Set Price Anchors with Price Adjacencies

When deciding whether a price for a particular item is about right, shoppers often pay attention to prices of adjacent items on the store shelves, the ecommerce screen, or the restaurant menu. But the effect isn’t always what you might expect.
     Researchers at Singapore Management University and Korea University showed each participant in their project a set of pictures of car models. Then each participant was asked to estimate for one of the car models the relative expense. “How expensive is this car compared to the prices of all car models a person could buy?”

• When the model was previously completely unknown to the participant, the product adjacencies had an assimilation effect. That is, if the adjacent set consisted of expensive cars, the participant’s guess was that the previously unknown model was expensive. And if the surrounding set consisted of inexpensive cars, the participant’s estimate was a relatively low figure.
• When the car model was familiar to the subject, but the participant considered themselves a novice regarding cars, there was a contrast effect. That is, if the overall set was of expensive cars, the price estimate for the familiar car got lower. When the overall set was of inexpensive cars, the price estimate for the familiar car got higher.
• Participants who were familiar with both cars in general and with the specific model shown to them were not influenced much by the price images of the adjacent cars.

     Here is the resulting advice for you:

• When introducing new products or brands, establish in the shoppers mind what they should pay by placing adjacent items that carry the desired price image—low-priced to luxury-priced.
• When featuring a product likely to be thoroughly familiar to your shoppers, emphasize the high quality by having adjacent products that carry a price image lower than that of the target product. For shoppers not expert in the product category, this tends to raise the prestige accorded the product. Depending on other factors, this can cause increased sales or an increased willingness to pay more. For shoppers expert in the product category, these product adjacencies won’t lower the amount the shopper is willing to pay.

Click below for more:
Move the Customer to Accept Higher Prices
Prime Customer Interest with Adjacencies