Friday, October 19, 2012

Strengthen the Price-Quality Link

For years, consumer behavior researchers have recommended to retailers that, when presenting prices to the customer, start with the highest and end with the lowest. Researchers at Hong Kong University of Science and Technology had participants rank prices of hotel rooms. Some were asked to rank from highest to lowest. Others were asked to rank the prices from lowest to highest. After completing the task, participants were asked to say how much they'd pay for a hotel room.
     Those who had ranked prices from highest to lowest were willing to pay an average of $19 more than were those in the lowest-to-highest group. The first group also estimated the average price of a hotel room to be higher.
     Yet, any experienced retailer knows the “high to low” effect doesn’t always work. Often, the shopper picks the alternative which was presented most recently, and that’s the lowest priced one. Or—although it’s happening less often these days than it did in the past—the shopper selects the one priced in the middle of the range as a comfortable compromise.
     What makes the difference in the result of the “high to low” tactic? Prior research discovered that one factor was decision pressure. The “high to low” order is more likely to result in a willingness to pay more when the shopper is busy and is taking lots of information into consideration before buying.
     Now research from University of Colorado and Korea University concludes that a necessary condition is the consumer’s belief that higher-priced alternatives are almost always of higher quality. With shoppers holding this belief, when a range of product choices were presented in descending price order, study participants chose, on average, higher-priced options. When the alternatives were presented in ascending price order, the people tended to choose lower-priced options.
     One way you can strengthen the price-quality link is to allow modest expectations of discounted products in your store. Research at Israel's INSEAD and at Stanford University confirms that when people buy products or services at what they consider to be deeply discounted prices, they tend to end up feeling that the benefits are less than if they'd paid full price. They love having gotten a discount, but they don't have as much love for the product or service.
     Deliver full value to every customer. But encouraging customers to believe, "You get what you pay for," can be to your benefit.

Click below for more: 
Guide Choice by Sequence of Presentation 
Allow Modest Expectations of Discounted Products 
Move the Customer to Accept Higher Prices

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