“Buy three and get one for free!” “Today only: 40% off!” “Get five for $5!” Do these sound familiar? They probably do! But this is not a surprise: pricing is not just the action of sticking a price tag on a given product. Pricing is actually part of the whole marketing and retailing processes. Not only do companies and retailers want to sell the things they produce and put on their shelves by advertising them and making them easily available, but they also give a fairly important share of attention to choosing how to price their items in order to maximize their sales. Price consultants are even hired nowadays. If such emphasis is put on grabbing the attention of consumers, there must be a reason…
The most common practices
A 2010 report by Ahmetoglu, Fried, Dawes and Furnham sheds light on a number of common pricing practices, which we are so used to that we barely can notice they are part of some intentional strategy. The report, which is entitled Pricing Practices: Their Effects on Consumer Behaviour and Welfare defines various pricing practices and reviews the literature about their effect on the habits, behaviours and well-being of consumers.
The main practices mentioned in the report are the following:
– Drip pricing (or partitioned pricing) is the practice of only showing costumers one part of the actual price upfront. The rest of the price is revealed through the buying process (i.e.: an additional charge for this compulsory element, another fee for paying with a credit card, etc.).
– Reference pricing is a means through which retailers show a given product’s current price against another price, which is generally considered to be the “original” one, or the “normal” price for that item.
– The use of the word “free” is yet another way of attracting the consumer’s attention by suggesting that he or she will get a freebie if he or she purchases another product in the first place.
– Bait pricing is the practice of attracting consumers with a discount but to invite customers to buy another version or brand of the product due to a lack of units of the one that was advertised at first, for instance.
– Complex pricing strategies make it really hard for people to measure how one price compares to another; volume offers (2 for 1), multi-part pricing (an item sold in different parts that are individually priced) and advertisements that promote a price that is dependent on various clauses are all complex pricing practices.
The effect of pricing practices
The above practices – you probably already have figured it out – are not innocuous. They indeed paint prices in glowing colours, which can mislead consumers in their choices. The report Pricing Practices: Their Effects on Consumer Behaviour and Welfare offers many examples of scientific studies which have proved the efficiency of these pricing strategies: they are profitable for companies and retailers, but can be disadvantageous for consumers. For instance, the presence of a reference price can lead customers to overestimate a given deal and to decrease their intention to search for other options.
A 1981 study by Blair and Landon, for example, demonstrates that the consumers exposed to a reference price thought their savings were 75% higher than the savings estimated by another group of consumers that had not been exposed to a reference price. Another study conducted in 2003 by Kopalle and Lindsey-Mullkin showed that consumers are prone to believing pricing claims even when they are 200% higher than their expectation in the first place.
There is also evidence that the bait approach works fairly well in the sense that people whose attention is grabbed by a glittering price tag tend to buy another item at the same store in cases when the one that was advertised is actually not available anymore. Complex pricing practices also apparently have an effect on the choices of consumers: a 1990 study by Blattberg and Neslin demonstrated that volume offers (i.e. 2 for 1) increased sales by 12% across many brands when compared to single-unit promotions!
Do some research!
Although price tags may not necessarily intend to mislead customers in every case, it is scientifically proven – as we just saw it – that pricing practices influence the desire of people to buy stuff. And of course, in some cases, it is unfortunately not in their best interest to do so. One of the most efficient strategies people can employ to counter common pricing practices is to do some research: by looking on the Internet, calling different store or visiting various places, they may quickly realize that the reference price they saw at the first store they visited was actually much higher than that suggested by other stores… or that buying 5 tomatoes for $2.99 is more expensive than the usual price per pound! One ought to stay alert!
About the author:
Alexandre Duval is a blogger for Standard Life, a company that offers multiple products to plan your retirement properly.