Reconfigure Your Own Endowment Effect

With the increasing popularity of virtual goods, you would do well to rethink and reconfigure your endowment effect as a retailer.
     The “endowment effect” refers to people placing a higher value on objects they own than equivalent objects that they do not. Among other consumer behaviors, it helps explain why people resist selling used items at a price others will find attractive and why people hesitate tossing foods with an expiration date from last week when they wouldn’t eat the same food at a friend’s house if the expiration date has passed.
     The endowment effect is set off when the purchaser takes physical possession of the product. In a brick-and-mortar store, this often occurs before the customer pays for the product, as they grasp the product to place it in the shopping cart or as they carry it to the cash/wrap.
     With ecommerce—as with phone and mail orders—the purchase occurs before physical possession. Researchers at California State University-Sacramento found that when a direct marketing customer has confirmation of payment and shipment, there are signs of the endowment effect, but it is not at its strongest until the customer is holding the product.
     It’s natural to think about the customer experiencing the endowment effect and about it applying to physical goods. What about the retailer experiencing it, and what about virtual goods? Do you overvalue virtual goods? According to a recent StorefrontBacktalk article, it’s likely you’ll be called upon to set a value attractive to the customer for ebooks, ring tones, video games, rights to use cloud software, and other virtual goods from you.

• What, if anything, should you charge the purchaser for the rights to loan that virtual good to someone else?
• Should you consider the loan as allowing the other person to preview the virtual good and therefore become a potential customer? Should you reward the person doing the sharing, such as by giving them a discount on a subsequent purchase?
• What fee structure should you set for resale by the customer of virtual goods they’ve purchased from you? Unlike with physical goods—such as a hardcover book—the physical characteristics of the goods don’t suffer from being a used item. In fact, if you’ve provided upgrades of the virtual good, the value may be even greater at the time of resale.

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Purge Expired Products
Consider Having Resale Merchandise

Fine-Tune Your Social Couponing

“Social couponing” is a promotion tactic in which a substantial discount is offered to consumers who are told the offer is activated only when a certain number of people sign up for it online. Restaurants, educational services, and salons/spas have been the most frequent users of social couponing.
     The logic of social couponing is that, even if the retailer loses money on each coupon transaction, users of the coupon will be working to get loads of their friends to give the retailer a try. The profitability from social couponing depends on convincing the right kinds of coupon users to come back soon and often.
     Rice University researchers report that about 40% of retailers who have used social couponing during the past year say they would not do it again. The major complaints were that coupon users too often failed to buy anything beyond the face value of the coupon on their visit and/or didn’t come back to make a purchase at regular prices.
     Still, this leaves the majority who said their results were positive enough that they might give social couponing a try in the future. Here are shopper psychology tips on fine-tuning social couponing so that you profit:

• Establish reasonable expectations. Social couponing draws bargain hunters. If discount prices are a marketing point for your store, fine. If your criterion of success is that people spend more than the face value of the coupon, make that a condition of the coupon use.
• On the bill you present, state the discounted price, but state the undiscounted price more prominently. There are a few reasons for this: It builds appreciation in the customer for the value they’ve received. It reduces expectations that the service they’ve received is worth less than the price you’ll expect them to pay next time they come. And in a restaurant or spa, it encourages the customer to give a tip based on the undiscounted price. This keeps your staff supportive of the coupon program. In turn, supportive staff make the coupon redeemer’s experience memorable so they’ll want to return and bring along other people.
• Be sure your services to your current customers aren’t compromised by services to the coupon customers. Tell your current customers about the coupon offer and encourage them to enroll online for their next visit. Have sufficient staff, which often means increasing your staffing.

Click below for more:
Keep Discount Conditions Strict Enough
Customize Your Discount Coupons
Give Coupons Early and Proudly
Offer Exclusive Price Discounts Cautiously
Have Unannounced Discounts on Common Purchases

Purge Expired Products

When someone buys a product from your store, you’d like them to experience that product at its best. If the product is perishable, you’ll be concerned with expiration dates.

• Laws may require you to purge expired products from your shelves. Last week, Walmart agreed to pay the State of New Jersey $775,000, part of that to settle charges that it sold infant formula and non-prescription drugs beyond their marked expiration dates. Such sales are forbidden by federal law. Some state laws forbid sale of certain food items after their expiration dates. The publicity that could follow charges of violating national, state, or local laws would leave your target audiences with a bad taste regarding your business.
• Your customers who take home a product with a date on it can easily be confused as to what the date indicates. “Expiration date” means the last date a food should be eaten or used. But you customers might also encounter “sell by,” “best if used by,” “guaranteed fresh until,” the often cryptically-formatted “pack date,” and the “born on” seen on beer bottles. Confusion can irritate customers. Prepare your staff to answer questions about what these expiration and freshness dates mean.
• Encourage purchasers to return for exchange any unused product that goes beyond its expiration date, even if purchased months ago. Researchers at Baruch College find that after someone acquires a product and works through any initial regrets, they tend to hesitate discarding the product after an expiration date. As a result, they’ll use an inferior product, becoming less likely to purchase that sort of item and brand from you in the future.
• As I said, you’d like your customers to experience perishable products at their best. For some customers, “at their best” means they intentionally wait a while until the price goes down substantially. I’ll call this the Day Old Bread Effect. although it’s by no means limited to food items. The Syms stores’ discounting policy is an example. Stamped on the back of each price ticket on women’s dresses is the date the item was placed on the sales floor, and stamped on the front is a series of dollar amounts in descending order. Every ten selling days, the price moves to the next lower amount on the ticket.

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Promote Sales from Product Recalls
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Make Your Shoppers Feel Smart

Bundle Pricing, But Limit BOGOs

Would you pay the Taiwanese equivalent of $1,000 to purchase the case for an Apple iPad? An ecommerce retailer there says the case is currently her best-selling item, although the price is more than 25 times what it would cost in most other parts of the world.
     Ah, but there’s a secret: A Bloomberg Businessweek article reports that when your case is delivered, inside is a free iPad with 3G wireless and 64 gigabytes of memory. You see, the sale of Apple iPads by Taiwanese retailers is currently banned. The most straightforward way to sell them is to charge for the case and give away the iPad.
     This seems the ultimate in BOGOs—Buy One, Get One. Purchase one item and get an additional item at no additional cost. However, this also seems the ultimate in weird applications of BOGO promotions. It works only because the value of the iPad is so well recognized. Researchers at University of California-Berkeley, University of Southern California, Stony Brook University, and Indiana University find that if a product is seen by the shopper as being offered for free as part of the BOGO, the shopper devalues the worth of the product.
     Aside from BOGOs, bundled pricing—in which an amount is charged for a combination of products, services, and/or fees—can work out well for you. But in announcing bundled pricing to consumers, clearly point out the benefits to them. That’s important because researchers at Harvard University have shown how the opposite of bundled pricing—called partitioned pricing—is better at highlighting the benefits of the individual components of the package.
     One benefit of bundled pricing that shoppers find especially attractive is the ability to choose. Consider cable TV services. As a rule, the customer must buy a package of channels rather than picking only those specific ones they plan to watch. A New Yorker article earlier this year discussed how consumer groups are objecting to the enforced purchase and how an effective response from the cable companies is to highlight the value of being able to select from many choices, including some the customer wouldn’t have known to sample otherwise. Economists refer to this advantage as “option value.”

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Use Promotions with Lasting Payoffs
Move Shoppers Beyond Fixating on Price
Use Partitioned Pricing to Highlight Benefits

Clarify Item Advantages via Pricing

Present item costs as benefits that the product or service brings in units important to the shopper. This helps move your shoppers beyond a fixation on the item price so they can more accurately assess the value of the alternatives and more often consider purchasing items that bring you a higher profit.
     Researchers at London Business School and European School of Management and Technology gathered some examples of this tactic:

• Embrex (now Pfizer Poultry Health) offered poultry breeders inoculations by the egg.
• General Electric priced airline engines by the power delivered per hour.
• Goodyear dealers priced tires according to how many miles they were expected to last.
• Explosives supplier Orica charged customers according to the fragmentation of the rocks extracted.

     Here are the steps to clarifying advantages via pricing for items you sell:

1. Ask your customers and prospective customers about the benefits they find in using the product or service for which pricing has become an issue. Questionnaires, focus groups, interviews, and customer diaries are the chief methodologies for gathering this information. Be sure to ask customers about their beliefs, their emotions, and their intentions when it comes to the product type you’re investigating. To help ensure accurate results, don’t limit yourself to one or two of these three.
2. Analyze what you’ve gathered. The most revealing, and therefore most valuable, discoveries will come from statistical techniques like conjoint analysis, factor analysis, and cluster analysis. However, since these techniques require use of an outside consultant, you might choose to employ less sophisticated looks at the data.
3. Word each main benefit in terms of units the shopper would use or process: fertile eggs, engine power, road miles, rock fragments, and so on. The units might be different for different target populations or for different roles the shopper takes on. In the role of household accountant, the consumer might be assessing cost per serving, while in the role of parent, the consumer might be assessing cost per set of daily nutritional requirements. If you’ve used the statistical analysis techniques, they’ll help you in this segmentation.
4. Set pricing in terms of the units.
5. Announce both pricing and benefits using the units.
6. Over time, regularly analyze how well this pricing structure is meeting your profit objectives, and make any necessary adjustments.

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

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Ease Customer Pain About Item Prices
Move the Customer to Accept Higher Prices
Know Your Potential Customers' Intentions
Use Cluster Analysis on Customer Data
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Analyze What Your Shoppers Say and Do

Give Shoppers Permission to Spend More

Suppose I ask your shoppers to think about the slogan “Save money. Live better,” and then the slogan, “The good life at a great price.” My question for you: Does thinking about those slogans make a shopper likely to spend more money or less money, or does it have no measurable effect on spending habits?
     You might recognize that the first of those slogans has been used by Walmart, and the second one by Sears. Both store names are associated with thriftiness. But I’m asking your shoppers to think about the slogans, not the store names.
     The answer to my question of you comes from research at University of Miami, Hong Kong University of Science and Technology, and University of California-Berkeley. A set of studies found that thinking about either of those slogans increases the amount of money people are willing to spend during a shopping trip. In fact, the amount was twice as much after thinking about the slogan than after thinking about the store name. With the store name, the average amount study participants were willing to spend was $94. With the slogan, it was $184.
     What’s going on? In my opinion, a good explanation for the findings is that the slogan gave shoppers permission to spend money by shifting their thinking toward a longer-term perspective. “Live Better” and “The good life” was enough to lift shoppers’ eyes from their day-to-day expenses.
     Researchers from Princeton, University of Chicago, and Digitas-Boston surveyed people entering a grocery store. One set were asked, among other things, questions about the contents of their wallets. This nudged their thoughts towards the money they had to spend in the short term. Another set of shoppers were asked instead about the different types of financial accounts they had in their investment portfolio, such as checking and savings accounts. This got those shoppers thinking long-range.
     What difference did it make? Well, the second group spent 36% more than the first group while shopping.
     In advertising and selling, regularly remind your shoppers about living the good life. State large prices not just as the total, but also as the cost per month over the expected useful life of the product. Offer extended payment terms. Have shoppers gaze over the horizon so they’ll subconsciously give themselves permission to spend more.

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Give Customers Long-Range Perspectives
Influence Subconsciously, Not Subliminally

Pitch the Synergy of Multifunction Items

Why would your shopper want a toothpaste that only cleans their teeth when they could buy a paste which also freshens their breath? Why did Samsung Electronics gear up to get into the standalone camera business when combination camera/phone/GPS/gaming devices are available in abundance?
     Well, there’s a variety of reasons. But one answer from researchers at Northwestern University is that although shoppers are attracted to multi-solution products, a number of those shoppers believe such products are inferior in each of the capabilities when compared to single-solution products. The product which promises to be a jack of all trades risks being seen as a master of none.
     Carrying multifunction products has an advantage for you. You can reduce the total of different items you need to have in stock. If you’re out of the toothpaste that just cleans, you could point the shopper toward the one that cleans plus more. But this works out only if the shopper accepts the quality of the combination offering.
     The Northwestern University researchers found that one way to overcome the inferred inferiority is to set a premium price on the multifunction product. The extra cost helps convince shoppers that the product can indeed do more.
     But in a retailing environment where consumers are highly price sensitive, you might choose to take a different approach. Research findings from Singapore Management University and Korea’s Kyung Hee University suggest a technique: Describe to the potential purchaser how well the various functions work together. Instead of focusing on the different capabilities, focus on the added benefits that comes from the synergy.
     The Singapore/Kyung Hee research indicates that this is especially useful with items the shopper considers to have a high level of technological performance. It is more important with smart phones than with toothpaste. In fact, the researchers concluded that at low levels of technological performance, people overwhelmingly preferred the combination products.
     Because cultures vary in the thresholds consumers set for high technology, the value and effectiveness of pitching the synergy differs by culture. Assess what works with your customer base.

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

Click below for more:
Set Healthy Margins on Multi-Solution Products
Notice Customers’ Cultural Aspirations

Offer Exclusive Price Discounts Cautiously

When you tell a customer they’re receiving a price discount, they’ll build good will toward your store. If you add that the discount isn’t available to every other customer, the good will might be even greater. Or your announcement might make the customer uncomfortable. Shopper psychology research finds that exclusive price discounts operate in strange ways:

• Be consistent and be ready to explain the reason for the discount. Otherwise, the customer might get angry, thinking that your store pricing is highly arbitrary or even discriminatory. In year 2000, Amazon implemented a pricing policy in which some shoppers were offered a discount of 30% on a set of DVDs, while others were offered a discount of 40%. When customers discovered in online chat rooms what was going on, they had challenging questions for Amazon.
• Research findings from Baruch College, University of California-Berkeley, and San Francisco State University indicate that the sort of reasons acceptable to Western and Asian consumers differ. With consumers having a Western mindset, it’s best if the reason is demographic (“We give a 10% discount to senior citizens”) or marketing-determined (“We give a 10% discount to first-time purchasers”). For consumers having an Asian mindset, it’s best if the person concludes they earned the good fortune (“You are lucky enough to have selected an item for which we’re giving an extra 10% discount today”). When the reward appeared to be unearned, the East Asian recipients in the studies often felt it produced a menacing imbalance.
• Researchers at University of Louisville and Iowa State University found that there was one group for whom the offer of exclusive price discounts was especially likely to produce an abundance of gratitude toward the store: Men who had done business with the store before.
• These same researchers found that exclusive discounts are most effective in the long-term when the shopper concludes that they were not pressured into making the purchase, but rather view themselves as acting in an independent way.

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Earn Good Will in Giving Discounts
Have Unannounced Discounts on Common Purchases
Tailor Loyalty Programs to Customer Culture

Keep Discount Conditions Strict Enough

I’m home today, it’s lunchtime, so interspersed with my keystrokes writing this posting, I’m taking bites from a delicious pastrami sandwich. I got it for free at a local sandwich shop using a two-for-one coupon I’d clipped out of the newspaper. Or maybe it was my wife’s sandwich I got for free.
     I’m not telling you the name of the sandwich shop because I wouldn’t want you to look them up and blab about my secret: See, I’m so accustomed to the two-for-one coupon that appears each week in the newspaper that I won’t buy a sandwich there unless I have the coupon. Oh, I give excuses for being that way. I tell myself that although the sandwiches are great, they don’t have enough counter help. Since I have to wait, I deserve a free sandwich, I mumble.
     But the truth is that if the coupon offers weren’t so frequent and liberal, I wouldn’t wait for a coupon. I’d be spending more money there. The truth is that a discount coupon can hurt sales.
     Researchers at Massachusetts Institute of Technology gave promotional coupons to customers who came into a convenience store. For some, the offer was, “Spend at least $6 and get $1 off.” For others, it was, “Spend at least $2 and get $1 off.”
     Customers lived up—or down—to the goal set by the retailer’s coupon. Those required to spend at least $6.00 did that, while those required to spend only $2.00 didn’t exceed that amount by much. To make sense of this, it’s important for me to tell you something else: The researchers knew that purchases at the convenience store averaged about $4.00. So it appears that the “Spend at least $2” customers were actually spending less than they would have without the coupon.
     Now, I see a methodological problem with this field study. It’s possible the “Spend $2” people grabbed their 50% rebate and ended up with such good will that they got in the habit of visiting the store quite frequently, spending lots more money there. Whether that sort of thing happens is something you might want measure in your store.

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Customize Your Discount Coupons
Give Coupons Early and Proudly

Move Shoppers Beyond Fixating on Price

Are your shoppers getting stuck at the point where they look at the prices of items? Are they failing to move beyond that point to even notice much about the other measures of value to them, such as effective life of the product and how well the product is customized to their needs and characteristics?
     Using results from their marketing studies, researchers at London Business School and European School of Management and Technology suggest four alternatives for grabbing and redirecting the shopper’s attention. Here is my adaptation of the four alternatives to the world of the retailer:

• Only pennies a day. State the price in terms of units of use. A tire retailer could state prices in terms of how much it costs per 1,000 miles. An insurance agent could point out that the superior policy costs only fifty cents per day more than the bargain policy. A related technique is to get customers thinking about how much money they can afford to spend in the long run. Researchers from Princeton, University of Chicago, and Digitas-Boston found that focusing on the long-term raised by about 35% the amount the shopper was willing to pay.
• You pay for quality. Catch the curiosity of the shopper by highlighting that the product carries a high price. Then say why. Research at INSEAD-Israel and at Stanford University confirms that when people buy products or services at what they consider to be unusually low prices, they tend to end up feeling that that the benefits are less than if they'd paid a higher price.
• A piece at a time. Partitioned pricing presents an item’s cost as a main price plus one or more additional charges. This highlights benefits. The London/European researchers give the example of IKEA charging separately for the table top and the table legs.
• Buffet pricing. Northwestern University researchers find that consumers are more likely to purchase certain types of items when presented with a group of similar alternatives all at the same price. The reason is that parity pricing—which is what this is called—eases the decision process. Parity pricing is most effective as a selling technique with items where the prospective buyer considers the purchase to be particularly risky. That might be because the buyer believes the price to be high, which involves financial risk.

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

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Give Customers Long-Range Perspectives
Allow Modest Expectations of Discounted Products
Move the Customer to Accept Higher Prices
Use Partitioned Pricing to Highlight Benefits
Offer Customers Basics Plus Add-Ons
Use Parity Pricing to Help Customers Decide

Sweeten Scarcity with Ample Warning

A most fundamental law of economics is supply and demand. When a product or service desired by consumers is in short supply, you can get a higher price. But there’s sometimes a price you pay for charging higher prices.
     Suppose major flooding hits your area, resulting in a shortage of flashlight batteries on your shelves. If you raise prices on your remaining stock, you might make out like a bandit in the short run, but be thought of as a crook in the longer term. Customers who pay more for a scarce item may end up developing ill will toward the retailer.
     Researchers at Stanford University came up with a surprising twist to all this, plus a suggestion for retailers to dissolve the ill will: Some participants in a study were given a gift, while the rest were denied the gift. Each participant was then asked how much they’d be willing to pay for the gift if purchasing it at a store. The average price was about 45% higher among those denied the gift than among those having gotten it. No surprise so far. The sort of denial experienced with scarcity raised the perceived value.
     Next, those participants denied the gift earlier were given the gift. Now every participant had the gift, and each of them was asked if they’d like to trade the gift for another item, which the researchers had determined was of about equal value. Of those who got the gift at first, about 40% said they’d trade. Among those denied the gift at first, about 80% said they’d trade. Denial led to dislike.
     In a follow-up study, the researchers promised some participants they could get Guess sunglasses if supplies lasted. Later, they were told the stock had run out. Those denied the Guess sunglasses ended up rating Guess watches lower and Calvin Klein watches higher than the other study participants, who hadn’t expected to win Guess sunglasses. The dislike spread to other products carrying the same brand name.
     There were a few more twists in the Stanford findings. Putting it all together, the researchers suggest that retailers can financially profit from pricing scarce items higher, but for longer-term good will toward the store, the retailer should give ample notice to customers. Warn customers about any shortages. Tell them how long you expect the shortages to last. Suggest alternatives they could purchase until the shortages ease.

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Show Fair Pricing By Contributing
Follow a Big Sales Event with a Smaller One
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Expect Shoppers to Expect Nonexistent Discounts

“Opulence. I has it. I like the best…. But I also like savings zee money.” So speaks the Russian rich guy in a DIRECTV video ad. And that brief monologue nicely reflects what you should aim for now with the segment of your target markets suffering recession fatigue. Offer them a sense of luxury, but in a way that they feel they’re getting extraordinary savings.
     Then they may very well want to brag about the savings, even if this means lying. Researchers at University of Alberta, University of Calgary, and University of British Columbia concluded that when people believe they might have been able to wrangle a better deal on a product or service, this conclusion leads to them feeling a threat to their self-esteem and their self-image. They fear not only that others will see them as being suckers, but also that they’ll see themselves that way.
     The researchers found that people are especially likely to lie to coworkers about the good deals they got. Since a natural follow-up question from a coworker is, “Where did you get such a good price?,” you—the retailer—might expect some people to come into your store these days looking for discounts you’re not offering. They were lied to.
     How nice to have them come to your store! So be ready to turn confusion about pricing into conviction to make a purchase from you:

• Have each employee on your sales floor and at the checkout area carry copies of your store’s current ads and discount announcements. If a customer thinks the ad said something different from what it really said, it’s quick and easy for the employee to straighten out the problem. Having the ad itself takes it away from being customer versus store employee. There’s the objective source both of them can look at.
• Offer the shopper an opportunity to purchase merchandise that is actually on sale. The sale should be on what the skeptical shopper will find attractive. If the discount is on merchandise different from what the shopper believes was offered in a bigger sales event, the amount of the discount does not need to be as deep as what they had in mind when they entered your store. They feel they’ve still gotten a good deal.

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Stand Ready to Sell Luxury
Head Off After-Order Regrets
Have Staff Carry Copies of Store Ads
Follow a Big Sales Event with a Smaller One

Reassess Your Pricing Assumptions

Here are some updates to the research-based tactics in Retailer’s Edge about pricing. (I described most of the tactics in chapter four, “The Price is Right.”)

• Reassess the sensitivity of your target audiences to price discounts now. Consumers in countries such as Japan that in the past generally considered discounting to indicate inferior merchandise have become much more likely to use coupons and be attracted by promotional pricing. You might do a formal study of the pricing assumptions for your major product categories by employing tools like the Van Westendorp questions. A less formal look would come from tallying and analyzing the results of different price discount systems you’ve tried out.
• Analyze the reasons for changes in reactions to markdowns and then use this information to adjust your pricing strategies. For example, with consumers in Japan, the changes in attitudes seem to be due to the prolonged economic downturn and the burgeoning availability of price comparison technologies.
• In Retailer’s Edge, I described the research that said consumers pay more attention to percentage discounts than to the dollar-or-cents (or other currency) amount of the discount. There’s evidence this is changing so that dollar-or-cents-off is increasingly attractive.
• In Retailer’s Edge, I presented the compelling evidence for using just-below pricing, such as prices that end in $.99 rather than $.95. A chief exception to the rule, I said, was when your major selling point is low prices. In this case, the odd endings, such as $.43 and $.87 project the message, “We’ve trimmed every last penny off the price.” Now because consumers have become much more price sensitive, consider modifying the just-below rule. Those who are discount shoppers are reacting to $.99 prices by saying, “Are you trying to fool me into thinking I’m spending a dollar less?,” and status-seeking shoppers might consider a price ending in $.99 cents to be low-class. And most consumer mindsets are vacillating between discount and status, with the middle continuing to shrink.

     The consumer behavior findings which lead to what I'm recommending here are not as time-tested as those backing up what’s in Retailer’s Edge. I present the updates to you as cautions. That’s why I say in the title of this post you should reassess, rather than say you should necessarily revise, your pricing assumptions.

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Answer Van Westendorp Pricing Questions
Analyze the Details About Your Markdowns
Round Prices to Whole Dollars for Better-Best

Motivate Shoppers Using Their Time Benchmarks

When it comes to money, researchers at Colorado State University and Washington State University confirm that a price of $3.99 seems noticeably less to a shopper than does a price of $4.00. There’s a motivational dividing point between $3.99 and $4.00.
     When it comes to time, there are also important dividing points. Researchers at University of South Carolina offered a movie pass to theatre patrons one summer. For about half of the patrons, getting the movie pass required completing a survey, which took about seven minutes. So that the researchers could compare time with money, a matching set of patrons were offered the movie pass for $3—no survey completion required.
     Now another wrinkle in the experimental design: About half the tickets in each group were marked for use later that summer. The others were marked for use the following fall.
     What difference did this make? For those who spent the $3, the percentage of fall ticket usage was the same as that for the summer tickets. People put out the money, and they were going to get their money’s worth. But among the patrons who earned their ticket by spending seven minutes of time, the season of usage made a big difference. People were significantly more likely to end up using the ticket if marked for the summer than if marked for the fall.
     It appears that when it comes to time, benchmarks like a change in the season go into defining benefits and value. Money spent in the summer can be redeemed for a reward in the fall, but time spent in the summer tends to lose value as the calendar rolls over to the next season.
     If checking on product or service availability, you’ll need to find out the actual date the customer wants the item. But whenever motivating the shopper by describing product or service benefits, determine whether they define that date as soon or as the future.
     Consumers pay attention to different features depending upon when they plan to start using the purchase. If usage is planned for soon, ease of use is especially important. If usage is planned for the future, distinctive features are especially important. The difference between soon and the future is defined by the consumer’s particular time benchmarks.

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Sell Ease of Use to Last-Minute Shoppers
Explain Delivery Time as Quality/Talent

Answer Van Westendorp Pricing Questions

When setting prices, you could be missing opportunities to increase your profitability: You might be able to charge more without hurting sales or to increase sales greatly by lowering a price point a notch.
     Redoing all your pricing at once could easily overwhelm you and your staff. It’s also probably unnecessary. But periodic pricing reviews and adjustments that you roll through your product and service inventories are an essential part of running your business.
     Setting prices properly on unfamiliar brands or items is especially challenging as well as especially important. Set the price too high and you’ll chase away the early adapters you’ll need in order to spread the word. Set the price too low—especially if you don’t clearly call it an introductory offer—and you burn a low value for the product into the brains of shoppers.
     A useful template for price reviews is based on a set of four questions developed by Dutch behavioral economist Peter van Westendorp and used by a great many retail pricing specialists. Here’s my version of the four Van Westendorp questions, each beginning with the words “At what price would shoppers consider this product or service to be…”

• …inexpensive enough that they’d think hard before deciding not to purchase it?
• …expensive enough that they’d think hard before deciding whether to purchase it?
• …so inexpensive that they’d think there might very well be something wrong with the item?
• …so expensive that they’d immediately reject the idea of buying the item?

     Pricing consultants have developed techniques for getting this information from people with a minimum of bias. If your business is using the services of such a consultant, have them tell you how they do this. When doing your own analyses, answer the Van Westendorp questions not only by watching the sales results, but also by watching and listening to people shopping in your store and on your ecommerce sites. Also, to the degree you can, watch and listen to shoppers in other places that sell what you sell.
     An analysis of answers to the Van Westendorp questions gives you ranges in which to set your prices for maximum profitability.

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

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Round Prices to Whole Dollars for Better-Best
Allow Modest Expectations of Discounted Products
Advertise Tensile Pricing Selectively

Reexamine Retail Redlining Temptations

“Retail redlining” occurs when disenfranchised groups of consumers systematically receive lower quality goods and/or are charged higher prices for equivalent merchandise than is true for other groups. Researchers at Howard University and University of Texas-Austin give examples like these:

• Refusing to set up stores in poor neighborhoods whose residents would buy what the store offered
• Maintaining different pricing structures for outlets in areas having certain ethnicities
• Habitually showing African American customers merchandise inferior to what is shown to white customers

     It’s not that these businesses are saying, “You, black people, get out of my establishment.” They’re saying, “Come on in so we can rip you off.”
     As a retailer, you might possess justified business reasons for practices that some would call retail redlining: Doing business in certain areas costs more because of high shoplifting rates. Business insurance is harder to get because no fire stations are nearby. Certain groups of customers habitually ask to see the good merchandise because they can’t afford the excellent merchandise.
     But regularly reexamine any such assumptions to be sure it isn’t subconscious prejudice. Being a retailer, you’re continually bombarded with information, much of it carrying conflicting implications. As abundant amounts of information cascade toward you, you probably could find support for almost any opinion you choose to have. If we want to see reasons for retail redlining, we’ll be able to pick out the data to build our case to ourselves.
     In addition, once we consciously or subconsciously retail redline, our brains start working to selectively interpret new information we receive. The more aware we become of engaging in this controversial practice, the greater our drive to pull out data we can twist around to prove to ourselves we’re making the right decisions.
     So straighten out what’s twisted. In his book The Fortune at the Bottom of the Pyramid, C.K. Prahalad of the University of Michigan pointed out how serving the socioeconomically disadvantaged could build profitability.

• Smaller package sizes can make quality products accessible.
• Delivery services can build sales among those without private transportation.
• Talking signage and gracious sales staff can influence shoppers who have limited literacy.

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Give Low-Income Customers Dignity

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.

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Move the Customer to Accept Higher Prices
Prime Customer Interest with Adjacencies

Recognize Opportunities to Learn

Almost 35 years ago, an article titled “Why Cute Commercials Sell” appeared in TV Guide. That was my first published article about consumer psychology. It was based on a small research project I’d done while in graduate school at Stanford University.
     Over succeeding years, I worked in a number of areas of psychology, but always especially enjoyed projects in organizational and consumer psychology and the opportunities to help others learn. Then a few years ago, Art Freedman, whose family owns American River Ace Hardware in Folsom, California, and who is a renowned retailing consultant, invited me to collaborate with him in helping retailers improve their profitability. A major outcome of that collaboration was Making Money Is Not Illegal, Immoral or Fattening, a book I coauthored with Art.
     Today is Art’s 60th birthday. It’s an occasion for me to publicly thank him for all that he has generously taught me about the world of retailing within and outside the U.S. Art’s knowledge of profit margin management is thoroughly instructional. His explosive enthusiasm, unconditional optimism, and ready-fire-aim approach to business have kept me alert.
     Art’s benchmark birthday also provides me an occasion to remind you of the importance of recognizing the learning opportunities all around you as a retailer. You’ve mastered a great deal from formal training, I imagine. But have you made best use of the education and inspiration available to you from people not formally designated as trainers? Your staff? Your customers? Your vendors? Your retailing colleagues? Your retailing competitors? Being taught by their successes and their setbacks. By their strengths and their shortfalls.
     In Making Money Is Not Illegal, Immoral or Fattening, Art and I write, “If you’ve been in retailing for, let’s say, twenty years, do you have twenty years worth of learning or do you have one year of learning repeated twenty times?” Actually, in this case, those are Art’s words. He said it, and I inserted the commas. But the learning links don’t stop there, of course. As you’ll see when you look at page 34 of the book, Art also says he was taught that advice by a very smart Australian named John.
     Which brings me to the last tip for today: Just as you recognize all your opportunities to learn, be sure to also recognize your opportunities and responsibilities to teach others.

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Know Margins on Your Products
Drill Down to Do Item-Level Pricing
Turn Competitors into Partners
Destroy Excuses for Inaction

Make It Easy to Choose Two

Can’t decide between the peach and the cherry ice cream for your cone? Then have a scoop of each.
     Researchers at Yale University find that by encouraging a shopper to buy more than one of the available alternatives, a retailer makes it less likely the shopper will turn around and walk out of the store or abandon the ecommerce shopping cart. When presented with a large set of similarly attractive options from a product category, consumers who feel constrained to select only a single alternative become tempted to put off the purchase.
     So make it easy for the customer to choose at least two.

• For the consumer, the main downside of the double scoop is the additional expense. Give a discount for the second item. Set a package price that results in a lower per-item cost, such as six pairs of socks, two each of the three most popular colors. Waive the shipping fee.
• As another approach to pricing, offer tasting packages at a higher per-quantity price. On the menu, include an entry for six small glasses of beer—one each of six unusual brews—at a price that’s more per ounce than if a customer buys a large mug of one brew. The customer pays extra for the value of avoiding indecision.
• In your offerings of items which are available in an assortment to satisfy tastes—such as colors of a sweater or flavors of yogurt—anticipate that customers will want to buy more than one variety. In face-to-face selling, say something like, “You probably noticed that this sweater comes in other colors as well. Which of those colors might you want to look at?” In signage, list the available flavors along with the text, “How many different flavors do you like?” In ecommerce, have a small square on the screen for each available color and instruct the customer to click on each square for which they’d like to see if the item is available in their size.

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

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Be Ready to Help Customers Explore Alternatives
Compare Features to Ease Overload

Show Off New CPGs on Store Shelves

Seeing an unfamiliar consumer packaged good (CPG) product on the shelf beside competing products is a greater impetus to purchase than is seeing the product in a media advertisement. That's the conclusion from a survey of knowledgeable consumers conducted by retailing consultants Market Force Information. And in agreement with research findings from Envirosell, an especially effective placement for newly introduced CPGs in on end caps.
     Certainly, you'll get the most bang for your buck when all the promotional and selling elements—from advertising to building customer recommendations to shelf placement—work together. But because your resources are limited, you'll want to deploy your plannning, your funds, and the rest with care in order to deliver maximum impact.
     The Market Force survey findings also suggest finer grain strategies for selling newly introduced CPGs:

• Recommendations by family and friends are influential when the product is coffee or tea.
• Money-off coupons work well with cereals.
• Although media advertising is relatively among the least effective elements in driving sales, it does carry weight with the consumer when it comes to health/beauty products and cleaning products.
• Proper shelf placement counts the most overall, but is the best of the best for snacks and beverages.

     Market Force also used some of the survey findings to strengthen the well-researched argument that CPG shoppers often buy on impulse, so they are highly susceptible to in-store influence. The respondents said they use shopping lists as a memory jogger, but about 35% said they'd make an unplanned purchase of an item that looks interesting, and about 90% said they'd add an item that looks like a bargain.
     The implication for you in selling products unfamiliar to your shoppers: Make them distinctively interesting and offer noticeably low prices on them.
     A limitation in this Market Force survey is that it depended on self-report. Consumers often do not end up doing what they say they're going to do, and they often answer researchers based on what they think they should have done rather than on what they actually have done.
     However, the findings are a valuable reminder that conclusions we make about ways of selling unfamiliar products can benefit from customizing the tactics to the type of product.

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Introduce Featured Products as Customers Enter
Advertise What Products Look Like
Encourage Specifics & Criticism in Word-of-Mouth
Show Impulse Purchase Items for Groups
Sell Impulse Items to Serve
Customize Your Discount Coupons
Give Coupons Early and Proudly