Present Price Increases as Percentages

Based on their findings, researchers at University of St. Gallen recommend that retailers justify price increases by telling stories which dramatize the benefits of shopping with the retailer. Fill the story with as much detail as the shopper’s attention span seems to allow, since the detailed recitation distracts the shopper from concluding the salesperson is being manipulative.
     Experts suggest also including in the stories some rationales for the price bumps. Principal among the reasons which shoppers will consider fair are increased costs to the retailer from suppliers. Explain that you need to increase your prices when your supplier increases their costs to you. Adapt the following to fit your style: “When our suppliers increase their prices to us, we need to pass those increases on to the customers so that we can stay in business and continue to serve shoppers like you and employ the people like me.”
     Studies at Aalto University find it best to state increases as percentages (“We’re increasing our price by 10% because of a 10% increase in supplier costs”) rather than precise dollar amounts (“a $10 increase) or a statement without a quantity (“a price increase”). This works well as long as the price increase percentage stated to the shopper is not greater than the stated supplier cost increase. Consumers tend to consider as unfair price increases which seem to boost the retailer’s profitability.
     Because a retailer’s educated pricing of an item will take account of considerations beyond just supplier cost, stating the retail price increase and supplier cost increase in percentages allows for raising the profit margin without appearing to be unfair. Another of the studies indicated that people generally find it easier to attend to the percentages instead of the base value dollar amounts. Store shoppers appreciate simplicity in decision making. Still, in exploiting this fact, take care not to exploit the shoppers.
     People are especially clumsy at accurately evaluating percentages when the percentages are combined instead of compared. With surcharges, the order in which the percentages are presented makes a difference. Consider the example of a baker who charges $17 for a standard-sized cake, levies 10% more for a large cake, and an additional 5% for a custom design. If the second surcharge comes as a surprise to the consumer, that second discount has more influence than the first in the shopper’s perception of pricing pain.

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