep the money and not buy any gum. When both gums were priced at W630 only 46% of participants decided to buy one of both options, but when the price was slightly different (W620 vs. W640) this proportion increased to 77%.

Excerpt from: The Psychology of Price: How to use price to increase demand, profit and customer satisfaction by Leigh Caldwell

💎 It’s well proven that price affects quality perceptions (but its effect is weighted on a number of factors)

Völckner and Hofmann (2007) analyzed 71 studies from 23 publications spanning from 1989 to 2006. The researchers distilled following findings:

  • The impact of price on quality perception is significant but has decreased since reported in the late 1980s (Rao and Monroe 1989).
  • Price-quality inference is stronger for higher-priced products.
  • Price-quality inferences decrease with increasing familiarity with the product.
  • Price-quality inference is stronger for fast-moving consumer goods than for services or durable goods.
  • Price-quality inference is stronger in European countries than in North American countries.

Excerpt from: The Psychology of Price: How to use price to increase demand, profit and customer satisfaction by Leigh Caldwell

💎 Consumers systematically prefer a large percentage to a small percentage (bonus pack vs. price discount)

A price discount of 20% is economically equal to a volume increase of 25%. Chen et al. (2012) discovered that consumers err when calculating percentages and tend to ignore the base value the percentage refers to – an effect coined “base value neglect.”

The researchers observed that consumers systematically prefer a large percentage to a small percentage. This means consumers prefer a bonus pack to an economically identical price discount when both are expressed as percentages. Vice versa, consumers also prefer a size decrease to price increase when presented as a percentage.

In a field study, Chen et al. (2012) sold a hand lotion either at a 35% price discount or as bonus pack with 50% more content in a small retail store. After 16 weeks of promotion, the researchers observed that the bonus pack promotion sold 81% more units per day than the price discount promotion.

Excerpt from: The Psychology of Price: How to use price to increase demand, profit and customer satisfaction by Leigh Caldwell

💎 If you provide a price or quote best to leave out the comma (it makes the number look smaller)

To manipulate the number of syllables of a given price Coulter, Choi, and Monroe (2012) introduced a comma into the same four-digit price and let it mention in a radio commercial as, for example, $1,645 (one thousand six hundred forty-five: 9 syllables) vs. $1645 (sixteen forty-five: 5 syllables). Then participants were asked to rate the magnitude of the price on a 10-point scale.

Participants rated the magnitude of the price with the comma higher than the same price without a comma.

Excerpt from: The Psychology of Price: How to use price to increase demand, profit and customer satisfaction by Leigh Caldwell