Monday, November 16, 2015

Get Price Hike Irritation Over With

More often than not, retailers will impose price hikes less frequently, but in greater amounts, than price drops. Still, there are plenty of exceptions. This practice, which economists have named “Rockets & Feathers,” occurs about 70% of the time.
     Why not all the time? Probably because experienced retailers have come to realize that the Rockets & Feathers method is most successful in certain situations. Studies based at University of Seville identified two of the factors, saying it works best:
  • With the more expensive items within a product category at that particular store
  • When the consumer will be highly involved in use of the item rather than using the item without much conscious thought
     For items fitting these circumstances, get the pain associated with price hikes over quickly. Raise prices as infrequently as you can, and when you raise them, be sure it is by an adequate amount.
     Those are the rockets. Also remember the feathers. Do not drop prices too severely. It’s better to offer frequent smaller decreases.
     Researchers at Northwestern University and Massachusetts Institute of Technology created a merchandise catalog listing 86 products, 36 of which were discounted. In one version of the catalog, the discount averaged 34%, while in the other, it averaged 62%.
     The greater discounts led to more demand in the short-term. That did not necessarily mean higher profitability, since the dollar amount of each sale was less. More important, though, were the longer-term effects: Customers who had recently purchased one of the items that now was going at a 62% discount were upset. They subsequently bought much less than before, and this effect lasted beyond one and a half years. Sales dropped most severely for loyal customers. The researchers called this a “boycott effect.”
     Does the boycott effect still operate if shoppers expect to see big discounts on items, such as after Christmas? When the researchers tested this out with a clothing retailer, sales did not drop as dramatically as in the first study, but still, there was a 4% drop.
     Consumer behavior research at Northwestern University and Massachusetts Institute of Technology finds that lowering prices gently and with precision is a good way to ensure customers who visit your store often will continue to trust your pricing. Use of the word “feathers” to describe this pricing strategy fits nicely in another sense, too. One meaning of “feather” is to hit softly and precisely.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Feather Pricing Changes with Precision
Drop Prices Slowly
Strengthen the Price-Quality Link
Sharpen Your Price Image

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