Transcript
Welcome to part 2 of the mini-series about customers’ preferences, perception, and persuasion.
In the last video, we talked that your customers are using different cues to assess your products’ quality, freshness, and environmental impact.
One of them was the price.
In today’s video, I want to talk about how the price perception is influenced.
Let us start with a quick test.
Which of the three tubes would you pick?
Assume that all contain the same volume ingredients and have the same consistency and smell.
Write it down to later compare it with the findings of the study that used the same pictures.
Now let us add some prices to the tubes.
Which one would you pick now?
Did you decide to switch or stick with your first decision?
What you just experienced is the following. In the absence of almost everything, meaning we only see the size and the color, we pick the one that fits our taste. Meaning in the absence of almost everything,
we rely on visual cues.
Only 15 out of 80 participants picked tube C. Which is roughly 19%. 25 out of 80 choose tube A. And half of the participants meaning 40 out of 80 voted for tube B.
Why do you think this is the case?
Hint: It has nothing to do with the gender of the participants. All of them were women.
Let us go to the second test. Here only 19 out of 80 choose tube A. A loss of 7.5%. While tube B was the clear winner of the first test is got picked 30% less in the second test. Only 16 out of 80 participants decided to go for this one. All the other 45 participants picked tube C. An increase of almost 38%.
What is your take on this behavior change?
To understand this change better, let us look at an industry that uses the cause for the behavior shift to its extreme.
Let’s grab some popcorn.
Which one do you pick?
The small, medium, or a large one?
Assume all have the same taste!
Now, let us put a price tag on them.
Which one do you choose now?
Did you switch after seeing the price, or did you stick to your decision?
What we just experienced is the influence of the price on your decision. Meaning while in the absence of almost everything, we rely on visuals. When confronted with a price, the price overrules our decision based on visuals.
Meaning the influence of the price on our perception is greater than that of visuals.
Why is this the case?
In the second tube test, the price of tube A was $59.99, tube B $17.99, and tube C $12.99. As the tubes have the same size and ingredients, the white tube seems too expensive. In this scenario tube B and tube C become more reasonable.
But given the fact that everything else is the same, why would you pay $5 more just to have a better-looking tube?
You don’t, and, therefore, you decided, as did over 56% of the participants, to go with tube C.
The same happened with the popcorn. In the absence of a price, we choose with our feelings. But as soon as we see that the small one costs $2.50, the medium $6.50, and the large one $7.50, we tend towards the large one. The $6.50 for the medium makes the $7.50 for the large one look way more reasonable.
In both cases, the tubes and the popcorn, we instinctively put the size or volume of the product in proportion to the price differences. Paying $5 more for the same volume does not make sense. But paying $1 more to go from medium to large is more than worth it.
What happens is that we justify the new decision based on the other prices. This justification of our decisions is used in different ways.
Let us take a look at the following website.
The first thing which stands out is that they have right now a discount going on.
Like $60 for three packages seems a lot. Paying only $54 means you are getting a discount of 10%.
Which is way better.
After clicking on the product, you are confronted with a price of $48 and think, wow, that is even cheaper than I expected.
What is happening here?
The €60 functioned as an anchor and established the price reference for your future decisions. Which got already influenced as you are confronted with a discount of 10% and, therefore, paying only €54.
The product in your eyes goes just more attractive. It then went even more attractive as you saw that you had only to pay €48.
You may not recognize the subscription is the default opt-in making it slightly harder for you to opt out as you would be forced to pay more than it is shown.
There is one more thing.
Did you notice that the company wrote it costs you only €1.60 per night?
Come one only €1.60 per night what a price.
Another company that uses the anchor technique to its finest is Apple. You do not have to like the company or its products, but we can learn a lot about the mechanics.
Let us assume you want a new smartphone, and it happens to be the latest iPhone.
You are confronted with deciding between the 6.1″ display and the 6.7″ display.
The 6.1″ is listed for 1.149 € while the 6.7″ is listed for 1.249 €. For just 100 € more, you get a larger display. The image of the two iPhones side-by-side on left side supports your decision to go with the larger one. And Pro Max instead of only Pro sounds way better.
The first decision is made.
Now you have to choose one out of four colors.
No real pressure here.
The second decision is made. And you are feeling good.
The next decision is about the storage size.
128 GB, 256 GB, 512 GB, and 1 TB.
Who needs 1 TB? And who pays 1.829 € for it?
But 128 GB looks a little bit meager, doesn’t it?
You are taking a ton of the picture and shooting some videos. With a little bit more storage, you could
document more about how your mushrooms are growing.
And here is the kicker.
Going from 128 GB to 256 GB costs only 120 € more.
To make sure you are making the right choice, you compare your findings with the difference between the 256 GB and the 512 GB, which is 230 €. Na, 230 € is not justified. Let’s go with the 256 GB version.
As you currently have no iPhone to exchange, you are now a proud future owner of a brand-new iPhone – for 1.369 €.
Do you remember the starting price?
It was 1.149 €.
Using small decisions and adjusting the prices of the other options, you ended up paying 220 € or 19% more, leading to a hefty revenue increase for Apple.
But the price is not everything.
A study found out that the shelf price counts only 35% of the perception.
50% of our sales are driven by the store price image shoppers carry around in their heads. Meaning even if your prices are lower than that of your nearest competitor, what matters is if you are in your customers’ minds perceived as more expensive or not.
How could this be?
Researchers found out that the store design, the materials used, the layout, meaning how you move through the store, how you place your products, what colors you are using and if music is played, and what kind of music played influences the perception of your company way more than the price itself.
Meaning all these factors and some more are creating an image in the mind of your customers about you, your company, and your products, which they are using to assess the prices of your products.
If done right, your customers are buying more from you.
Talk to you in the next one on how you can use what we learned so far to crush it on the next farmers’ market.
Sources
[1] Levrini, G.R.D.; Jeffman dos Santos, M. The Influence of Price on Purchase Intentions: Comparative Study between Cognitive, Sensory, and Neurophysiological Experiments. Behav. Sci. 2021, 11, 16. https://doi.org/10.3390/bs11020016, https://creativecommons.org/licenses/by/4.0/
[2] https://alphaideas.in/wp-content/uploads/2020/05/popcorn.jpg
[4] https://www.apple.com/de/shop/buy-iphone/iphone-13-pro
[5] https://www.bain.com/insights/how-grocers-can-improve-shoppers-price-perception/
Recommendation
Part 1
