Saturday, June 1, 2013

Bid for Higher Margins Using Competition

What a consumer is willing to pay for an item is influenced by the perception of what others are willing to pay. Intertwined with this is how the consumer thinks about the others. If they’re considered the consumer’s competitors, a higher selling price will fly. This applies to all sales you’ll make. The effect is seen most clearly with auction sales, where potential purchasers are bidding against each other.
     In a series of simulated auctions, researchers at University of Connecticut, University of Pittsburgh, and Ohio State University provided different types and amounts of information to the bidders about the other bidders. With some, the profiles were designed to make the others seem similar in age, gender, and location. With a second group, the profiles made the other bidders seem different. To a third group of study participants, the researchers gave no information about the bidders. Members of this third group were left to speculate.
     When the bid results were analyzed, it turned out that the second group—where the others were seen as different—were willing to pay more than the first group—where the others were seen as similar. This finding might seem counterintuitive. Wouldn’t we give more attention to what others similar to us are willing to pay than to what others different from us accept as the right price?
     Yes, in general that’s true. However, people are more competitive with outsiders than with insiders, and the competition takes over, especially in individualistic societies like most in North America. This finding applies to store sales beyond auctions: If you describe other potential buyers of an item as similar to the shopper who is in front of you, that shopper might be more willing to purchase the item because of social approval considerations, but probably won’t be as willing to pay as high a price as if the potential buyers are seen as outsiders.
     How about the third group in the study—those who were given no descriptions of the other bidders? People in the third group also were willing to pay more than those in the first group. When left to speculate, the consumers seemed quite ready to assume the others were different from them rather than similar to them. In my opinion, this finding applies less well to non-auction sales. The format of an auction brings out a competitive spirit more than does a fixed-price sale.

Click below for more: 
Encourage Customers to Pay What’s Right 
Lead Your Customers Through Changes Gradually 
Redirect with Evil Envy 
Plumb for Consumers’ Desire to Slum 
Respect Customers with Fixed Pricing

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